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Laurence Williams

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Laurence Williams is a field support representative at LifePro Financial Services. He has spent nearly a decade in the financial services industry building meaningful relationships with advisors across the country and has helped to support and grow their practices each year. Williams has a broad understanding of the brokerage world as it pertains to new business, underwriting and sales. This deep understanding of the business has been instrumental in the value and support he provides for the advisors he works with. Williams can be reached at LifePro Financial Services, Inc., 11512 El Camino Real, Suite 100, San Diego, CA 92130. Telephone: 888-543-3776, ext. 3276. Email: Laurence@lifepro.com.

Enhancing Executive Retention Strategies Through Indexed Universal Life Insurance

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Businesses serve as the lifeblood of our economy, driving innovation and progress. In the intricate landscape of business, cultivating and retaining top-level executives is pivotal for sustained growth and success. As a financial advisor, you’re well aware of the multifaceted challenges businesses face in attracting and keeping valuable talent. In this article we’ll delve into a strategic approach that combines the power of life insurance with executive retention, offering you a dynamic tool to enhance your client’s corporate structure.

For business owners, fostering an environment that attracts, retains, and empowers top executives is a cornerstone of success. Traditional benefits like 401k plans, healthcare, and remote work options are common incentives. However, the integration of indexed universal life insurance (IUL) introduces a novel dimension to the spectrum of executive benefits. Recent studies1 by the Life Insurance Marketing Research Association (LIMRA) reveal that 29 percent of Americans with life insurance felt underinsured, while a staggering 59 percent lacked any insurance coverage altogether. This indicates a growing awareness of the value of life insurance in today’s ever-evolving economic landscape. While conventional policies such as term insurance are familiar, our focus rests on the dynamic potential of IUL.

Indexed universal life policies offer more than just a death benefit. They serve as a robust platform for retirement planning and house a range of tax advantages, including tax-deferred growth, tax-free distributions, and even provisions for long term care benefits. These features set the stage for our strategic framework, known as the Executive Bonus 162 plan.

The term “162 bonus plan” derives from IRS guidelines that permits employers to provide employees with bonuses in the form of life insurance policies. This innovative approach presents a winning formula for both employers and executives. Imagine a graph titled “Never Lose Another Employee.” It’s as straightforward as it sounds—an employer identifies a top executive for insurance coverage and, once approved, premium payments flow from the employer. In the event of the executive’s passing, the death benefit seamlessly transfers to beneficiaries free from income tax implications. The beauty of an IUL lies in its multifaceted utility. Executives can access the accumulated cash value and tax advantages, creating a comprehensive financial solution tailored to their needs.

Employers stand to benefit significantly from integrating the Executive Bonus 162 plan. Notably, this strategy serves as a powerful retention tool. By offering a comprehensive benefits package that includes tax advantages, retirement income planning, and a death benefit for their families, employers demonstrate a genuine commitment to their executives’ well-being. This personalized approach differentiates them from competitors and showcases their dedication to fostering a nurturing work environment. Moreover, the premiums paid into the policy are fully tax-deductible for the employer, creating a mutually beneficial arrangement. The plan’s implementation is streamlined, particularly in today’s climate. With accelerated underwriting programs, clients can secure substantial coverage without cumbersome medical exams or extensive documentation.

One of the most striking advantages of the Executive Bonus 162 plan is its customization potential. Unlike the blanket insurance advice often associated with group insurance, IUL policies can be meticulously tailored to suit each executive’s unique needs. This approach recognizes the individuality of each executive and resonates with the overarching philosophy of providing personalized financial solutions. One of the most compelling aspects of the Executive Bonus 162 plan is its pre-approval by the IRS. This solidifies its legitimacy and effectiveness, assuring employers of a strategically sound approach. While employers stand to gain substantially, let’s not overlook the advantages for the executives themselves. Executives can enjoy customized plans that can include grossed-up bonus payments to offset potential tax liabilities. Owning their policies provides them with control and flexibility, enabling them to harness the benefits of cash value growth, death benefits, and even optional long term care coverage.

As a financial advisor, you have a unique opportunity to guide businesses toward enhanced executive retention strategies. The Executive 162 Business plan, coupled with the dynamic capabilities of IUL, can reshape corporate dynamics by empowering businesses to attract, retain, and reward their top talent while securing the future financial well-being of their executives.

I encourage you to reach out to business owners to connect and explore the potential of integrating the Executive Bonus 162 plan into their corporate structure. By fostering collaboration and steering businesses toward strategic innovation, you play a pivotal role in shaping the landscape of executive benefits and ensuring enduring success.
Reference:
Life Insurance Sales To Match Pre-Pandemic Growth By 2022: LIMRA – Insurance News | InsuranceNewsNet.

How To Create Your Own Private Reserve Wealth Strategy

Business owners have long been considered by most to be the lifeblood of the American economy. They are what drive our economic growth. Successful business owners really embody three traits:

  • Business owners value the importance of protecting their assets.
  • Business owners value the importance of mitigating tax exposure and paying unnecessary taxes.
  • Business owners understand and value the importance of having access and use to liquidity and capital.

The good news is, although not every one of us may be a business owner we all have access to these principles and strategies within our own portfolio to create our own private reserves of wealth. One just so happens to be properly structured cash-value life insurance. Properly structured cash-value life insurance, when leveraged as your own private reserve strategy, can allow you the ability to make major purchases for big events in your life. It can also allow clients to have access to that cash if needed for unforeseen circumstances. Lastly, it allows clients to have access to position this as supplemental retirement income.

Now, one may ask, “What is needed for this strategy? Or is this a strategy for me?”

The first requirement is the need for life insurance. The second is that you must value the importance of financial protection. There are several benefits of owning a cash-value life insurance plan for your private reserve of wealth. The chart shows of the most common uses.

But what does it look like in action? We’re going to look at a client here by the name of Tom.

  • Tom is 35 years old.
  • He’s in great health.
  • He’s married with two young children.
  • Tom maxes out his contributions to his Roth IRA and 401(k) up to the four percent match.

Tom also understands that his 401(k) cannot be accessed until he is 59 1/2 and there could be times in his life that he may need access to capital right away. So, Tom decides to purchase a properly structured indexed universal life (IUL) policy. A properly structured indexed universal life policy allows the contributions to grow on a tax deferred basis, while allowing clients to access that cash on a tax-free basis. If a client were to pass away prematurely, the beneficiaries will have access to the death benefit tax-free.

In this example, Tom chooses to contribute $10,000 per year to his policy for 30 years. He decides to take out a $40,000 loan at the age of 45 to start a small business. After that loan, you can see that the cash value in the policy is still $68,000. Ten years later, at the age of 55, he takes out a $50,000 loan because he intends to put a downpayment on a vacation home. It is not until the age of 65 that there is enough cash value in this policy for him to now turn on his tax-free retirement income that runs to the age 100. If we now review the values at age 85, which is life expectancy, we can see the following:

  • At 85, Tom has contributed $300,000 over the life of this policy.
  • At 85, Tom has received $842,700 in tax-free income benefits.
  • At 85, Tom has a death benefit of $436,929.
    • Total Value of potential $1,279,629 tax free benefits.

There are some considerations with an indexed universal life policy. These policies are tied to an index and policy performance is important. In addition to policy performance, it is important that clients work with their trusted advisor to set realistic expectations in the form of illustrated rates and work to ensure that the policy remains on track each year by conducting annual reviews. There are an infinite number of ways to fund and structure these policies. However, it is advised to maximum fund an IUL policy, which means purchasing the minimum amount of death benefit and putting in the most amount of premiums that the policy will allow to avoid a Modified Endowment Contract (MEC).

If your clients value family protection, mitigating taxes, and having access to liquidity and capital, I encourage you to reach out to them to see if a private reserve wealth strategy is right for them so they can experience a similar success as Tom did in this example.

Three Steps To Protect, Save, And Grow Your Retirement Portfolio

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How would your clients finish the sentence, “Retirement to me is like…”? Is retirement like a death sentence or is it more like winning the lottery? How do you think these responses will impact someone who is considering retirement? We often use metaphors with our clients as they can be a powerful tool for empowering new and soon-to-be retirees to view their life after work under a new lens.

I’d like for us to take a moment to picture your retirement as your dream home. As you are considering building your perfect dream home, I’d like to take a step back and consider of all the steps that are involved in this extensive process.

Before any of the construction can take place, you need to identify where you want to live, including which states and cities you are considering. Do you want to be near the countryside with an open-range view, or do you desire being near the water? You can think of retirement in a similar way. Like a dream home, everyone’s view of retirement is a little different. It’s important to identify what you want your retirement to look like based on your ideal lifestyle. Most people, when asked, really want to be able to spend comfortably in retirement without running out of money. Success in retirement isn’t about the amount of assets you’ve accumulated, but rather the most efficient way to generate as much income as possible.

For now, let’s revisit our dream home.

Protect
The first step to building any home is to lay the foundation. The contractor and his team will prepare the ground, build the flooring, and start mixing the concrete. This is arguably the most important step to building any home. Without a solid foundation, the home will crumble.

In retirement, we often refer to the foundation as the protection phase. We want to maximize the number of guaranteed sources of protected income so that you set your retirement up with a solid foundation. Protected income is defined as:

  • Being guaranteed for life;
  • Backed by the government or financial institution;
  • Increases over time with inflation; and,
  • Increases each year you choose to start income.

Time Magazine was quoted as saying, “Securing at least a base level of lifetime income should be every retiree’s priority—at least if they want to live happily ever after.” (Kadlec, 2012)1

These 3 sources would be:

  • Pensions (which are backed by your employer);
  • Social Security (which is backed by the government); and,
  • Annuities (which are backed by a financial institution).

I want to take some time to focus on annuities. An annuity is a personal “Social Security-like” stream of guaranteed lifetime income from a top-rated insurance company. The reason it’s similar to Social Security is because you put money in—whether that’s in a lump sum or over a period—and in return, the insurance company sends you a steady paycheck every month for the rest of your life. Guaranteed. Similar to the government with Social Security, annuities are paid out through a financial institution that’s obligated—and regulated—to deliver on their promise to you.

Save
The next step in building our dream home is to secure the walls which will be the frame that will stabilize the house. With our solid foundation, we have secured and maximized our guaranteed income streams that are needed for essential needs such as living expenses, family support, and healthcare. Next, we want to look at how we can save and minimize taxation on our portfolio. Did you know that if you make $83,682 per year that you are responsible for paying 86 percent of the taxes in this country? (York, 2021)2 Once you enter retirement, your three biggest deductions will be eliminated:

Mortgage Interest;
Child Exemptions; and,
Qualified Contributions.

Let’s consider the three types of money, which are taxable, tax-deferred, and tax-free. Since we are looking to minimize our taxation in retirement, we are going to focus on tax-free money, which can be broken down into two popular strategies:

  • Roth IRA: The limitations that are in place for this year are $6,000. There’s also what they call a “catch-up contribution” for anyone 50 and older, which is $7,000. Another drawback to a Roth IRA is if your household makes more than $206,000 of combined income per year, you’re not even eligible for a Roth IRA! That’s right–you cannot contribute to this account! Why do you think that is? Well, if we think about it, the IRS makes their revenue from taxes. If you make that amount of income, you’re likely paying a fair amount of taxes and Uncle Sam wants to make sure the government gets that money! So, the people with the tax problem aren’t able to contribute to this tax-free account.
  • Indexed Universal Life: A “Roth-IRA-like” account with a unique combination of tax-deferred growth, tax-free distribution, and tax-free wealth transfer. What is great about indexed universal life is that when properly structured it doesn’t have any government restrictions!

Grow
The last step, but certainly not the least, is accounting for the time it’s going to take to properly put on and secure the roof. The grow phase. Similarly, the last step in retirement is that once we have taken care of our essential needs, identified potential taxation concerns, and minimized our taxes, it is now time to invest any surplus of assets we have and review the plan on an annual basis. Diversification is important regarding the amount of your total portfolio that is designated for growth as there is a “risk-reward element.” While it’s great to take advantage of a rising market, this portion will vary based on age and risk tolerance. Your growth assets likely should be balanced with options that may not have the same upside, but are less likely to be impacted by a market collapse.

In closing, proper prior planning prevents poor performance. The only way for a successful retirement or to build that perfect dream home is to follow the blueprint in these stages:

  • Protect (Lay the Foundation): By securing a base line of guaranteed lifetime income you can ensure that your essential needs will be met in retirement.
  • Save (Secure the Walls): Minimizing your taxation in retirement and contributing to tax free vehicles allows you to reduce the tax pressure on your overall portfolio.
  • Grow (Secure the Roof): Invest any surplus assets and review and manage your plan on an annual basis ensures that changes can be made if needed and your plan can remain on track.

If you want to take control of your retirement, I encourage you to reach out to your trusted financial advisor or strategic consultant to learn more about these financial strategies we discussed today.

Sources:

  1. Kadlec, D., 2022. Lifetime Income Stream Key to Retirement Happiness. [online] TIME.com. Available at: https://business.time.com/2012/07/30/lifetime-income-stream-key-to-retirement-happiness/ [Accessed 12 August 2022].
  2. York, E. (2021, June 9). Summary of the Latest Federal Income Tax Data, 2020 Update. Tax Foundation. https://taxfoundation.org/summary-of-the-latest-federal-income-tax-data-2020-update/.

The Power Of Living Benefits

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Watching a loved one slowly lose their physical or mental abilities overtime can be extremely difficult to watch. My first experience with this occurred in the summer of 2015 to someone I truly admire. The founder and chairman of a major financial corporation Bill Z; then 70 years old, he was diagnosed with Amyotrophic Lateral Sclerosis (also known as Lou Gehrig’s Disease). ALS is a neurodegenerative disease that usually attacks both upper and lower motor neurons and causes degeneration throughout the brain and spinal cord. The once animated and energetic business entrepreneur over the next several months found himself needing the assistance of a wheelchair and was unable to walk without aid. In addition to his lack of mobility, his speech slowly began to worsen along with the weakening of his fine-tuned motor skills. Despite the disease and its restrictive limitations that it has had on him and his loved ones, Bill often says, “I consider myself the luckiest man on the face of the earth.” Bill’s body is progressively weakening but his mind and spirit are as strong as they have ever been. Thankfully, Bill had the foresight and understanding of the importance of life insurance along with the power of living benefits.

There is a 52 percent chance you may develop a chronic illness or disability when you are 65 years or older.1 With the help of modern medicines and healthcare our life expectancy has lengthened—people are living longer. However, have you asked yourself how your clients would survive if they were unable to work? What would they do if they were diagnosed with a debilitating disease? Are they prepared to bear the burden of those expenses? This is where the power of living benefits can protect and save families. Living benefits are optional riders available on a life insurance policy that allow a policyholder access to the cash value within a policy or accelerate the death benefit for the policyholder’s medical needs while still living. Living benefits have been around since the 1980s and have evolved over the years to include chronic illness, critical illness, and terminal illness provisions that allow a client to access a percentage of the death benefit or cash value if the policyholder has what the insurance company deems as a “qualifying event.” Most insurance companies consider a qualifying event to be the inability of a policyholder to perform two of the six activities of daily living. This consists of eating, bathing, getting dressed, toileting, transferring, and continence. The simple fact is that any of these illnesses can strike anyone at any time. Most people are not prepared for a chronic, critical, or terminal illness. Oftentimes people think that just because they have a health insurance or disability plan that they will be sufficiently covered in case of a sudden or serious health problem such as a heart attack, stroke or cancer diagnosis. The reality is that this is simply not true. Many Americans struggle with medical expenses. One in five Americans who have health insurance struggle to pay off their medical debt. For cancer patients with insurance, out-of pocket costs can reach $12,000 just for one medication and average treatment costs can hit $150,000 according to the Kaiser Family Foundation.2 Regardless of your clients age, income, or what kind of health coverage they have, two things are inevitable in the case of an unexpected illness: Their expenses will go up, and their income will go down—which can result in crippling a family financially. Now that we have established the importance of having an insurance policy with living benefits let us review how the insurance company typically determines the amount of benefit that will be provided.

  • For terminal illness, there is no charge for this rider until it is used depending on the company. This benefit can be accessed when a person has been given 12-24 months left to live. The insurance company discounts the death benefit at a predetermined interest rate. If the insurance company defines the terminal illness as greater than, let us say, 12 months, the company may also factor in the value of lost premium revenue.
  • For chronic illness and critical illness, the calculation of benefits can be slightly more complex. There are three different structures that are used to determine the impact of the acceleration related to the face amount of the policy. There is the discount method, lien approach and the additional rider charge. The most common method is the discount method. In this method, the insurance company looks at life expectancy, severity of the illness (mild, moderate, severe) and the present value of the death benefit to determine what amount can be accelerated.

Positioning living benefits should not only be considered for personal insurance but also business insurance. Business owners are the lifeblood of America. It can be devastating for a business to have one of its owners or key employees out of commission. Living benefits can also be used for business succession planning such as: Key Employee, Split Dollar, 162 Executive Bonus Plan or Buy-Sell. If your clients are business owners and one of their key employees becomes temporarily disabled, they can accelerate the death benefit of their life insurance policy to help recruit new talent or offset some of the costs associated with the employee’s absence. Or perhaps the business purchasing a policy for the key employees could be an added benefit to keep and retain key employees to the business. This business structure is known as the “162 Executive Bonus Plan.”

One of four of today’s 20-year-olds will become disabled at some point in their career.3 With the pandemic of COVID-19 that swept through our country and continues to affect people, numerous people were unable to work due to contracting the disease. Clients that have a policy with living benefits were able to accelerate their policy while out of work; ensuring that your clients have these benefits on their policy can be one of the most important insurance solutions you can offer them.

Because Bill Z was able to accelerate the death benefit on his life insurance policy, he is able to get the best care from the finest nurses in the comfort of his home. He is most grateful to be surrounded by his family and loved ones. People have often said that “Bill Z has a smile that lights up a room.” His determination to have a good quality of life for himself and his loved ones is stronger than the disease that keeps him in a wheelchair. Despite the daily struggles, he has been afforded a comfortable life in part due to his knowledge and understanding of the power of living benefits. When you see Bill Z, he will be sure to tell you, “I consider myself the luckiest man on the face of the earth.” 

References:

  1. Favreault M, et al. Long-term Services and Supports for Older Americans: Risks and Financing. ASPE Issue Brief. Department of Health and Human Services. July 2015, p.3, 9.
  2. https://outperformdaily.com/credit-com-how-to-control-medical-debt-after-a-cancer diagnosis/.
  3. https://www.ssa.gov/news/press/factsheets/basicfact-alt.pdf.