Transcript Document

Bulletproof Your Lifestyle: Insurance Strategies
for Legal Professionals
Your partners in profit and efficiency
 Insure Things You Can’t Afford to Lose
 Some things are insured because an
outside source (lender) requires it. For
example, mortgage lenders require you
insure your house.
Types of Insurance to be discussed today
 Life Insurance
 Disability Insurance
 Health Insurance
Life Insurance
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How much do I need?
What is the right type?
What determines cost?
What is the best type?
How much do I need?
 “Math” component
 Emotion component
Math Component
500,000
Capitalized Income
Need
Debt
2,000,000
Emotion Component
 Math tells you minimum needed
 Rest is a personal decision
Types of Life Insurance
 Term
 Yearly Renewable Term
 Level Term
 Decreasing Term
 Permanent
 Whole Life
 Universal Life
 Variable Life
 Equity Indexed Life
Yearly Renewable Term
 Premiums increase annually as you age
 Death benefit remains level
 Must review at least every 3 years to
keep cost effective
Level Term
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Premiums level for guarantee period
Guarantee periods 5, 10, 15, 20, 25 years
Death benefit remains level
Cost effective for longer term situations
Decreasing Term
 Premium is level for term
(20 to 30) years
 Death benefit declines as you age
 Typically used for debt
 “Dinosaur”
 Not very cost effective
Whole Life
 Premium is fixed for life of policy
 Can be structured to be “paid up”
 Cash value develops to keep premium
level until death
 Designed to be in force until death
Universal Life
 Flexible Premium Adjustable Life
 Minimum, Target, Maximum Premium
 Develops cash value like whole life but
with premium flexibility
Variable Life
 Fixed premium like whole life
 Develops cash value
 Cash value can be directed by owner
into sub-accounts
 Greater return potential
 Greater risk
 Direct market exposure
Equity Indexed Life
 Fixed premium
 Develops cash value
 Crediting rate on cash value is
determined by indirect exposure to
market
Combinations
 Universal Variable Life
 Universal Equity Indexed Life
What Determines Cost
 Type of Insurance
 Underwriting
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Super Preferred
Preferred
Standard
Rated
Sex
Smoking
Family History
Height/Weight
Personal Medical History
Blood Profile
HOS
What is the Best Type?
 Facts determine this
 Good and bad versions of every type
 Tool belt
 Use right tool
 If the death benefit is needed for a
specific period of time
 Especially at younger ages
 Term
 If the death benefit is needed until
death occurs, whenever that may be
 Some form of permanent
 Individual facts determine which type
of permanent and how designed
Examples
 Working professional couple, young children,
still building personal wealth
 Term
 Policy to fund ILIT for Estate Settlement
 Permanent
 Significant age difference in couple
 Either
 Depends on facts
Designing Permanent Insurance
Premium
Cash Value
Death Benefit
Build Cash
Value (i.e.
Deferred
Comp
Maximum
Maximum
Minimum
Permanent
Death
Benefit
(i.e. ILIT)
Minimum
Minimum
Maximum
Why Design to Build Cash?
 All policies have a fixed cost component
 If you want to build cash value efficiently, you
must “overfund” the policy within IRS
guidelines
 80% of S&P 500 that have deferred comp
plans informally fund them with overfunded
permanent life insurance.
 Creditor Protection, Tax Shelter, Self
Completing
Disability Insurance
 Short Term (STD)
 Pays up to 90 days
 Long Term (LTD)
 Pays after 90 days
 Pays income if you are sick or injured
and can’t work
Group or Individual
 Group
 Lower initial cost
 Guarantee issue
 Short premium guarantee
 More limits on contractual provisions
Group or Individual
 Individual
 Higher initial cost
 Medically underwritten
 Long term premium guarantee
 More liberal contractual provisions
Components of Disability Insurance
 Elimination Period (EP)
 This is your “deductible”. How many
days before benefits accrue.
 Benefit Period (BP)
 How long are benefits paid; 5 years,
Age 65, Lifetime.
 Monthly Benefit
 Dollar amount of total monthly benefit.
Generally 60-70% of gross.
Components of Disability Insurance
 Own Occupation Period/Definition
 Should protect occupation for benefit
period. Should be fairly short and
simple, i.e. “Unable to do the main
duties of your own occupation…”
 Residual or Partial
 Provides a supplement to earned
income being generated while working
part time.
Components of Disability Insurance
 Cost of Living Adjustments (COLA)
 Be wary, very expensive rider, rarely is a
factor in most claims. Only applied while on
claim.
 Indexed Benefits/Update Benefits
 Adjusts monthly benefit amount each year
automatically to account for inflation.
 Guaranteed Increase Option
 Guarantees right to increase monthly
benefit in the future based solely on
financial qualification regardless of
current health.
For Most Clients
 Combination of Group and Individual is
most cost effective
 Structure premium payments so
benefits are tax free
 Combo approach can cover a greater %
of income
Disability Overhead Expense
 Primarily for professionals
 Pays overhead expenses while they are
disabled
 Premiums are deductible
 Benefits are taxable but used to pay
deductible expenses
 Keep practice operating for return or
sale
 Structure with short EP (30 days) and
short BP (12 to 18 months)
Health Insurance
 Group
 Individual
Group Health
 Can be guarantee issue
 Can be written as low as 2 or 3
people on plan
Individual Health Insurance
 Underwriting more challenging
 Focus on keeping premium as low
as possible
 Young and healthy larger deductible
HSA’s
 High Deductible
 Coupled with tax favored account
that you own and control
Applications of Insurance Products
 Life Insurance
 Income to family
 Income to business (key person)
 Stock redemption/Buy out
 Estate liquidity
 Deferred comp/SERPs
Disability Insurance
 Income to self/family
 Cover overhead expenses
Case Study
 Orthopedic Surgeon paying over
$12,000 per year for $5,000,000 of
level term
 Underwriting classification, standard
Table B, due to congenital heart issue.
 Condition is NOT life threatening
 Construct case with treating physician’s
support
Case Study Outcome
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Reclassified to Preferred Rates
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Premium reduced to a little over
$5000 per year
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Challenge underwriting class until
certain it is the best offer
Case Study Maximizing Disability
Coverage
Monthly Pre Disability Income
$20,000
In order to maximize
coverage, individual MUST be
in place before Group
At very high incomes, may
have to add specialty line
(Lloyds of London) to cover
income
$10,000
Group LTD
$10,000
Individual LTD
Thank You
Larry W. Dykes, CLU, ChFC, AAMS
317.708.0383
[email protected]
SkyView Partners
1050 E. 86th Street, # 55-C
Indianapolis, IN 46240
http://www.linkedin.com/in/larrydykes