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    Help Make Clients Immune... with Life Insurance?

    Posted by Lori Fogle on Wed, Jun 17, 2020 @ 12:00 PM

    It's been since January when the first case of coronavirus was reported in the United States and mid-March since the first stay-at-home orders were issued and understandably, our country is still reeling. As of June 4th, it was reported that 21.5 million Americans were unemployed and over 100,000 small businesses have had to close their doorsThe good news is, there has been talk of new jobs being created and some businesses are reopening. Things will get better, but clients and prospects will still be looking to you for answers-- 

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    It’s no secret that a lot more government money has been spent and will be spent in 2020 than ever before. Together, the measures equal slightly more than 10 percent of gross domestic product, economists say. By comparison, the response to the 2008 financial crisis amounted to about 3 percent of GDP, considered enormous at the time. Add in actions by the Federal Reserve, and the government’s response to the pandemic equals about a quarter of the nation’s entire annual economic input.

    The reasons for lost revenue and government debt are numerous and since we’re all living it every day, I won’t get into all of those reasons here. Instead, in this post, I want us to consider this question--

    How will the debt incurred be repaid?

    It's hard to say at this moment but raising income taxes seems like the inevitable conclusion. Of course, this won’t be the first time we’ve seen taxes increase. But in this case, we’re anticipating it, which gives you some time to prepare your clients…

    A window of opportunity

    According to this article in Forbes, no broad-based tax hike will (or should) happen until the economy returns to some semblance of normal in 2021 or beyond.

    The crux:

    If you’re drawing the same conclusion that an increase in taxes could happen in the future, where do you point clients for possible ways to start preparing themselves now? What can you do to help protect clients from further financial damage?

    One solution your clients may want to consider is life insurance. Yes, life insurance can be a way for your clients to make themselves immune to future tax increases.

    Why now is the ideal time for life insurance conversations

    The core purpose of life insurance, which is the income tax-free death benefit to help financially support family members or business partners in the event of the premature death of the insured, is still very relevant. And in fact, it’s not as difficult to bring up the topic of life insurance with clients as it might have been in the past. For many, it’s been top-of-mind with COVID-19 causing us to be more acutely aware of our own mortality.

    Although there have been carriers limiting the sale of life insurance to older folks during the pandemic, especially those with existing health conditions, it’s actually never been easier to obtain life insurance.

    In response to sheltering at home, a growing number of insurance carriers have started offering accelerated underwriting. This allows a person to qualify for life insurance without having someone come into their home for blood draws, or medical tests. Additionally, policies can generally be underwritten in 48 hours.

    On top of the income-tax free death benefit and often the ability to access the policy for long-term care needs, there is an ancillary benefit of life insurance as well— the tax advantages.

    In light of our current economic situation and the possibility that taxes will rise in response to that, life insurance could be one way your clients might better prepare themselves.

    Since life insurance is funded with after-tax dollars and grows tax deferred, your clients can potentially make themselves immune to what happens to income taxes in the future. And should they need to access a cash value life insurance policy through loans or withdrawals to supplement retirement income, they could do so without having to pay income tax. Not only is that a form of financial relief, but stress relief as well. Especially for near retirees, that can be invaluable.

    Clients may also want to immunize themselves from the volatility of the market. Life insurance is something you can bring up in that instance too. With an indexed life insurance product, clients can participate in a portion of the upside, but protect themselves from downside risk.

    Prepare for what's next 

    When prospects or existing clients come to you with concerns about how they’ll financially weather what's in store for the rest of 2020 and beyond, the topic of life insurance is an important conversation to have as it may provide some protection for the wealth they’ve accumulated. And it can help make them resistant to tax increases and market volatility down the road.

    Life insurance has survived through other recessions and market crashes and can provide the stability and control we all, including our clients, are desperately seeking right now and for the future. 


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    Tags: IUL (indexed universal life insurance), taxes

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    FOR PRODUCER USE ONLY. NOT FOR USE WITH CLIENTS.

    This content is for informational and educational purposes only and is not designed, or intended, to be applicable to any person's individual circumstances. It should not be considered as investment advice, nor does it constitute a recommendation that anyone engage in (or refrain from) a particular course of action.

    Indexed universal life insurance policies contain fees and expenses, including cost of insurance, administrative fees, premium loads, surrender charges and other charges or fees that will impact policy values.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.