jerry rhinehart, cic, clu, chfc, rhu panama city, fl top five uses of life insurance
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Jerry Rhinehart, CIC, CLU, ChFC, RHU
Panama City, FL
Top Five Uses of Life InsuranceTop Five Uses of Life Insurance
1 Advantages of Life Insurance
2 Create an Estate
3 Fund a Business Transfer
4 Pay off the Home Mortgage
5 Key Person Insurance
6 “Tax-Free” Retirement Replacement
Learning Objectives
1
Taxation of Life Insurance The Premiums are Not
Deductible
4
Death benefit free of income tax
Benefit will be in Estate of Owner
Gifted policy could result in Gift Tax
Cash Values grow Tax Deferred –
FIFO
What (and how important) is Relationship in our business?
As the agent you want to Build A Wall around your clients. This is especially important for a P/C agent.
Working with an Insured (life) or a Beneficiary should lead to
additional sales … including P/C.
Why Should Your Agency Why Should Your Agency Sell Life Insurance?Sell Life Insurance?
$100,000$300,000
CashResidenceMutualsQ-PlansBusiness
A View of Your “Stuff”
$3,000,000$1,000,000
$250,000
$4,650,0008
Everybody has an estate
_________. Everybody’s estate
is either __________ … or it is
_________. ___________ can
solve either problem.
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Losses That Can Impair an Estate
7
Property Losses
Casualty Losses
Disability
Death
Loss of Employment
Return of Premium (ROP) TermHow to sell ROP using the “TWO ACCOUNTS”
conceptBrad Walton - Nearest Age 38 – Pref Plus / Non-Tob$1,000,000 Level Term
Lincoln Benefit Life Insurance Company
TrueTerm 30 Year Level TrueTerm 30 Year Level ROP
$1,390 Annual ($122 per mo) $2,410 Annual ($211 per mo)
Death Benefit - $1,000,000 Death Benefit - $1,000,000
30 Years - $41,700 Total Prem 30 Years - $72,300 Total Prem
Cash returned at Age 68? Cash returned at Age 68?
- 0 - $72,300
“you gotta have the piece of
paper”
Create an Estate
Fund a Business Transfer
Life Insurance Can Be Used To...
9
“you gotta have the piece of
paper”
Create an Estate
Fund a Business Transfer
Life Insurance Can Be Used To...
9
What the Remaining Owners Really Want!
Full Control of the Business
Minimum Payment for the Business
No Interference from the Deceased Heirs
A Smooth and Prompt Transfer
Continuing Line of Credit
The Cost of Borrowing
10
To borrow the money and buy-out the heirs will be extremely
burden- some … and expensive
No partner – lost expertise
How much profit do you have to earn to pay back the bank?
Death Disability Termination Pre-arranged Price / Formula First Right of Refusal
10
Key Provisions of a
Funding the Buy-Sell
Personal Funds
Sinking Fund
Life Insurance
Installment Payment to Heirs
Borrowed Funds
What is your Role as the Agent Concerning the Buy-Sell
Process?
12
1 – Understand the Basics
2 – Know how life insurance
fits
3 – Motivate your client to take
action
Create an Estate
Fund a Business Transfer
Pay off the Home Mortgage
Life Insurance Can Be Used To...
13
Mortgage Amount - $200,000Mortgage – 5%Term - 30 yearsMonthly Payment - $1,073Total Payout (360 mo.) - $386,280
“How Much Are You Really Paying For Your House?”
14
How do we find our “Mortgage Pay-off”
prospects? All New Homeowner’s Applications
All New Commercial Property Insurance Applications
Talk with your Realtor friends
Check the Real Estate closing at the Court House
Permanent or Term Insurance
11
Term Insurance / Joint Decreasing
Permanent Life with Term Rider for Spouse – Cash
Value for Future Payoff13
Create an Estate
Fund a Business Transfer
Pay off the Home Mortgage
Key Person Insurance
Life Insurance Can Be Used To...
15
Various Methods for Valuation
Earnings Approach
Replacement Approach
Present Value Method
Seat-of-the-Pants Method
Insuring the Key Person
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Create an Estate
Fund a Business Transfer
Pay off the Home Mortgage
Key Person Insurance
Create a “Tax-Free” Retirement Fund Replacement For Loved-Ones
Life Insurance Can Be Used To...
17
Prior law left a lot to be desired regarding distributions from
qualified plans
Terms:
Required Beginning Date (RBD)
Required Minimum Distribution (RMD)
The date when a participant MUST begin taking their retirement money
IRAs – required at 70½
Non-IRAs – normally at 70½, but later is possible
A Roth IRA has no RBD for the account holder
The minimum dollar amount that can be taken by the account holder from all cumulative qualified plans
The amount taken is now subject to ordinary state and federal income tax
Penalty for under-payment – 50%
This year the account holder’s RMD was $40,000 … but took nothing.
The financial institution is required to “rat” you out! Now look what happens with the IRS:
This year the account holder’s RMD was $40,000 … but took nothing.
The financial institution is required to “rat” you out! Now look what happens with the IRS:
$20,000 penalty… that really
hurts!
18
Roll-Under … Now What is That?
Using Annuities and Life Insurance to greatly increase the ultimate payout ...
and with possible tax advantages.
- Take a distribution from all Q-Plans (maybe rolling to an annuity) and use to pay for life insurance.
- All payout will be income-tax (and estate tax) free when received by the beneficiaries … but only if the kids are NOT the beneficiaries of
the qualified plans!
18
Roll-Under … How Does It Work? Bob currently has his 3 children listed as
beneficiary of his $1.5 million in the Q-Plans
Bob – age 70 – qualifies for a $1.5 million life policy ($42,000 annual premium). (ILIT owns, pays and beneficiary)
Bob “rolls” all his Qualified money into an annuity and takes @$65,000 annually (taxable = @ $42,000 after-tax)
Bob names his favorite charity the beneficiary of his Qualified Annuity
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Roll-Under … How Does It Work? Upon Bob’s death … the charity receives the
remainder value of his annuity and his estate receives a tax deduction on his last tax return.
The kids receive NONE of the Q-Plan proceeds nor do they have any tax liability on these
proceeds.
Upon Bob’s death … the ILIT receives the $1.5 free of any tax.
Upon Bob’s death … each child receives – from the ILIT – $500,000 free of any tax.
An Example of PensionMaximization
RetirementBenefit Option
AmountPayable
Duration ofPayout
Option I $3000 Mo. LifeIncome
Option II $2800 Mo. Life / 10Yr. Certain
Option III $2300 Mo. Life / Life
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Using Life Insurance to Equalize an Inheritance
Dad owns business - $1,000,000 value
Daughter active in the business - being groomed to take it over
Son - not involved in the business
Dad dies - 50/50 to each child
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Using Life Insurance to Equalize an Inheritance
Dad owns business - $1,000,000 value
Daughter active in the business - being groomed to take it over
Son - not involved in the business
Dad dies
- 50/50 to each child
Term or Permanent
Term Life - short term solution ife - short term solution onlyonly
Permanent Life
WL - UL - VUL
Second-to-Die (if a couple)
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