bulletproof your lifestyle: insurance strategies for legal professionals your partners in profit and...
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Bulletproof Your Lifestyle: Insurance Strategies for Legal Professionals
Your partners in profit and efficiency
Insure Things You Can’t Afford to Lose Some things are insured because an
outside source (lender) requires it. For example, mortgage lenders require you insure your house.
Types of Insurance to be discussed today
Life Insurance Disability Insurance Health Insurance
Life Insurance
How much do I need? What is the right type? What determines cost? What is the best type?
How much do I need?
“Math” component Emotion component
Math Component
2,000,000
500,000
Capitalized Income Need
Debt
Emotion Component
Math tells you minimum needed Rest is a personal decision
Types of Life Insurance
Term Yearly Renewable Term Level Term Decreasing Term
Permanent Whole Life Universal Life Variable Life Equity Indexed Life
Yearly Renewable Term
Premiums increase annually as you age Death benefit remains level Must review at least every 3 years to
keep cost effective
Level Term
Premiums level for guarantee period Guarantee periods 5, 10, 15, 20, 25 years Death benefit remains level Cost effective for longer term situations
Decreasing Term
Premium is level for term (20 to 30) years
Death benefit declines as you age Typically used for debt “Dinosaur” Not very cost effective
Whole Life
Premium is fixed for life of policy Can be structured to be “paid up” Cash value develops to keep premium
level until death Designed to be in force until death
Universal Life
Flexible Premium Adjustable Life Minimum, Target, Maximum Premium Develops cash value like whole life but
with premium flexibility
Variable Life
Fixed premium like whole life Develops cash value Cash value can be directed by owner
into sub-accounts Greater return potential Greater risk Direct market exposure
Equity Indexed Life
Fixed premium Develops cash value Crediting rate on cash value is
determined by indirect exposure to market
Combinations
Universal Variable Life Universal Equity Indexed Life
What Determines Cost
Type of Insurance Underwriting
Super Preferred Preferred Standard Rated
Sex Smoking Family History Height/Weight Personal Medical History Blood Profile HOS
What is the Best Type?
Facts determine this Good and bad versions of every type Tool belt
Use right tool
If the death benefit is needed for a specific period of time
Especially at younger ages Term
If the death benefit is needed until death occurs, whenever that may be
Some form of permanent Individual facts determine which type
of permanent and how designed
Examples
Working professional couple, young children, still building personal wealth Term
Policy to fund ILIT for Estate Settlement Permanent
Significant age difference in couple Either Depends on facts
Designing Permanent Insurance
Premium Cash Value Death Benefit
Build Cash Value (i.e. Deferred Comp
Maximum Maximum Minimum
Minimum Minimum MaximumPermanent Death Benefit (i.e. ILIT)
Why Design to Build Cash?
All policies have a fixed cost component If you want to build cash value efficiently, you
must “overfund” the policy within IRS guidelines
80% of S&P 500 that have deferred comp plans informally fund them with overfunded permanent life insurance.
Creditor Protection, Tax Shelter, Self Completing
Disability Insurance
Short Term (STD) Pays up to 90 days
Long Term (LTD) Pays after 90 days
Pays income if you are sick or injured and can’t work
Group or Individual
Group Lower initial cost Guarantee issue Short premium guarantee More limits on contractual provisions
Group or Individual
Individual Higher initial cost Medically underwritten Long term premium guarantee More liberal contractual provisions
Components of Disability Insurance
Elimination Period (EP) This is your “deductible”. How many
days before benefits accrue. Benefit Period (BP)
How long are benefits paid; 5 years, Age 65, Lifetime.
Monthly Benefit Dollar amount of total monthly benefit.
Generally 60-70% of gross.
Components of Disability Insurance
Own Occupation Period/Definition Should protect occupation for benefit
period. Should be fairly short and simple, i.e. “Unable to do the main duties of your own occupation…”
Residual or Partial Provides a supplement to earned income
being generated while working part time.
Components of Disability Insurance
Cost of Living Adjustments (COLA) Be wary, very expensive rider, rarely is a
factor in most claims. Only applied while on claim.
Indexed Benefits/Update Benefits Adjusts monthly benefit amount each year
automatically to account for inflation. Guaranteed Increase Option
Guarantees right to increase monthly benefit in the future based solely on financial qualification regardless of current health.
For Most Clients
Combination of Group and Individual is most cost effective
Structure premium payments so benefits are tax free
Combo approach can cover a greater % of income
Disability Overhead Expense
Primarily for professionals Pays overhead expenses while they are
disabled Premiums are deductible Benefits are taxable but used to pay
deductible expenses Keep practice operating for return or
sale Structure with short EP (30 days) and
short BP (12 to 18 months)
Health Insurance
Group Individual
Group Health
Can be guarantee issue Can be written as low as 2 or 3
people on plan
Individual Health Insurance
Underwriting more challenging Focus on keeping premium as low as
possible Young and healthy larger deductible
HSA’s
High Deductible Coupled with tax favored account
that you own and control
Applications of Insurance Products
Life Insurance Income to family Income to business (key person) Stock redemption/Buy out Estate liquidity Deferred comp/SERPs
Disability Insurance
Income to self/family Cover overhead expenses
Case Study
Orthopedic Surgeon paying over $12,000 per year for $5,000,000 of level term
Underwriting classification, standard Table B, due to congenital heart issue.
Condition is NOT life threatening
Construct case with treating physician’s support
Case Study Outcome
Reclassified to Preferred Rates Premium reduced to a little over
$5000 per year Challenge underwriting class until
certain it is the best offer
Case Study Maximizing Disability Coverage
Monthly Pre Disability Income$20,000
In order to maximize coverage, individual MUST be
in place before GroupAt very high incomes, may have to add specialty line
(Lloyds of London) to cover
income
$10,000
Group LTD
$10,000
Individual LTD
Thank You
Larry W. Dykes, CLU, ChFC, AAMS
317.708.0383
SkyView Partners
1050 E. 86th Street, # 55-C
Indianapolis, IN 46240
http://www.linkedin.com/in/larrydykes