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Monthly Archives: April 2018

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Achieve Financial Protection While Maximizing Your Pension Benefits

 

Pension maximization using life insurance is a way to gain needed death benefit protection while helping you get the most out of your defined pension benefits. If you are a participant in a traditional pension plan (also referred to as a “defined benefit plan”), you have a plan that is designed to provide you with monthly income payments upon retirement. First, however, you must make an irrevocable choice. Typically, your employer will give you two options for how the benefits will be paid—Life Only Benefit or Joint and Survivor Benefit. The Life Only option pays you the maximum monthly benefit, but upon your death, your spouse does not continue to receive payments. The Joint and Survivor option pays a reduced benefit, but your spouse will continue to receive benefits when you die. The pension maximization strategy using life insurance is designed to be a way to receive the higher life only pension benefit while also providing funds for your spouse in the form of a death benefit.

How does it work?

Here is how life insurance can be used to maximize pension benefits.
  1. The participant in the defined benefit pension plan purchases a life insurance policy to replace lost income after the participant dies. The death benefit should be an amount that can provide the spouse the same monthly payment amount as the Joint and Survivor option. The spouse is named as the beneficiary of the life insurance policy.
  2. Upon election of pension benefits at retirement, the Life Only benefit is selected rather than the Joint and Survivor benefit.
  3. Upon death of the participant, the life insurance death benefit is paid to the spouse. The pension benefits stop.
  4. The life insurance death benefit is then used to provide income for the surviving spouse.

Who can benefit?

If you’re married, participate in a defined benefit pension plan, and are willing to allocate a portion of your retirement funds to a life insurance policy, it may be worth considering the pension maximization strategy using life insurance. In most situations, it may be ideal if you are within five years of retirement when deciding on the strategy.
As mentioned earlier, the Joint and Survivor option will continue to pay your spouse monthly benefits after your death, but the Life Only option pays a larger monthly benefit. Generally, the Joint and Survivor benefit payment is reduced by one-third to one-half compared to the Life Only option. With the pension maximization strategy, the idea is to select the Life Only benefit and use a portion of the higher benefit amount to purchase a life insurance policy with your spouse as the beneficiary.
The death benefit proceeds from the life insurance policy would provide your spouse with the financial support to help protect his or her financial future. The goal is to receive the higher benefit amount from the pension, while still providing your spouse with the same financial protection as would have been received with the Joint and Survivor option.

Why life insurance?

Life insurance is designed to financially support those left behind after a death. With the pension maximization strategy, this premise remains true. With life insurance, you gain immediate death benefit protection that would pay proceeds to your spouse generally income tax-free upon death.
Let’s take a look at the advantages and disadvantages of using life insurance for pension maximization.

Advantages

  • Immediate financial protection and control. From the start, you gain death benefit protection for your spouse. When you die, your spouse receives the death benefit generally income tax-free. If you decide on the pension maximization strategy using life insurance, this death benefit replaces the pension income that stops.
  • Higher monthly pension income. When you select the Life Only option, you receive a higher monthly benefit. If your spouse dies first, you aren’t left with the reduced benefit of the Joint and Survivor option. With this scenario you would also have potential access to any accumulated cash values in the policy through loans and withdrawals to help supplement retirement income.
  • Opportunity to pass money to heirs. If your spouse predeceases you (the pension holder) and you keep the policy in force until death, any remaining life insurance death benefit would pass to beneficiaries, such as your heirs.

Disadvantages

  • May not be appropriate if the retiree is in poor health. Medical underwriting is required to qualify for life insurance. If the retiree is not insurable, this strategy does not apply.
  • Your spouse may lose medical benefits. Depending on your pension plan, selecting the Life Only option may disqualify your spouse from medical benefits that would be available with the Joint and Survivor option. Carefully review your pension plan guidelines.
  • Potential lapse of your life insurance policy. Should you not make the required premium payments to keep your life insurance policy in force, the policy may lapse and no longer provide a benefit to your spouse.
  • Not selecting the appropriate amount of life insurance coverage. It is important that the policy’s death benefit amount is enough to meet your spouse’s financial needs after your death. If you die soon after retirement, the death benefit needs to be sufficient enough to cover your spouse’s remaining years.
  • Your spouse may lack investment experience. After the life insurance death benefit is paid, your spouse will need to ensure that the benefit will last, especially if it is paid in a lump sum. Please discuss with your financial representative for details.

 

Contact your LHENetwork member today to help maximize your pension today.

Search our Database for a representative in your area today.

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Build, Preserve, and Maximize Your Estate

 

Estate planning can be a real challenge—even with a will in place. Life insurance death benefit proceeds can provide the liquidity needed to pay off debt, replace income, supplement retirement income, create an equitable inheritance between heirs, and even provide protection for businesses.

 

Who Can Benefit?

Your beneficiaries, including surviving spouses, children, other loved ones, and even business partners, could be faced with an array of financial complications—in addition to the emotional impact of a loss. Planning only gets you so far. How will you be sure that when the time comes, your wishes will be met? By using life insurance to reinforce your plans for your estate, beneficiaries have a simplified way to access the liquid cash proceeds needed to help ensure your wishes are met.
Not all assets are easily converted into liquid funds. Even if you have a will, certain items take time and often require specialized help to sell or transfer, like:
  • real estate
  • tangible personal property (e.g. jewelry, cars, art collections)
  • intangible personal property (e.g. stocks, bonds)
  • business interests/ownership
The specialized agents, fees, and time involved in dealing with asset transfers like this could end up costing your beneficiaries money. Other factors, like state laws, inheritance disputes, and probate court, could slow the process of heirs receiving their inheritance and cause financial complications for everyone involved. By putting a plan in place that includes life insurance, you can help ensure your beneficiaries have access to funds when they need it most.

 

Why Life Insurance?

First, having a will in place is crucial. A will allows you to control how and to whom your assets are distributed, and it can be used to suggest a guardian for the care of your children or other dependents. Without a will in place, state inheritance laws could determine how your property is distributed, and even who should care for your children. Having a will helps to ensure your wishes are met.
However, even with a will, assets may not always transfer immediately to beneficiaries. There are many circumstances that can impede the process— the most common being probate court. Your debt, funeral expenses, and the care of dependents could all be hanging in the balance during a lengthy court process. Life insurance can provide generally tax-free access to death benefit proceeds at the time of death, rather than waiting for court settlements or the sale of property to be finalized—helping to give your beneficiaries the financial support they may need during a difficult time.
In addition to laying the groundwork for a smoother estate distribution process, life insurance may help create a solid estate plan which allows you to not only preserve what you have now, but also build your estate throughout your lifetime. Good estate planning works to help protect your assets, while also taking other factors into consideration, like outpacing inflation and growing your estate value to maximize the inheritance for your heirs.

 

How Does It Work?

Estate planning is a complex process and should be done with the guidance of your life insurance agent, attorney, and any other professionals you may work with (e.g. accountants, trust officers, etc.). An in-depth analysis of your personal and professional assets should be performed to determine which planning opportunities can best benefit your estate. Plans for the allocation of different types of property can be constructed, as well as a life insurance plan to provide a liquid asset in the form of the death benefit.
A popular method is to use a joint survivorship life insurance policy. This type of insurance policy can insure two lives under one policy for a low cost and provides death benefit proceeds when both insureds have died, providing financial support to those who need it. The beneficiaries are typically children, a charity, an organization, or a trust. The death benefit can also be used to help pay taxes on sizeable estates upon death. LHENetwork offers survivorship products that can help protect your estate for your heirs, while also building cash value throughout your lifetime with the ability to earn interest. Talk to your LHENetwork representative about the various life insurance products available to meet your estate planning needs.

 

 

 

Find an estate planning solution with your LHENetwork representative today.

Search our Database for a representative in your area today.

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Help Preserve Your Wealth for Future Generations

Gain financial protection and help maximize the money you pass along to heirs.
There may come a time when you may need to think about the future generations of your family. You have worked hard, accomplished your goals, and accumulated funds to support a comfortable retirement. Along with your careful planning, maybe you would like to set aside funds to pass along to your children or grandchildren. Whether the amount is a little or a lot, wouldn’t it be nice to help ensure those funds are passed along in a tax-efficient manner? This would help maximize the money you can provide to your heirs. Life insurance provides death benefit protection and can help increase the value of the funds you pass along to beneficiaries
Legacy building, also referred to as wealth transfer, is simply a plan using life insurance to pass along money to your beneficiaries in a way that’s most favorable for them and for you.

 

Why life insurance?

Life insurance provides a death benefit, which can help provide financial security to beneficiaries generally income tax-free. For legacy building, life insurance offers the same two key benefits:
  1. It helps to provide financial protection and passes along a generally income tax-free death benefit.
  2. It can help maximize the funds you pass along— whether it’s for your children or grandchildren, a church, or perhaps a charity.
If you have set aside funds, you owe it to yourself to explore how life insurance can help efficiently pass those funds along to your beneficiaries.

 

Who can benefit?

There are a few items to consider before deciding on a legacy building strategy using life insurance. Importantly, legacy building should only be considered if you have funds available to support yourself throughout retirement. Those who have money already set aside for heirs typically consider a legacy building strategy. These assets are often held in low interest-earning accounts, which may not be a tax-efficient method for transferring wealth.
Here are a few questions to help you determine if the strategy is right for you:
  • Are you within the retirement ages of 55-75?
  • Are you financially sound, with your own retirement plan?
  • Do you have children, grandchildren, or an organization you’d like to benefit?
  • Are you holding funds designated to leave to heirs or children—certificates of deposit (CDs), savings accounts, or money market accounts, especially accounts designated as “payable/transfer on death” or POD/TOD?
  • Have you named your heirs joint owners of your assets?
  • Do you have an annuity you’d like to pass along to heirs?
  • Are you taking required minimum distributions (RMDs) but don’t have a current need for the funds?
  • Are you looking for tax-advantaged solutions to transfer funds?

 

Advantages

  • Immediate death benefit protection. From the start, you gain death benefit protection that will be paid out to your beneficiary upon death.
  • Income tax-free transfer to heirs. When you die the death benefit passes generally income tax-free to heirs.
  • Leverage. With life insurance, your premium payments can provide a larger death benefit immediately after issue. For example, if you purchase a $250,000 life insurance policy, that full amount would be paid as a death benefit once your policy is put in force. If your first premium payment is $1,500, for example, those dollars are “leveraged” immediately into the full $250,000 death benefit. These premium dollars purchase the full death benefit amount that would be available upon death.
  • Tax-deferred growth. The premium payments into a permanent life insurance policy may earn interest and grow on a tax-deferred basis.
  • Liquidity. Should your needs change or in an emergency, you may access the funds in a life insurance policy through loans or withdrawals.

 

How does it work?

When properly structured, a legacy building plan can help you gain death benefit protection and maximize the funds you leave to heirs.
  1. Establish whether the strategy is appropriate for you and that you need death benefit protection.
  2. Locate the funds you would like to pass along to your beneficiaries. These funds represent assets you don’t plan to use for retirement. The funds may be in a CD, annuity, IRA, or savings or checking accounts.
  3. The designated funds are then used to purchase a life insurance policy. This may immediately increase the amount available in the form of a death benefit. Consult your representative about methods of transferring funds into the life insurance policy.
  4. Upon death, the funds from the life insurance policy are passed along to beneficiaries in the form of a death benefit—passing along a legacy.

 

Considerations

It is important to explore your options and to work with your representative to gain a clear picture of your needs. The goal is to help you decide on an appropriate direction. There are costs with life insurance. Permanent life insurance policies require monthly deductions, which include the cost of insurance, expense charges, and potentially other charges. These deductions may reduce the cash value of the policy.

 

 

Help preserve your wealth for future generations and consider a legacy building strategy. Contact your LHENetwork representative today.

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