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Life Insurance Premium Financing

August 15th, 2018 No comments

It’s too often improperly presented, implemented and managed.

I’ll start out by saying that I’m not opposed to premium financing. I’m simply a strong advocate for making sure it’s understood and done right. That being said, many of these proposals are not understood and can be misleading.

Fundamentals of Financing

First, it’s a good idea to look back to the general fundamentals of financing. Financing comes into play when someone needs or wants to purchase an asset of something but doesn’t have the money or the liquidity to pay the entire purchase price. Financing fills this void, not to get something that’s otherwise unaffordable.

We do this day in and day out. We finance our homes, cars, businesses, equipment and more. Generally, we can afford these things but the money isn’t readily available. Additionally, we often finance things we do have the money for if the financing provides a positive arbitrage to be taken advantage of. For full post, click here…

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Letters of Explanation – Trustee Liability

July 31st, 2018 No comments

This letter is to the management of a law firm.  Multiple attorneys act as trustees for clients.  There has been no program of management regarding these policies and I was called in to suggest a plan.  I was also able to look at redacted policy information and could see at a glance that many policies are underperforming and headed towards failure.  A decision was made that the attorneys deal with it on a case by case basis as they see fit.  I see this as a grave mistake.

Dear Firm Management:

It’s been a while since we’ve talked and the last time we did you mentioned the attorneys who are acting as trustees will be deciding independently on how to proceed.

I understand this but as we discussed earlier, if things go wrong (which they have and will) and result in a lawsuit, case law has shown that an independent third party is critical to a successful defense.  I am currently involved in four litigation support and expert witness cases, some going after trustees and some defending trustees. For full post, click here…

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Letters of Explanation: Whole Life Term Blend

July 25th, 2018 No comments

This letter is to a client explaining why the term blended whole life policy on his mother is failing:

Dear Mr. Client:

Unfortunately I still do not have what I requested from XYZ Life but I was able to do some work anyway.  Also, what I requested may end up being sent directly to the policy owner, which is you as trustee, at the address of record.

You had asked about potential income tax consequences regarding this policy and I believe there would be none as it looks like the gross cash value is less than what I calculate the basis to be in the contract.  I am waiting on a formal basis and gain calc from the company. For full post, click here…

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Success Story: Another Second Opinion

July 20th, 2018 2 comments

The attorney for a billionaire family called me one day at the behest of a mutual acquaintance. The clients were looking to procure $100,000,000 of new coverage and simply wanted a second opinion.

The couple worked closely with a large bank and their advisor had brought in the bank insurance specialist. I went in with no preconceived notion as I have seen many similar situations and in some I supported the transaction and others I stopped it. success-stories-logo

In this case the existing advisors had been doing a very good job. They seemed sincere and had looked at many angles. I am not sure how excited they were that I was brought in but they had to deal with me. I quickly realized they are among the “good guys” and all I did, after understanding the goals and objectives, was to challenge a few things, brought a couple of ideas to the table and offer some opinions. In the end, what they moved forward with was substantively what they had planned before I was in the picture. For full post, click here…

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Giving Life Insurance to a Charity

June 13th, 2018 No comments

Make sure clients understand rules before taking action.

Life Insurance and associated tax issues are complicated. When you throw charity into the mix, it can get downright diabolical. It’s not as much that the rules are so complex, it’s that they don’t make sense to the typical taxpayer/donor.

Recently, I had another call about appraising a life insurance policy donated to charity. The one thing these calls have in common is that the policy in question was donated a number of months ago and only well after the fact did the policy owner understand the “special rules.” Very few people understand the tax and deduction rules before they make the gift. This also leads me to believe that whomever the donor is dealing with at the nonprofit in question doesn’t really know the rules either. For full post, click here…

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Is Working For One Life Insurance Carrier Ethical?

May 23rd, 2018 1 comment

In some cases, agents may be crossing the line.

The life insurance world is certainly a lot different today than it was decades ago. Rather than just whole life and term insurance, there’s a wide menu of products available. Some products are driven by interest rates, some by market returns and some by indexes. Some are guaranteed while other aren’t.

Distribution models vary widely. There are internet marketing models, traditional agencies and independents who work though brokerage general agencies (BGA) that represent multiple insurance carriers, among others. One can get life insurance from financial advisors, banks, those predominantly in the property and casualty and health insurance market, traditional agents, etc. It seems the most unique way to get insurance today is through a dedicated life insurance agent. Times change. For full post, click here…

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Why Fund a Buy-Sell Agreement?

May 14th, 2018 No comments

Let’s take a look at the numbers.

Occasionally, I run into the business owner who questions the merit of funding a buy-sell agreement with life insurance. Some people are so anti-insurance they’ll say no regardless of what’s put in front of them.

I understand this sentiment. We’re sold on so many things so regularly that our automatic defense mechanism is often to say no. I’ve been there. However, there have been a number of times when I caught myself doing this and then challenged myself to listen, and every once in a while I came away with a different mindset. For example, this happened when I discovered that a commercial lawn service would treat my lawn several times a season for less than I was paying for the product to do it myself. For full post, click here…

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Defined Benefit Life Insurance

April 17th, 2018 No comments

Clients need to pay attention, as the world has changed
By Bill Boersma

In my ongoing effort to educate people on how life insurance works, I seek out new analogies and examples on a regular basis.

Along with others, I’ve written exhaustively about underperformance and management of life insurance. Charlie Ratner is fond of saying it isn’t underperforming, it’s under-explained. I completely agree. If your car runs out of gas and stops along the side of the road, is it really underperforming? Life insurance policies need gas, and if they don’t get it, they stop too. Fortunately no one at the dealership needs to explain this to society because a critical mass of people understand this and help educate others as they come along. For full post, click here…

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Life Insurance with an Infinite Return?

April 9th, 2018 No comments

Warn clients not to bail on policies.

An advisor recently called me regarding a client who has a $2.5 million second-to-die guaranteed universal life policy. The contract was put in force in 2012, so those who are familiar with the market understand that was near the bottom of the pricing curve. Nonetheless, the clients want to bail on this policy, purportedly due to the change in estate tax laws.

Given the fact that this policy is an unduplicable contract with a premium so relatively modest they probably can’t notice it, and noting the sunset provision and probable estate tax uncertainty moving forward, I’m not sure this is a wise choice, but it’s not for me to say. Maybe the kids have been ticking them off lately. For full post, click here…

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Life Insurance in Today’s Estate Tax World

March 22nd, 2018 1 comment

What to do with existing policies
By Bill Boersma

As might be expected, I’m getting more calls lately from advisors, on behalf of their clients, asking what should be done about life insurance no longer needed for estate liquidity purposes.

I generally answer the same way every time; “Let’s evaluate the policy and then talk about options.”  Depending on the client situation, the first issues I discuss with the advisor is what happens when the current estate tax law sunsets, and does your client really want to bank on what the tax laws will be, 17, 28 or 42 years from today?  With life insurance, it seems many people will jump on a reason to walk away. For full post, click here…