Advanced Insurance Planning – 3 Key Concepts

Between now the end of the year, we’ll be focusing on three key concepts of advanced insurance planning. These are widely applicable, straightforward concepts that financial advisors can easily raise with clients and prospective clients as they work to meet those year-end numbers. These are:

IRA max

It’s RMD season, so to speak, and there are quite a few people who don’t want or need that money. Tax laws force them to make withdrawals, and as a result, they have to pay additional income tax on that distribution.

One way to mitigate that tax would be to use all or part of that RMD that the client doesn’t need for their current or future standard of living, and leverage that by taking out a life insurance policy. Naming a spouse or other family members as the designated beneficiary can lock in an inheritance for future generations.

Leveraging gifts to family members.

Most people want to leave a legacy for their children, grandchildren or other family members. Life insurance is a great way to secure an income-tax-free legacy of a fixed amount.

Clients can lock in quotes of a pre-determined, set amount of life insurance to pass on, and check that box so they don’t have to worry. They can then go on using their investments and income for their own purposes, knowing their legacy is secure.

Leveraging trust assets. 

If you’re working with clients who have an executive trust that they either created or are the beneficiary of, consider utilizing life insurance as a way to leverage those trust assets into an income-tax-free death benefit that would fund that trust.

In all three of these concepts, clients don’t necessarily need to have a trust drawn up by an attorney – these can be a quick sell for permanent life insurance. Trusts can come into play, especially for clients who are concerned about estate taxes, but most people don’t currently have federal estate tax concerns due to current laws.

People often wonder how life insurance can have such potential advantages over other financial products, in particular with tax benefits and the hedge on early mortality. The simple answer is that Congress and the president have made it that way. Tax laws favor life insurance with a potential triple advantage: tax-deferred growth, tax-free withdrawals (subject to limitations and proper funding), and an income-tax-free benefit. This is a lot of what we’ll be focusing on at Covr for the rest of the year. 

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