The firm of Steven H. Kobrin, LUTCF
I am second generation in the life insurance business, and have brought our local general agency on to the national stage. In doing so, my team and I have created an independent brokerage with a truly unique platform of services, for both consumers and their advisors. These include:
* A policy for virtually every applicant, from preferred risk to high-risk.
* Applications approved at the rate quoted
* Complementary policy audits for all clients to ensure optimum product performance.
When I am away from my desk, I am spending time with my family, especially my darling granddaughter. I am a serious martial arts practitioner, as well as a student of philosophy, religion, and psychology.
BA in Liberal Arts
I am licensed to sell life insurance in every state except Alaska and Hawaii.
This is a very common question among business owners applying for a bank loan. Let's look at an example.
Bob wants to borrow $2 million from his local bank, to expand his business. His banker agrees to lend him the money, but wants to have life insurance in place on Bob's life. Why? Because if Bob tragically dies before the loan is paid off, his banker doesn't want to have to chase his wife or his estate for the money.
So, the race is on for Bob to get a policy. He wants that coverage quickly so he can close the loan and get his money. He gets prequalified for coverage, finds a company that will give him good underwriting, and submits an application. The application is approved, the policy is delivered, he pays for it, and the coverage is put into force.
Now he is ready to execute a collateral assignment. He gets a form from his bank, or from the insurance company – whichever the bank prefers – and completes it. His wife is the beneficiary, and the bank is the assignee. He gets the money from the bank and sinks it into his business.
Now let's suppose he unfortunately meets his demise a year later. His wife files a claim. The claims department of the insurance company pulls the file and notices that the benefit has been collaterally assigned to the bank. They contact the bank and ask for documentation of any outstanding balance on the loan. The bank provides this, gets paid, and then Bob's wife gets the rest of the death benefit.
The use of a collateral assignment makes sure the lender gets paid only what they are due. If the bank had been made the beneficiary, they would've been given the full death benefit, even if some of the loan had already been paid off. They would've been overpaid, and Bob's wife would've been given nothing.
If you are applying for life insurance to secure your own business loan, remember that there is no reason to make the lender the beneficiary. Use a collateral assignment and make sure your broker walks you through its execution.
Please feel free to contact me with additional questions.
I'll give you an example that is a composite of cases in my files.
Bob is 35 years old and needs life insurance for family protection. He wants to make sure his wife and kids are provided for if they tragically lose him. So he buys $2 million of a 20-year term, thinking that should be sufficient coverage until his youngest child is out of the house. He is young and healthy, so the premium is pretty low.
Now fast forward 15 years. He has a second mortgage, and two more kids. He realizes that he only has five years left on his premium guarantee, but certainly needs life insurance way past that point. But here's the kicker: he unfortunately had a heart attack last year, and a number of other serious medical complications. You wouldn't expect this in such a young guy, but these things happen. He wants to buy another term policy, but many carriers won't even touch him. The ones that are interested want to charge an arm and a leg.
Fortunately, his current term policy has a conversion privilege. He can switch to a permanent policy and lock in a guaranteed premium for the rest of his life. Best of all, he will not have to go through underwriting - the completion of a simple application will suffice for an approval. He will get charged the rate for someone his current age, but it will be at the original rate class. If he was approved at preferred non-smoker rates for his term insurance, he will be converted to a permanent policy at the same rate class.
In this situation, the term conversion is a real coverage-saver. Bob would basically be out of luck in getting a new policy because of health problems he didn't foresee down the road. The moral of the story is this: you cannot take your insurability for granted. God willing you stay healthy, but there is no guarantee. Start thinking about locking into rates on a long-term basis. The conversion privilege can help you do that.
It sounds like you are presently considering traditional individual retirement plans for your kids. Please allow me to expand your thinking a bit and offer a an unconventional, but very effective retirement vehicle, life insurance.
I am sure you are familiar with the product. This is how it can be utilized for retirement:
- Significant long-term growth potential
- The right product from the right company can grow large amounts of cash over time. This will be accomplished either through handsome dividends or an attractive interest rate, depending on the product you choose.
- Strong guarantees
- If you are looking for something more conservative, few products can match life insurance for guaranteed cash accumulation.
- Text deferral and tax-free distributions
- If the product is properly managed, cash can grow tax-deferred, and be removed from the policy on a tax-free basis.
Your children will not have to wait until the “official” retirement age to access the cash. They can do so before that time for pre-retirement needs if they like, such as taking on a mortgage or starting a business.
Of course, you have to remember that life insurance is first and foremost a very economical way to provide a survivor benefit. But this is something your kids would probably need anyway, right?
By purchasing it now for them, as opposed to making them wait until they are older, you can help them save a lot of money in premiums. The exact pricing, and the value you could receive for your premium dollar, would be determined through prequalification. This way you could see exactly how the costs and benefits would compare to more traditional retirement vehicles.
I think that when you are trying to help provide a comfortable future for your children, you need to consider all available options. This will help you make the best decision.
For me, all the conversation about using life insurance as a retirement vehicle focuses on two points: the need for a death benefit, and the cost of the death benefit.
You can't escape the fact that life insurance is a death benefit oriented product. It was designed to enable you to take care of your heirs in a very cost-effective matter. Each dollar of benefit literally cost pennies in premium, and there is probably no better way to leverage money for your estate.
Let's suppose that you know this, and like this, and have already arranged for your family, business, and favorite charity to receive a legacy through other policies you have. Since all your estate needs are taken care of, you can now afford to use a life insurance policy purely as a cash accumulation vehicle. Could it still be cost-effective for you?
The big factor here is the cost of insuring you. A significant portion of your premium payment will go towards maintaining the death benefit, even though you may not need it. That's the way the product is built. So now the question is: are the expenses of the life insurance policy lower than the expenses of other products that don't have the overhead of a death benefit to support? They do, of course, have admin expenses, and potential tax consequences, and so on. In total, which product will cost you less?
Here's what I suggest you do; get prequalified for life insurance. Make sure that you are being offered the absolutely lowest premium available. Then do a comparison between the life insurance policy and other potential options to accumulate cash. See which one puts more money in your pocket at the end of the day. That's the product to go with.
Feel free to contact me with any additional questions.
It sounds like you are talking about a policy in which the total death benefit includes the face amount and the cash surrender value. In that case, the total amount payable to you should be over the $100,000.
The carrier should pay the total amount automatically. A simple phone call to the claims department will give you an answer.
I am sorry for your loss. I just went through this process with both my mother, and a client who was also a close friend. It's very tough losing people. Having some ready cash does make it a bit easier:)