The firm of Steven H. Kobrin, LUTCF
In 1991, I entered the life insurance business full-time, and soon formed my own national brokerage. Throughout my career, I have been dedicated to mastering the craft of selling life insurance, and am an expert in helping people get a policy who represent a “higher risk” due to health, lifestyle, or other personal issues. Along the way, I have developed a huge network of industry contacts that enables me to serve as a primary resource for all the insurance needs of my individual and corporate clients.
I now help brokers, advisers, and financial firms across the country utilize my organization and become a primary resource for the insurance needs of their own clients. They form strategic partnerships with my providers so they can stay within their own area of specialization, yet help their clients purchase the other products they need from professionals in those marketplaces. It's a winning formula for all concerned.
I run a linked in group about these strategic partnerships:
On the personal side, I am a religious Jew and avid practitioner of kung fu. I have studied spiritual disciplines and personal development all my adult life. I am a conservative in my political and economic views, and a liberal when it comes to keeping an open mind and a willingness to work with people of all persuasions.
BA in Liberal Arts
I am licensed to sell life insurance in every state except Alaska and Hawaii.
My own personal standard for an emergency fund is one year of expenses. This is a minimum, I am actually thinking about increasing it to two years.
I have learned from experience that it takes one to two years to recover from a serious financial/business setback. Bear in mind, we are talking about something major here that results in a substantial loss of income, and which will require some rebuilding to get back to normal.
I don't want to have to dip into my retirement or investment accounts in this situation. I want to depend exclusively on the reserve fund, and let it do its job. So, I think it's better to over-fund it, as opposed to under-fund it and jeopardize my other monies.
I use a simple cash account with my broker. No fees, no interest, and liquid. If I needed the money in two hours, I can get it.
As my cash picture changes, the role of this reserve fund will change. In my next stage of life, I may want it to be larger. Or, if I reduce my expenses, it will be smaller.
Here's an answer that will surprise you, but which is nonetheless true: you should be an infant when you get life insurance (obviously, your parents will pay for it :)
There are certain cash value life insurance products that are designed to accumulate significant amounts of cash over the long term. When taken out on the life of somebody a year old or less, they can perform extremely well over the course of decades. Their guaranteed cash rates are especially competitive. That cash could come in very handy when attempting to buy a house, start a business, or retire early.
Plus, the child will have the added advantage of being insured when he or she enters adulthood. If unfortunately they develop a medical condition, or take on a lifestyle risk of such as rock climbing, they will be grateful to not have to pay the going rate for a new policy.
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 :)
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.