MKA Executive Planners Blog

MKA offers concierge underwriting for its high net worth investors, business owners and highly-compensated professional and executive clients.  Concierge underwriting is hands on and handled on a secure and personalized basis by us and our associates.  Here is a recent example.

After tax supplemental compensation plans funded with life insurance offer a hybrid arrangement that reduces the complexity and expense associated with non-qualified deferred compensation plan. These plans are a great benefit for a company to offer to non-owner key executives to retain and reward them for their valuable services. They are especially attractive in pass through entities such as Subchapter S corporations and tax exempt organizations.

If you are a person with a need for large amounts of life insurance, whether for tax planning (income or estate), liquidity planning, estate balance or income, here are 5 questions you should investigate before entering into a transaction.

While driving to see a client not too long ago, I heard a commercial for a local investment advisor on a local radio station, ostensibly a recording of some thoughts on how his firm might plan for a young couple in the event the husband was to die in the near future.  Both husband and wife were employed. They had two young children.  

Life insurance has many tax favored advantages, the most significant of which are the potential tax-free cash accumulation, tax-free withdrawals and tax-free death benefits.  In addition, in the event of an untimely death, the beneficiaries can use funds from a life insurance policy to maintain their current lifestyle, for retirement purposes, funeral and burial expenses, probate, estate taxes, daycare, and any number of everyday expenses.  Funds can be used to pay for a beneficiary’s education or to pay debts or a mortgage.  Recent product innovations include a long term care benefit rider which allows the owner access to policy cash values or death benefit for long term care needs of the insured.

The one thing I know for certain about life insurance illustrations is that the non-guaranteed assumptions are always wrong.  The economy does not proceed at a steady growth rate, yet that is what illustrations show for non-guaranteed assumptions.  Life Insurance is an important financial instrument that needs to be monitored and reviewed on a regular basis.  Without proper review and adjustment, if necessary, the policy owner may be faced with unexpected “sticker shock.”

Did You Know You May Have Both in One Product?

When it comes to discussing the pros and cons of Long Term Care, there will always be opposing views depending upon the age and outlook of the participant.  For the purposes of this article, I will assume age 50.  On the one hand, there is the “optimist” who believes that he or she will forever remain in good health and never need long term care and/or life insurance.   On the other hand there are the “realists” who understand that life and health are unpredictable, and much can happen in a span of 20 to 30 years.

Transamerica recently began sending letters to certain policyholders who purchased policies that were issued between 1987 and 1998.  The letter advises the policy owner that the monthly deduction rates (i.e., the cost of insurance charges) will be increased to cover the company’s expectations regarding its future costs of providing coverage and that the increase could be significant.  This alone may cause ongoing increased charges to cash value accumulation and the policy to lapse earlier than was previously illustrated.  For these policy owners a policy review is the only way to determine the impact of the change imposed by Transamerica.

Life insurance products may be designed to maximize death benefits or cash accumulation.  From an estate tax perspective, the need for the death benefit design has become less important.  The reason is that other than the state estate tax exposure, most people are no longer concerned with the federal estate tax, since the federal estate tax exemption is currently $5,340,000 per person.  The new wave of life insurance policies are trending toward a “cash accumulation design” for retirement income, with a number of enhancements that improve cash accumulation.