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| Revenue Objectives Int'l., LLC. Financial Objectives: Compliance with AML (Anti-Money Laundering) and Bribary Practices Click the following to request assistance by webinar All Markel Plans include.... Just choose a plan and click on info to get details...... Call a Dr. from home and get your prescription sent to you or your pharmacy..... IQ Age Banded Individual Guaranteed Issue SE IQ 3+ Group Guaranteed Issue SE Click for "Needs" Calculations Information and interactive calculators are made available as self-help tools for independent use and are not guaranteed for their accuracy or their applicability to any individual circumstances. You are encouraged to seek personalized advice from qualified professionals regarding all personal finance issues. This analysis is based solely onthe information provided by you. All examples, if any, are hypothetical and for illustrative purposes and do not represent current or future performance of any specific investment. No guarantees are made as to the accuracy of any projection. Click for small business Retirement Plans Click to Re-engineer retirement w/ Roth IRA
Fixed Indexed Universal Life Insurance  FIUL Overview FIUL Products There are three concentric "circles" of "Rebalancing" Wealth.... Accumulation / Succession / Preservation. We "modulate" the overlaps of these constructs to maximize their effect of each to the other....Planning is the key to this success through total transparency and complete "suitability."  Click for "Estate Planning" Click for "Business Family Succession" (if opens in PowerPoint, click on "slideshow", then "start from beginning") What is Estate Planning?
The "plan" could be as simple as having a will or could require the use of life insurance, trusts, business continuation plans, or charitable arrangements.
On June 7, 2001, the Economic Growth and Tax Relief Reconciliation Act was signed by President Bush, bringing many changes over the next decade. Effective January 1, 2002, federal estate taxes will be steadily reduced and eventually abolished in 2010. Without further congressional action, however, the law as it existed in 2001 comes back into effect for 2011 and thereafter. Proceeds from life insurance provide immediate cash for paying estate taxes without depleting the estate itself.
On June 7, 2001, the Economic Growth and Tax Relief Reconciliation Act was signed by President Bush, bringing many changes over the next decade. Effective January 1, 2002, federal estate taxes will be steadily reduced and eventually abolished in 2010. Without further congressional action, however, the law as it existed in 2001 comes back into effect for 2011 and thereafter.
Estate Planning involves developing a "plan" that will accomplish the goals and objectives of an estate owner while living and at death. These goals and objectives could include:
• Providing cash payment of estate expenses including federal estate taxes
• Providing income to family members after the estate owner’s death
• Providing for disposition of a business at death
• Distributing assets to family members and other heirs with the least amount of shrinking possible Strategies For Buying Indexed Universal Life Insurance:
With indexed universal life insurance (IUL), a clear strategy, or policy objective, should always be identified before making any purchase. Premiums for all universal policies are flexible, so the policyholder’s objective has a significant impact on how the policy is funded. There are a number of different strategies for buying an indexed universal life policy including paying the minimum premium, paying the no-lapse premium to guarantee the policy for the insured’s lifetime, or paying the maximum premium also known as overfunding. The strategy that you select will be determined by your personal goals and objectives, but the strategy most effective for equity-indexed universal life insurance is the retirement income strategy or overfunding strategy.
Retirement Income Strategy- “Overfunding” an Indexed Universal Life Policy:
To “overfund” an indexed universal life insurance policy means to maximize the policy’s cash value growth potential and minimize its net insurance costs over time. When the maximum premium is paid into the policy, cash values grow faster which leverages the net amount of life insurance at risk. The net amount of life insurance at risk is the difference between the actual face amount of the policy less the current cash value, see diagram below. With all universal life policies, insurance costs are calculated based on the amount of life insurance at risk at any given point in time. As the net amount of insurance at risk decreases, the costs of insurance decrease and a higher portion of the premium payment can be directed to the indexed account. By overfunding the policy, cash values can leverage the cost of insurance therefore maximizing the cash value growth potential. For more information on insurance costs and the net amount of insurance at risk see, “How a universal life insurance policy works”.
The Internal Revenue Code and Overfunding Life Insurance*:
To better grasp the powerful concept of “overfunding” a life insurance policy, one must clearly understand the IRS regulations that must be met to avoid unnecessary taxation. Some of the legislation affecting the strategy of overfunding indexed universal life includes Internal Revenue Code Section 7702A, the Deficit Reduction Act of 1984 (DEFRA), and the Technical and Miscellaneous Revenue Act of 1988 (TAMRA).
Internal Revenue Code Section 7702A describes the seven-pay test which requires that cumulative life insurance premiums over any seven year period cannot exceed the seven-pay premium limitation. The seven-pay premium limitation is the maximum cumulative gross premium payment over any seven year policy period. Seven-pay premiums are calculated based on the specific insurance company’s cost structure and the insured’s age, health class, sex and benefit amounts. If the policy is overfunded up to or within the seven-pay premium requirements, then it will meet the Internal Revenue Code and policy cash surrender values may be accessed at any time tax-free. If premiums exceed the seven-pay test maximum, the life insurance policy becomes a modified endowment contract (MEC) and may incur taxes on distributions of cash values.
The Technical and Miscellaneous Revenue Act of 1988 (TAMRA):
The Technical and Miscellaneous Revenue Act of 1988 (TAMRA) first defined a modified endowment contract (MEC) as a life insurance policy that fails to meet the premium limitations established under the seven-pay test. Once a policy is classified as a MEC, any policy cash value distribution above the policy’s premium basis will trigger a taxable event which includes a 10% penalty tax on any gain received prior to the policy holder’s age 59 1/2. The policy’s premium basis is usually the sum of all premium payments less any dividends received. Policy distributions are any surrenders, withdrawals or policy loans. The intention of overfunding any universal life policy is to access cash values at some point in the future, so a MEC should be avoided at all costs with this strategy.
The Deficit Reduction Act of 1984 (DEFRA):
The Deficit Reduction Act of 1984, DEFRA, sets the minimum policy death benefit based on the sum of the premiums paid and the age and gender of the insured. Sometimes referred to as “the cash value corridor test” or “guideline premium test”, this requirement in effect limits the amount of premium payments for a given minimum face amount of insurance. Complying with DEFRA limitations is required for a policy to maintain its status as life insurance. If overfunding an indexed universal life policy is a strategy you are considering, DEFRA will in effect establish the minimum death benefit based on any maximum premium payment.
How to Overfund Indexed Universal Life Insurance:
Overfunding is a life insurance cash accumulation strategy that leverages the maximum allowable policy premiums with the smallest life insurance death benefit to achieve highest return on premium payments net of policy costs over a given time period. There are essentially 3 steps to determining the combination of maximum premiums and minimum death benefits necessary to selecting the most leveraged indexed universal life policy:
1. The first step is to determine your maximum premium commitment over your given time horizon. The premium amount selected should be an amount that you can consistently and easily make without interruption. Universal life insurance polices offer the capability for flexible premium payments, but to get the maximum leverage you must stick to your premium commitment for a given face amount of insurance.
2. Secondly, you must determine the minimum insurance face amount for the DEFRA commitment and age and gender. The insurance company’s sales illustration will provide the actual premium amount limits that meet the DEFRA minimum requirements.
3. Finally, determine the maximum premiums allowable under Internal Revenue Code 7702A and the TAMRA seven-pay premium limitation. As discussed above, as long as the total premiums or any seven year period are equal or less than the maximum allowable premium for the seven-pay test, cash surrender values may be accessed ay any time tax-free.
Once each of the IRS regulations above are met, the maximum premium allowable for the minimum death benefit is defined and the equity indexed universal life policy can be constructed with the optimum policy premium for the overfunding strategy. By choosing the overfunding approach, a policy holder can take complete advantage of all tax advantages of the life insurance policy and with reasonable index interest credits accumulate a significant cash value that may be access in retirement tax-free.
Overfunding a universal life insurance policy is a long term strategy!
Because of the insurance costs and expenses associated with buying an equity indexed universal life policy and the likely fluctuations in indexed interest credits, the time horizon for growing and accessing cash values should be at least ten years or longer. It will take some time for the leveraging effect to reduce the costs of insurance and thereby increase the net rate of return on policy premiums. Keep in mind, policy costs are a necessary evil to maximize tax advantages and the bottom line is return over time on your premium payments.
* The above tax information is for information purposes only and is provided to explain the basic tax treatment of life insurance based on the Internal Revenue Code. Any individual or entity considering any life insurance policy should consult with their own independent advisor that understands their particular tax circumstances. This information is not intended to be tax or legal advice.
Compare Indexed Universal Products:
When comparing equity index life insurance policies, there are specific questions that must be answered before you can make the right policy choice. The answers to these questions will allow you to compare competing policies on an “apples to apples” basis. There are a number of highly rated life insurance companies that offer excellent equity indexed policies. By reviewing all available policy options on a “level playing field”, you can be assured of making the best policy choice. The questions and answers below are designed to help you compare these EIUL policy options.
What is the financial rating of the insurance company?
Financial ratings are available from the independent ratings services. These independent services include AM Best, Standard & Poor’s, Moody’s, Fitch and Weiss Research. Each of the independent rating services has its own criteria for ranking insurance companies. Click here to see list of financial rankings and criteria. We recommend using companies that have at least an “A” rating with AM Best but prefer “A+”. What is the illustrated index credited interest rate?
Pay careful attention to the index credit rate that is “projected” on the actual life insurance illustration. Make sure that when comparing policies that this rate is equal. A 1% difference in illustrated rates will have a significant difference in cash value projections over a 20 or 30 year time period. Is there a guaranteed minimum interest rate?
With most equity index policies, the insurance company will guarantee a minimum interest rate over a specified period of time. In other words, even if cash values are placed in indexed accounts that earn no interest over the index segment, most insurance companies will credit at least a minimum guaranteed interest rate. The minimum rate varies with insurance companies and how they apply it but can be up to 2% a year compounded annually over the index segment. What is the current index cap rate? What is the guaranteed minimum cap rate?
Index cap rates vary by insurer but on average are around 10-14%. If a current index cap rate is significantly higher than 14 %, the projection may be unrealistic. For more details on index cap rates see.. “What Determines the Participation Rate and Growth Cap?”
The index cap rate is variable and subject to increases or decreases based on economic conditions. However, the cap rate cannot be reduced below the guaranteed minimum rate noted in the policy. Understand the minimum policy guarantees and the potential impact of policy changes. For example, as soon as the cap rate is reduced, cash value growth potential is reduced. What is the current participation rate? What is the guaranteed participation rate?
With most companies, the current and guaranteed participation rate is 100%. If the participation rate is not guaranteed to be 100%, the policy may be inferior assuming identical interest crediting strategies. What is the index floor?
The index floor with all companies should be 0%. Equity indexed universal life insurance is not a security and therefore doesn’t invest in any instruments that risk principal. In no way can any interest credit be less than 0%. How many index account options are available?
The primary index account option offered by all insurance companies is the S & P 500 Index® (1). However, one insurer offers the Dow Jones Industrial Average (2) and the NASDAQ-100 Index® (3) as well as the S&P 500 Index® option. Each index is made up of different companies and measures a slightly different mix of industries. Make sure you select the index account option that meets your overall objectives. How many index crediting methods are available?
The index crediting method is the process used to determine the actual index credit at the end of an index segment. There are basically two index crediting methods utilized by companies offering indexed life: the annual point-to-point method and the daily averaging method. The annual point-to-point method is the most widely used method but there is no guarantee that one method will return a higher interest credit over time. How long are the index segment periods?
The indexed segment period is the length of time over which funds allocated to an index account or index strategy must remain. Index interest rate credits are usually credited annually at the index segment anniversary. At the end of the index segment period, account values can be moved to the fixed account or another index strategy. Many companies offering equity-indexed life polices have more than one index segment period option. The shortest index segment is 1 year but some companies require up to a 6 year index segment period. As a general rule, the shorter the indexed account period the better. What are the transfer provisions among accounts?
Transfers are movements of cash values among account options. Many companies restrict the movement of cash values from one account option to another before the end of the account segment period. Other companies will allow transfers among accounts but any transfer before the end of the index segment will result in any interest credits being forfeited. Most companies do not allow partial index credits on transfers prior to the end of a given index segment period. What are the policy charges and fees associated with equity indexed life policies?
Policy fees associated with indexed life include premium loads, administrative fees, sales charges, and costs of insurance. As is the case with universal life, the policy fees and expenses associated with equity indexed life can be isolated and easily compared. Fees and costs will vary among insurance companies so a careful analysis is warranted. How long are the policy surrender charges?
Surrender charges are actually policy charges upon a surrender of cash values during the first several years of any universal or whole life policy. Surrender charges are generally a percentage of cash values that decreases over a specified time period and eventually becomes zero at the end of the surrender period. Surrender periods vary among insurance companies but usually range from the first 10-15 policy years. The shorter the policies surrender period, the better it is for the policyholder. How are loans treated? Do the companies offer fixed or variable loans or both?
Many companies offer a current fixed loan interest rate of 2.25%-5%. At the same time, the cash values of loaned funds are currently earning about 2%-3%. Therefore, there is essentially a .25%-3% spreads on fixed loan funds.
After certain number of years and depending on the insurance company, preferred loans or zero interest loans may be available. Preferred loans actually credit an interest rate on the cash value of borrowed funds that matches the interest loan rate on these same funds essentially netting a zero cost loan. Some companies offer preferred loans after the first 5 policy years and other after the first 10 policy years.
Variable rate loans are available with several companies. They offer the policyholder the option of maintaining loaned funds in the indexed account while the funds are borrowed. A current variable market loan interest rate is charge on borrowed funds based on the Moody’s Corporate Bond Yield Average. At the same time, the loaned funds continue to participate in the upward movement of the underlying index and will be credited with the actual index performance subject to the growth cap and participation rate. In periods where the underlying index is rising, variable rate loans may allow for cash value growth above and beyond the actual loan interest charged. The risk with variable loans is that index will not grow and the actual index credits will be lower than the loan rate. How long is the death benefit guaranteed?
The death benefit guarantee period is the period the insurance company will guarantee the insurance as long as a minimum premium is paid on time. Many companies offering equity indexed universal life offer a minimum death benefit guarantee of at least the first 5 policy years. Some companies, subject to age limitations, will offer policy guarantees up to 15 years. There are also a few companies that will allow you to pay a higher premium and get a lifetime guaranteed policy. Policies guaranteed for life are guaranteed never to lapse as long as the required policy premium is paid on time. What policy riders are available?
Insurance policy riders are additional policy benefits that can be added to the policy for an additional fee. All companies offer a selection of policy riders. These riders may or may not be important given your individual circumstances. The important point to note is that you should investigate all available policy riders to determine how they compare and if you should consider adding any to your policy based on your specific needs.
Annuity Basics: Annuities
An annuity is a long-term retirement planning tool designed to protect against the risk of outliving one's resources. Annuities are one of the few investment vehicles that allow your money to grow tax deferred. Furthermore, you have several annuity income options, including the choice to receive either a steady stream of income throughout retirement or one lump sum payment. Taxes are due upon withdrawal. There are various fees and charges associated with annuities. Immediate or deferred?
Annuities can be categorized as either immediate or deferred. An immediate annuity provides annuity income payments immediately after you make the initial annuity payment. A deferred annuity delays annuitization, which provides more time and opportunity for your money to grow tax deferred. Fixed or variable?
There are two basic types of annuities: fixed or variable. In a fixed annuity, your cash value earns a fixed rate of return. Additionally, you are guaranteed a fixed payout when you begin to receive your annuity income. Guarantees are based on the claims paying ability of the insurance company. Variable annuities provide a variable rate of return, which will fluctuate up and down depending on the performance of the investment portfolio you select. A variable annuity offers more growth potential and investment choices than a fixed annuity, but also carries more risk. Annuitization options
There are several ways to receive your annuity income payments:
A straight life annuity provides income until the annuitant dies.
An period certain annuity provides income for a fixed period of time, such as 10 or 20 years.
A variable life annuity provides variable income during the annuitant's lifetime.
A variable life with period certain annuity provides variable income during the annuitant's lifetime. If the annuitant dies before the designated certain period, the insurer will pay the contingent payee you have selected.
A life income with refund annuity provides income throughout the life of the annuitant. If the annuitant dies before receiving payments at least equal to the purchase price of the annuity, the insurer will pay a refund to the contingent payee you have selected.
A life annuity with period certain annuity provides income until the annuitant dies. If the annuitant dies before the designated certain period, the insurer will pay the balance to contingent payee you have selected.
A joint and survivor annuity provides income to two or more individuals until all of the individuals die.
Other annuity income options include a lump sum payout or systematic distributions. Withdrawals before age 59½ are subject to a 10% penalty and withdrawals during the first several years are subject to surrender charges. Which type of annuity is right for me?
Each individual's retirement needs are as unique as the individual himself. That's why it is important to speak with a qualified financial professional who can assess your unique situation: your plans for the future, your current financial status, etc. After evaluating your needs, you and your financial advisor can discuss the various investment options available.
How much money do I need to save for retirement?
There are many factors that can contribute to a satisfying retirement. One very important factor is the sufficiency of your resources to fund the retirement lifestyle that you seek. We have provided the Retirement Needs calculator to help you review how much money you will need to save to fund your retirement.
Final Analysis:
Equity indexed insurance policies have many variables to review and consider before you can make the right policy choice. Evaluating each policy option and comparing policies based on a list of established criteria will help you identify the best equity indexed universal life policy given your goals and objectives.
(1) The S & P 500 (Standard and Poor’s Composite Price Index) is composed of 500 commons stocks representing major U.S. industry sectors.
“ Standard and Poor’s®,” “S & P®,” “S & P 500®,” “Standard & Poor’s 500,” and “500” are trademarks of The McGraw-Hill Companies, Inc.
(2) “Dow Jones” and “DOW JONES INDUSTRIAL AVERAGE (DJIA) COMPOSITE STOCK INDEX” are service marks of Dow Jones & Company, Inc.
This product is not sponsored, endorsed, sold or promoted by Standard & Poor’s and Standard & Poor’s makes no representation regarding the advisability of purchasing such a policy.
(3) The NASDAQ-100®, NASDAQ-100 INDEX® and NASDAQ® are registered trademarks of the NASDAQ Stock Market Inc. (which with it affiliates are the “Corporations”). This product has not been passed on by the Corporations as to their legality or suitability. This product is not issued, endorsed, sold or promoted by the Corporations. THE COPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THIS PRODUCT. THE INDEX DOES NOT INCLUDE DIVIDENDS PAID BY THE UNDERLYING COMPANIES.
Not Legal/Accounting Advice
The information presented on this Web site is not to be construed as legal advice. Legal advice must be tailored to the specific circumstances of each case. Every effort has been made to assure that this information is up-to-date as of the date of publication. It is not intended to be a full and exhaustive explanation of the law in any area. This information is not intended as legal advice and may not be used as legal advice. It should not be used to replace the advice of your own legal counsel. | |
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