lifeinsurance

BY LEONARD C . WRIGHT , CPA / PFS

Smoothing Out Life ’ s Bumps in the Road Life insurance options protect our clients when the inevitable bumps in the road occur . The stability of whole life insurance tempers the volatility in the capital markets and provides resources in times of need and income as clients age .

Fee-only planners generally avoid risk management planning due to perceived conflicts that are present when accepting a commission . Conflicts always exist regardless of the compensation structure . It is common to hear from fee-only advisors that implemented life insurance or annuity strategies result in lower assets under management and lower fee income — a similar conflict .

The insurance profession can have a stigma due to what CPAs see over the long run , such as when policies set up for estate planning purposes are in danger of lapsing . As CPAs , we can provide significant protection through a bit of knowledge , and a client ’ s best interest is served through gaining working knowledge around risk management products . A couple of tips to consider :

• Request a specimen policy so the clauses of the life insurance policy are clear .

• Depending on the premiums , consulting a fee-only insurance advisor may be worthwhile . Integrated financial planning should include a deep understanding of risk-based products , even if it reduces assets under management . The lifecycle of life insurance is broad .

Life Insurance Lifecycle When we are young , term , universal life ,

variable universal life and whole life provide the following benefits :

During life :

• When coupled with a waiver of premium rider at some companies , should total disability occur , term insurance premiums are paid by the insurance company and term insurance can be converted to whole life insurance , where the life insurance company will pay the premiums under the proper contract .

• Whole life values can be accessed through borrowing .

• Children ’ s policies can carry additional purchase benefits that may allow other insurance purchases without evidence of insurability . A child with any ailment that renders the child uninsurable may obtain more than $ 1 million of additional coverage without additional underwriting .

When coupled with a waiver of premium , and total disability , the child may receive premiums paid by the insurance company that adds up to significant cash value by the time retirement is reached .

At death :

• Tax-free death benefit

10-30 Years After Inception — Pre- Retirement : Living Benefits :

• Premiums paid on total disability .

• If the proper riders are in force , additional policies may be purchased without evidence of insurability . If there is a total disability , if a waiver of premium rider is included , the premiums may be fully paid for . ( Many policies will stipulate that the term portion of a universal life policy is subject to the waiver , so be sure to read your contract .)

• Asset that can be borrowed against .

• Asset on the personal financial statement .

10-30 Years After Inception — Pre- Retirement : Death Benefit :

• The beneficiaries may receive a death benefit more significant than the original policy written , depending on the policy purchased .

In Retirement :

• Estate Planning : Transferred to a trust estate subject to the transfer for value rules , not subject to estate or income tax .

• Tax Planning : Tax-free 1035 exchange of assets to pay for a long-term care policy . Many who pay premiums for a long-term care insurance policy have limited Schedule A deductions or may not file a Schedule A due to higher standard deductions .

14 CALIFORNIA CPA JUNE 2023 www . calcpa . org