Laddered Income Replacement Coverage

One common approach to determining the amount of life insurance needed for income replacement is to calculate the present value of the future stream of income. The typical recommendation is to buy a policy with a face amount equal to the current replacement need, and with coverage lasting until retirement.

Of course, the longer we live, the fewer years of expected future income remain. As a result, we'd expect the income replacement need to decline over time. Could there be an opportunity to save a bit of money by buying two or more smaller policies with laddered durations? 

This tool identifies the combination of 10, 20, and 30 year term policies required to most efficiently match the coverage in effect to the need remaining. Go ahead and enter your own values to see what portfolio of coverage could work for you.

The ILIT Remixed

From FinancialCounsel.com - The ILIT Remixed: A Workshop With Vincent M. D'Addona:

"'The only disadvantage to owning life insurance in the estate,' said D'Addona, 'is that it is in the taxable estate and would be in the estate at the death of the second to die. However, when looked at holistically, if I were worth $10 million in assets built by the sweat of my brow AND I had $10 million of life insurance on my life as well, one could say that if I were to die now and my wife were to die in the same moment (obviously from grief), our total gross estates would be $20 million leaving a net $10 million to my children. This is the same result as if I were worth $10 million and had $5 million of survivorship life and we both died in the same fashion.'"

Applying Winning Fantacy Sports Strategies to Insurance Sales

From LifeandHealthInsuranceNews.com:

"More of a competition of mathematics, analytics, and gamesmanship than an appreciation or devotion to actual sports, fantasy sports has become a phenomenon since its advent 32 years ago, with an estimated 29 million participants in the US and billions of dollars exchanged annually."

Sound like anyone you know? :)

On Wall Street: New York Life's Insurance Sales Soar 24% in 1Q

Pretty amazing ...

On Wall Street: New York Life's Insurance Sales Soar 24% in 1Q: "New York Life's Insurance Sales Soar 24% in 1Q
By Larry Barrett
New York Life Insurance Company said its individual life insurance sales rose 24% in the first quarter, helping the firm garner 12.1% of the overall market share among life insurance providers."

The value of your business based on the two rules of overriding American business values

This short, well written piece explains what a buyer is willing to pay and how much a buyer is willing to put down to purchase business.

First, is a general desire to see an investment repay itself within five years. Second is a desire to have a fall back position in the way of liquidation should an acquisition not work out as planned. These can be represented by two rules.

Read the entire piece at the website of The Podolny Group, Inc.

GOP softening its position on estate tax - NYPOST.com

While it's still early, leaders in both parties appear comfortable with the $5 million exemption, the source said.

The chief difference is that the Democrats would like the rate on the taxable portion of the estate to return to 2009's 45 percent level, while Republicans want to keep it at 35 percent, the source said.

Read more: http://www.nypost.com/p/news/business/senate_eyes_compromise_on_estate_B55ToJLp1amtEFceexHyfO#ixzz1Ohvh1Omp

Another Good-Facts Case Helps Deliver a Taxpayer Victory

The recent Tax Court case of Estate of Shurtz v. Commissioner provides an example of a good facts case that resulted in a taxpayer victory

When Mrs. Shurtz died in 2002, her 87.6% limited partnerships interest was valued at just over $6.1 million and her general partnership interest at $73,500. Because her estate plan disbursed nearly its total value – over $8.7 million – to qualified marital and other trusts, her estate claimed that no estate taxes were due.

 ...  the court found that the FLP “was carried out in the way that ordinary parties to a business transaction would do business with each other.”...  with no additional estate taxes due.

From an article on the website of Kotzin Valuation Partners, LLC.

Is there a good web-based Life Insurance Calculator?

I have three web-based calculators to suggest as a starting point. One of them is carrier-neutral in that it is hosted by the Life Insurance Foundation for Education non-profit website. (Then again, the L.I.F.E. organization is funded primarily by life insurance carriers.) The Prudential tool is particularly interesting in that includes a tab labeled “The Value of All You Do” which is intended to help quantify the economic value of a spouse who may work as many hours as her high-income husband but without whom the family would be lost.

Life Insurance Needs Calculator - L.I.F.E. 
Life Insurance Needs Estimator – Prudential

Life Insurance Needs Calculator - MetLife

The following two calculators are hosted on an ugly, ad-supported website. They may be of interest, however, because of their quite different approaches. The first attempts to be very comprehensive by accounting for a wide variety of a family’s economic circumstances and expectations. The second goes in quite the opposite direction by eliminating all the distractions and approaching the problem as one of quantifying the present value of the income earner’s future stream of income. (Personally, I tend to favor this approach in circumstances where the clients are sufficiently affluent that speaking of the survivors’ “needs” makes little sense. In such cases, the idea is to replace the contribution to the family’s expected wealth accumulation which is lost due to the premature death of a high-income earner.

Comprehensive Life Insurance Analysis - Dinkytown.net
Human Life Value - Dinkytown.net 

A modest proposal for Millionaires suffering "Investment Fatigue"

A blog post on Private Wealth Magazine's blog reports on studies indicating that "Many millionaires no longer enjoy doing their own investing..." Among ultra-high-net-worth investors ($5-$25M net worth,) only half of those age 65 and up say they enjoy doing their own investing; fewer still among younger investors want to be actively managing their investments.

Happily, those younger ultra-high-net-worth investors have an attractive option for part of their portfolio that their older counterparts probably don't - allocation into an instrument that behaves like a zero-coupon bond ... put in $X now, and over a long time span the maturity value will represent yield comparable to respectable fixed-income benchmarks. Unlike the zero-coupon bond, however, this instrument is a wrapper around a professionally managed conservatively allocated strategically laddered bond fund, and the wrapper comes with benefits that naked zeroes don't have. The wrapper is a medically underwritten cash value life insurance policy, which means:

• Accelerated maturity in the event of premature death
  Wealth accumulation plans, when done well, are structured to reliably deliver a targeted increase in a client's wealth over a long period of time. Even better are plans that address the unlikely circumstance of the time horizon suddenly being cut short; providing that hedge is a task to which life insurance is uniquely suited.
• No tax liability on "phantom interest"
  Unless comprised of relatively lower-yielding Treasury issues or held inside a qualified plan, zeros generate an annual tax liability on the imputed interest earned even though no interest income is actually received.)A life insurance policy's cash value increases are not taxed unless actually withdrawn from the contract (and even then, possibly not until basis has been returned.)
• No tax liability if held to "maturity"
  When paid out as a death benefit, the proceeds of the life insurance policy are income-tax free to the beneficiaries, even though increases in the contract's cash values were tax-deferred.
• Discretion and creditor protection
  The cash value balances of a life insurance contract do not appear on a brokerage account statement; nor are policy values subject to routine reporting to the IRS. In most jurisdictions, a cash value life insurance enjoys significant creditor protection relative to other assets owned outright. And unlike most other assets owned outright at death, the death benefit proceeds of a life insurance policy will not be subject to probate.

An insurance solution for a very niche demographic

From the online magazine Private Wealth's, an article titled The Next Step In Alternatives:

"One tax management solution, in fact, has come to be recognized by some high-net-worth investors as a perfect complement to their hedge fund investments: private placement insurance—in the form of both life insurance and annuities.

These products essentially allow accredited investors to put alternative investments inside a tax-free insurance wrapper. The products take advantage of long-standing tax rules that allow income earned on assets inside insurance or annuity policies to accumulate free of taxes. Moreover, gains remain tax-free when distributed as life insurance proceeds—as a death benefit or the cancellation of loans made to a policy owner—and tax-deferred if distributed as annuity benefits.

These features are of great value to hedge fund investors, who understand the impact ordinary tax rates have on gains derived from short-term trading and credit-oriented investments, phantom income produced by market-to-market elections by fund managers (often to justify fees), and PFIC treatment of offshore fund investments. Hedge fund investors have learned that taxes paid on current gains are not recovered if losses are suffered in later years. Those losses can only be carried over to future years when or if gains are realized."

Survey Finds that LTC Costs Continue to Climb - Long Term Care - Life and Health Insurance News

Survey Finds that LTC Costs Continue to Climb - Long Term Care - Life and Health Insurance News

Financial Planning: Bank-Owned Life Insurance Continues Surge

Financial Planning: Bank-Owned Life Insurance Continues Surge

Bank-owned life insurance assets reached a record $140.24 billion in the third quarter of 2010-a 4.8% increase from $133.87 billion in the third quarter of 2009, according to the Michael White/Meyer-Chatfield Bank- Owned Life Insurance (BOLI) Holdings Report.

Shift to Wealthier Clientele Puts Life Insurers in a Bind - WSJ.COM

According to this WSJ article, the life insurance industry is responsible for the fact that "The richest Americans own over half of the tax-free investment gains built up in life insurance."

According to the authors, the industry has orchestrated a "years-long shift toward wealthier buyers" ... and managed to keep the stratagem "all but unnoticed outside the industry."

The authors then go on to imply that the industry's greed has resulted in "scrutiny from Congress over the years" (apparently that august body was one of the few perspicacious enough to notice the aforementioned shift.) Indeed, the tone and language appear crafted to give the impression of a looming legislative backlash through which the "life-insurance tax preferences" would be stripped from the industry.

Overall, the piece reads like a populist outcry over yet another example of main-street Americans losing out. The reader could be forgiven for their sense of outrage over how the rules for life insurance seem designed to help the rich get richer with unnecessary and unfair tax advantages.


The appearance of the article in the pages of the Wall Street Journal provides sufficient cause to doubt the "populist manifesto" reading.  Perhaps, one might wonder, the fact that the rich are an increasingly disproportionate share of those buying permanent life could also be explained by a declining number of middle-income Americans able to pay more than term premiums. But if that were true, what could possibly motivate the WSJ to frame it in such populist terms?

For clues, let's review the authors' choice of language in a key part of the article. As we do, ask yourself this, "Who stands to gain if the assets now sheltered cash value life insurance policies lose the advantage of tax-deferral?"

Of the two main life-insurance tax preferences, the one that has faced the most scrutiny from Congress over the years is the provision that lets investment gains accumulate tax free within permanent-life policies.

The Congressional Budget Office last year estimated that eliminating the tax preferences for investment gains inside permanent-life insurance and annuities would raise an additional $265 billion in taxes over a decade.

Some tax-policy specialists contend the provision artificially favors income in insurance policies over things like interest on bank certificates of deposit. Some also say that because the break enables people who can afford large life policies to accumulate earnings free of taxes, it gives the affluent tax advantages far beyond those available to middle-income people through a 401(k) or IRA.

Hmmm ... if the cash "trapped" inside cash-value life insurance policies were to leave those policies, it would end up where? Available to be managed by whom?

I'm just sayin ...

How Much Should You Invest In Annuities? - Forbes.com

How Much Should You Invest In Annuities? - Forbes.com: "

My objective here is to make your heirs completely indifferent (from a financial perspective) to how long you live. You could then be completely honest with them about your estate plans. You could remove much of the anxiety on their part about when they'd get their inheritance and how much. It would take some of the tension out of Thanksgiving dinner.

Here's the formula: Annuitize just enough to cover your spending. In this case (single male, 70) you'd hand over $1.3 million to annuity sellers and have $700,000 (plus earnings thereon) set aside for heirs. You could buy more annuities with it if your living costs went up. You'd be exempt from federal estate tax.

For a couple the arithmetic is a little trickier. Let's say Sam, 70, could live on $8,000 a month; Pam, 67, would need $9,000 if widowed. Together they are comfortable with $11,000. To calculate the correct annuity purchases, start with what we'll call the merger savings in this household. That's the sum of their separated costs ($17,000 a month), less their together costs ($11,000). This $6,000 is the income they need from a two-life annuity, one paying as long as either is alive. In addition, Sam gets a $2,000-a-month policy on his life only, and Pam gets a $3,000-a-month solo policy. New York Life will let them have all three contracts for just over $2 million.

America’s Most Wealth Friendly States Continue to Bid for Your Clients’ Trust Business | The Trust Advisor Blog

America’s Most Wealth Friendly States Continue to Bid for Your Clients’ Trust Business | The Trust Advisor Blog

The Best States for Trusts
Tier	State*	State Income Tax	Directed Trust Statute	Asset Protection Trust	Dynasty Trust Ability	Number of Trust Cos.	Time Zone (from NY)
1	Alaska	No	Yes	Yes	1000 yrs.	3	(-) 4
1	Delaware	Residents	Yes	Yes	Perpetual	32	(-) 0
1	Nevada	No	Yes	Yes	365 yrs.	26	(-) 3
1	South Dakota	No	Yes	Yes	Perpetual	39	(-) 1 / 2
2	Florida	No	Yes	No	360 yrs.	9	(-) 0
2	New Hampshire	Residents	Yes	Yes	Perpetual	19	(-) 0
2	Wyoming	No	Yes	Yes	1000 yrs.	2	(-) 2
3	Colorado	Yes	Yes	Yes	1000 yrs.	7	(-) 2
3	Idaho	Yes	No	No	Perpetual	3	(-) 2
3	Ohio	Residents	No	No	Perpetual	2	(-) 0
3	Utah	Yes	No	Yes	1000 yrs.	2	(-) 2
3	Wisconsin	Residents	No	No	Perpetual	4	(-) 1
*States: links to State Trust Statutes Data: January 2010
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