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.
You can borrow money from life insurance, that has a cash account for use, while the insured is alive. But you need to make sure you understand how these products work so that doing so doesn't backfire on you. Here are three pitfalls to avoid when you take cash out of life insurance:
1) Don't reduce the death benefit
Remember, life insurance is first and foremost a sum of money to take care of your heirs, estate, business, favorite charity, and all others who will carry on your legacy.
Taking money out of the life insurance policy while you are alive could very well reduce the survivor benefit. You don't want to short-change the beneficiary.
2) Don't tamper with the guarantee
Permanent insurance can have the unique feature of guaranteeing your coverage for the rest of your life. These guarantees are based on certain assumptions. Chief among these are that you will stick to a premium-paying schedule, and will keep the cash accumulating at a certain level.
If you take cash out of the policy, you may deplete the cash needed in the policy to ensure the guarantee. The coverage may not last as long as you want.
3) Don't force yourself to pay additional money
Some permanent policies will even ensure the guarantee when you take out cash. But the cost of providing you that guarantee will have to be covered somehow. They very well could ask you for additional premium payments to pick up the difference.
If they do this, then you will be paying more money into the policy than expected.
The moral of the story is this: get an understanding of what you want to use life insurance for – both the living and the death benefit – and make sure you are informed about the ramifications of tinkering with that strategy.
Please feel free to reach out to me with any additional questions.
It's always a good idea to get tax advice from a tax professional. Having said that, I can share some lessons learned from my 25 years experience in the life insurance business.
I think on virtually every claim I have helped file, the beneficiary has taken the benefit in a lump sum. No income tax there. If they had let the company hold on to the money, and distribute it as monthly income, they would've had to pay tax on the interest earned. Then again, they would've had the same obligation had they received a lump sum and invested it in a taxable investment to generate monthly income.
If you want to get really clever about this, you could do the following: take a lump sum life insurance benefit, and put it into a new life insurance policy on yourself. If you play your cards right, it could both accumulate tax-deferred and be distributed tax-free. Of course, you have to need the life insurance, qualify for a good rate, etc. Make sure you know what you're doing here.
Another way to get taxed on the life insurance benefit is to receive money from an estate that is so large, the unified credit won’t shield all its assets. This is an estate tax, not an income tax. With proper estate planning, you can avoid this. (I personally can't wait until the estate tax is repealed so we don't have to worry about that burden. This may seem like blasphemy coming from a guy who makes money selling life insurance to pay estate taxes; but frankly, I don't think the government has any right to my family's money that was already taxed upside down and sideways when earned.)
Just a little political commentary, as long as we are on the topic :)
I'll give you an example of how an annuity could used to your great advantage. In particular, I am referring to a single premium immediate annuity.
My father passed away a few years ago. He left my mother some money. She was at an age and stage in life in which she could no longer work and generate additional income; so, the money Dad left her was going to have to last as long as she did. And since she would not be able to bring in additional income, she didn't want to take any chances with her money. She wanted a guaranteed income for life.
Since I sell life insurance exclusively, I needed to get her help from an annuity specialist. He set her up with products from three different companies, due to the contribution limits of each. They were all insurance companies with strong financial credentials. Collectively, they provided the money needed each month to pay her bills, and also have some fun. She had peace of mind because she knew that amount would be guaranteed. As long as she did not increase her expenses, she would be fine.
We had to factor some taxes into her expenses, because a portion of the annuity distribution was taxable. Fine. All the bases were covered: financial needs analysis, good carrier selection, guaranteed income, and accounting for the taxes.
And also estate planning. She recently passed away as well, and has left a legacy to her children. All in all, a smart use of the product.
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.