Brian Gruss Licensed Insurance Planner

Appreciating the Value of Life Insurance

Whenever someone passes away there is usually an associated financial loss. Such loss could be the primary income for a family or the replacement value of someone responsible for the care of a child or disabled parent. It could also be a business executive in charge of sales or an employee who managed the operation when senior management was absent.

This potential financial loss is often referred to as a person’s human life value. The value itself is calculated based on the future loss of an income stream, the future cost of replacement, or the immediate impact to a company while it attempts to replace the key employee.

For most families, the potential loss of income is the primary reason to buy life insurance. Losing the paycheck of a working spouse will leave most families in a tenuous situation. Their normal lifestyle becomes vulnerable on a reduced income.

In years past, the primary breadwinner was usually the father. The mother tended to the house, while the father headed to the office. Mom was there to welcome the kids home from school and Dad brought home the paycheck. Times have changed and today women participate equally in the workforce. Despite what continues to be an income discrepancy between the sexes, the money Mom earns is essential to the financial well being of the family.

Additionally, it is no secret that consumer debt in the U.S. is on the rise. Government data shows that Americans literally have a negative savings rate (i.e. we spend more than we earn). As such, any reduction in take home pay can potentially devastate literally hundreds of thousands of families. While this scenario is harsh enough while both parties are alive and well, the reality of what happens at the death of either breadwinner is frightening.

Because of these reasons, life insurance continues to play an important role in any financial plan. In fact, it should be the primary asset for families that stand to experience severe lifestyle disruptions should a spouse pass away. Unfortunately, the value of life insurance is frequently misunderstood by those who need it the most.

There are many variations of life insurance products to consider, but that’s a topic for another day. The important message here relates to the extraordinary value of life insurance itself, not any particular policy type.

Indeed, there are very few, if any, recipients of a death claim who have asked their insurance agent about the type of coverage. The fact is the tax-free death benefit provided a welcomed amount of cash at precisely the time when money was needed the most.

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Single Premium Whole Life: A Powerful Legacy Tool

As you grow older and join the “seniors” club, you may start thinking about what you want to leave behind once you’re gone—particularly if you’ve accumulated a significant amount of money over the years. Like most seniors, you’ll probably want to pass along some of this hard-earned money to your children, grandchildren, your church or even a favorite charity.

Luckily, there is an effective life insurance product designed to help seniors leave behind a legacy. It’s called single premium whole life (SPWL) insurance. A SPWL policy allows you to increase your estate value and provide your beneficiaries with an inheritance that’s potentially immune to federal taxes.

Countless advantages

Because of the many benefits SPWL policies have to offer, this type of insurance is growing increasingly popular among seniors. By simply placing a portion of your invested assets into a SPWL policy, you can reap the following rewards:

• Immediately increase the value of your estate
• Easily pass money directly to your beneficiaries, allowing them to avoid probate courts
• Provide an inheritance to beneficiaries that may be free of taxation
• Create a guaranteed lifetime death benefit
• Have the ability to receive the SPWL death benefit in the event of a catastrophic illness
• Avoid risk, even within a volatile market
• Pay a one-time premium without the need for renewals
• Access guaranteed cash values without penalty after the first policy for financial emergencies (Depending upon the policy provisions)

Are you an ideal candidate?

If you want to leave an inheritance to your loved ones or a charity, and you’ve already designated a portion of your assets to do so, you’re the ideal candidate for a SPWL policy. Obviously, you should never use any funds that are necessary for daily living expenses to buy a SPWL policy. However, you may want to tap into liquid assets, such as CDs, money market accounts and treasury securities, which are ideal for purchasing a policy.

Incredible tax savings

If you invest in mutual funds, stocks or even CDs, savings bonds and money market funds, the growth of your assets is subject to taxes. However, transferring your assets to a SPWL allows you to set up an inheritance that’s potentially free from federal income tax. That’s because death benefits from life insurance policies are generally not taxable.

Plus, as long as you properly designate beneficiaries on the SPWL policy, your heirs will avoid probate court. Obviously, you’ll want to work closely with Brian Gruss to ensure that your beneficiary designations are set up correctly.

A case study

Here’s an example of how a SPWL policy can greatly benefit both you and your beneficiaries: Let’s say 65-year-old Betty, who is a non-tobacco user, plans to leave a CD worth $50,000 to her grandchildren when she dies. When she decides to transfer this $50,000 from the CD to a SPWL policy, she’s able to purchase a guaranteed life death benefit worth $98,814. In other words, Betty has just increased this portion of her estate by nearly 50%, doubling the inheritance for her grandchildren.

Additionally, the death benefit will likely be free of income taxes for her grandchildren. On top of that, Betty no longer has to pay tax on the interest earned for the CD.

An effective legacy tool

Considering these countless advantages, it’s clear that a SPWL policy is an effective way to leave a legacy behind. If you want to protect your assets from taxes and increase your inheritance values, ask Brian Gruss about SPWL insurance.

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Maximize Your Pension Benefits with Pre-Retirement Planning

People retiring with pension benefits frequently encounter what is known as the “pension dilemma.” They are forced to decide whether to take their full pension benefit, which means zero income to their surviving spouses after their death; or take less than the maximum benefit so that their spouses will continue to receive benefits after they die.

One way to get around this, is to choose a joint and survivor option, which pays benefits as long as either spouse is alive. This option is automatically offered to married retirees; and the law requires that before you can elect anything else, you must both agree in writing. The drawback to this option is that benefit payments will always be less than those under the single life option even if the beneficiary spouse predeceases the participating spouse.

You have another alternative that is often referred to as pension maximization. You start by purchasing a sufficient amount of permanent life insurance on yourself before you retire, and name your spouse as the beneficiary. The income tax-free death benefit is designated to replace the lost pension benefit if you die first.  Of course, for this to work you need to be insurable to qualify for the insurance.

When you retire you and your spouse opt for the single life benefit option. This provides you with the maximum pension benefit for as long as you live. Use the difference in the amount between a single life and joint and survivor benefit to fund the life insurance premiums.  Often times you’ll even have money left over after paying the life insurance premiums.

You can determine if this alternative is right for you by meeting with your pension plan administrator and finding out about your projected benefits under the single life and survivorship options. Then ask an insurance agent to show you how much life insurance you will need to replace your pension income, and what it will cost.

The life insurance premium should be less than or equal to the difference between the single and joint and survivor monthly benefits. You should also choose a permanent policy, such as a whole life or universal life policy, which offers a fixed premium for the rest of your life.  Otherwise, if your premiums increase as you age, you may not be able to afford the insurance when you need it the most.

Another important point to determine before you choose pension maximization is whether or not your pension plan requires you to select the joint and survivor option in order for you to receive post-retirement medical benefits.

Finally, keep in mind that if you decide to purchase life insurance under the pension maximization option, rates are based primarily on age. The younger you are when you make this decision, the lower your premium costs.

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