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Thursday, January 30, 2014

Remind Clients of the Basic Principles for a Strong Financial Foundation

1. Save on a systematic basis.  It is amazing what can be accumulated with a small amount put away each pay period or by using money received from special occasions. Individuals can start their financial foundations by using available annuity, 401(k), IRA or other tax-qualified plans or financial products as basic savings tools. A little put away today can grow to a reasonable sum.

2. Use time to your advantage. Using the time value of money and taking advantage of the power of compounding are concepts that are based on putting money to work over an extended time horizon. Individuals can benefit from creating a strategy and from having the discipline to fund retirement over the years despite setbacks and unexpected life events. Life insurance and annuity products are designed to make this principle a reality.

3. Address the possible loss of employment income and premature death. The potential for the loss of income and/or life are ever present. Products which address these issues can be purchased today at the most affordable rates in decades with life insurance and other financial products. Also, building an emergency savings to meet temporary job/income loss can prove to be very beneficial.

4. Feed your retirement savings. Life expectancies continue to increase. To have a retirement of over 20-30 years, savings need to be fed often and on an ongoing basis.

5. Pay attention to your health and wellness. Having basic health insurance coverage and performing basic physical and mental self-care are essential to a strong financial foundation. If your health is poor it makes all else more difficult.

6. Live below your means. This is the hardest principle for most people. Distinguishing between what we need and what we want is one of the keys to building a strong foundation. Controlling spending to get just what is needed takes discipline, but can have benefits over a lifetime.

7. Use debt carefully. During his or her lifetime, your client will need to use debt for a mortgage or a car loan or to obtain an education. Using debt wisely is key, but to have repayment amounts with unreasonable levels or that require borrowing of next week’s pay to cover this week’s bills can be self-destructive.

These materials are not intended to provide tax, accounting or legal advice. As with all matters of a tax or legal nature, your clients should consult their own tax or legal counsel for advice.
For financial professional use only. Not for use with consumers.

Adapted from http://annuityoutlookmagazine.com/2013/11/fixing-the-fractured-financial-foundations-of-americans/. © Annuity Outlook, Inc. Used with permission.
The material from third-party sources is being provided as a service to you. Please note that the information and opinions included are provided by third parties and have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by Partners Advantage Insurance Services, LLC. Financial Professionals should ensure they continue to follow the current policies on the use of any advertising, third-party materials and/or social media as required by your broker/dealer and/or the carriers that you represent.
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Thursday, January 23, 2014

Is It Time for a Beneficiary Review?

Having a will is certainly important for your clients, but do they know that a will may only determine where a portion of the assets would go after they die? It’s true – many financial products have a “beneficiary designation,” which means that the financial institution’s records determine where the money goes. This can apply to life insurance policies, annuities, IRAs, money in a 401(k) plan, accounts with a payable-on-death designation, and any jointly-owned accounts, just to name a few.

Chances are when your clients first purchased any of these, they filled out a form that designated the beneficiaries. But,  chances are a lot has changed in their life since then. Have they had more children? Have they divorced or married? Sadly, many people have died unexpectedly with former spouses listed as beneficiaries, and there is  nothing the current spouse can do about it once they are gone.

A few common mistakes on beneficiary listings, include:
  • No beneficiaries are listed
  • Children born after the account was opened are not listed
  • A former spouse is still listed

Now might be a good time for a beneficiary check-up with your clients.

These materials are not intended to provide tax, accounting or legal advice. As with all matters of a tax or legal nature, your clients should consult their own tax or legal counsel for advice.

For financial professional use only. Not for use with consumers.
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Thursday, January 16, 2014

Avoiding Replacement Pitfalls

What is a Replacement? A "replacement" occurs when any individual life insurance or annuity contract is purchased and that purchase in some way affects a currently held policy or contract in a manner so that the benefits, values, current premiums or coverage is somehow diminished or assigned to a replacing insurer or otherwise terminated.

The following transactions could be considered replacement: Lapses, loans, full or partial surrenders, penalty-free withdrawals, using any existing values to fund a new contract or policy. Cash coming from the surrender of annuity or life insurance policy that is deposited into a bank account is still considered a replacement.

In some states, proceeds from an annuity or life insurance policy are considered replacements when used up to two years from the date of surrender, forfeiture or lapse. It’s important to check with the State Department of Insurance in the states in which you conduct business. Usually, annuities held in 401(k) plans are considered replacements by carriers and must be treated as such. You are required both by law and carrier policy to indicate on the application if you believe a replacement may take place.

BEST PRACTICE: Create a side by side, feature by feature comparison of the old product and proposed new product. This will help clearly illustrate what benefits or riders the client is giving up or gaining with the new purchase and help evaluate if the transaction makes sense for the client. Also, check with your individual state Department of Insurance regarding the required notices and form(s) needed to be completed for replacements  (some may be required at the time of application) and provide copies of the forms to the issuing carrier(s).

For financial professional use only. Not for use with consumers.
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Thursday, January 9, 2014

Life Insurance as a Diversification Asset

There may be no better time than now to inform your clients about the value of life insurance as an asset in and of itself. The continued tax-favored treatment still afforded life insurance along with some of the guarantees offered by certain insurance contracts make life insurance a viable option for any portfolio. Show your clients the value of living benefits of life insurance as well as the self-completing nature of life insurance due to early maturity. Living benefits can provide an income stream that is income tax free, if the distribution method is properly set up. While the tax free death benefits from life insurance will provide your clients a safety net for their families if their portfolio does not have time to recover before a premature death.

One important question to ask your clients is if their goal is income or wealth transfer. If their goal is income than the living benefits and diversification mentioned above of life insurance will play an ever increasing role in the management of any client’s portfolio.

If, however, their answer is wealth transfer, then life insurance can again be used as a portfolio diversification asset that if used correctly can be passed to heirs both income and estate tax free. The real value though is to look at the internal rate of return (IRR) of life insurance at life expectancy of your clients. We are talking about the IRR of the death benefit, not the cash value, in this instance. The value of life insurance can be quantified using IRR and this is what is becoming increasingly important to your clients as a measuring stick given the uncertainty and volatility in today’s financial markets.

Policy loans from life insurance policies generally are not subject to income tax, provided the contract is not a Modified Endowment Contract, as defined by Section 7702A of the Internal Revenue Code. A policy loan or withdrawal from a life insurance policy that is a Modified Endowment Contract is taxable upon receipt to the extent cash value of the contract exceeds premium paid. Policy loans and withdrawals will reduce cash value and death benefit. Policy loans are subject to interest charges. Please tell your clients to consult with their attorney or tax advisor in regards to their specific situation.

The information cannot be used or relied upon for the purpose of avoiding IRS penalties. These materials are not intended to provide tax, accounting or legal advice. As with all matters of a tax or legal nature, your clients should consult their own tax or legal counsel for advice.

Guarantees provided by annuities are subject to the financial strength of the issuing insurance company; not guaranteed by any bank of the FDIC. 

For financial professional use only. Not for use with consumers.
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Thursday, January 2, 2014

Reasons to Use Indexed Life Insurance

Most agents sell indexed annuities, but not necessarily indexed life insurance, or vice versa. However, there are situations where one is clearly better than the other. This is why it’s important to know how and when you should sell each. Here are some added insights on reasons to use indexed life insurance.

There are a number of reasons for why an indexed universal life (IUL) insurance products are appealing to clients.

•High index participation relative to annuities.
•No tax-deferred cash value accumulation.
•Potential for tax-free distribution via contract loans.
•Income tax-free death benefit that’s more than premiums paid.

These are situations where indexed life insurance fits the client’s needs better than an indexed annuity.

  • An IUL may have more appeal to younger clients because they benefit from the combination of relatively low cost-of-insurance rates and very high index participation. Generally, they’re healthy enough to qualify for insurance.
  • A lump sum isn’t required for an IUL. There are clients who like to put money aside for future needs, but don’t have enough to meet the minimum premium requirements of an annuity. Indexed life insurance has low monthly premium without requiring up-front lump sums.
  • They may have a lump sum available to purchase an annuity, but it’s not enough to guarantee a comfortable retirement. Indexed life won’t instantly solve this dilemma, but it will provide for the owner’s beneficiaries should the insured owner die before accumulating retirement savings.
  • Some people are concerned about tax rate increases. Under current tax law, values found in an indexed life insurance contract can be accessed via contract loans on an income tax-free basis, as long as the premium pattern doesn’t violate the modified endowment contract limits.
If these situations appeal to your client, they may feel indexed life insurance is the ideal product.
This material is designed to provide general information about the subject matter covered. It should be used with the understanding that we are not rendering legal, accounting, or tax advice. Such services should be provided by the client’s own professional advisors. Accordingly, any information in this document cannot be used by any taxpayer for purposes of avoiding penalties under the Internal Revenue Code.

For financial professional use only. Not for use with consumers.
PAIS 03122613