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
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
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
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
Reclassified to Preferred Rates
Premium reduced to a little over
$5000 per year
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