Showing posts with label indexed universal life. Show all posts
Showing posts with label indexed universal life. Show all posts

Saturday, March 25, 2023

One Bucket Or Two? - Another Long Term Care Option

When people are planning for retirement, one very important piece of the puzzle is often neglected. While thinking of once-in-a-lifetime trips and pickleball sound fun, long term care expenses have to be part of the equation. 

As mentioned in a previous post, the "no go years" happen when one's health deteriorates into a chronic illness. Caregivers are expensive in a facility and can cost even more to be in a client's home. In a short amount of time an entire retirement savings can be gone.

I like to say that people who buy Long Term Care insurance (LTCi) are "forward thinkers". And for many younger "forward thinkers", say under 40 years of age, it can be cost effective to look into a life insurance policy with "living benefits", which can be used for long term care expenses, instead of a traditional LTCi policy.  In other words, one could use their life insurance while they are still alive.



These types of policies come in different formats and pricing. Generally speaking, here are a few difference in these hybrid life/LTCi combo policies.

  • Underwriting: Since the policy is a life insurance policy, the underwriting guidelines may be different. I've seen LTCi policies be declined, yet the client is approved for a life insurance policy. However, if the LTCi portion is a separate rider, it can be underwritten apart from the life insurance. 
  • Benefit payments: Many of the policies with Chronic Illness riders or equivalent Living Benefits pay the benefits directly to the insured, but some with true LTCi benefits may require receipts for reimbursement. Check with you agent to find out which is best for your needs.
Traditionally, these "living benefits" were found exclusively on permanent life insurance policies, like whole or universal life. Recently we found a carrier who also offers a term life policy with the living benefits included. 

There is one important part of this combo life insurance/LTCi piece that needs to be covered. Generally speaking, if you decide to purchase one of these products, be aware that if you become chronically ill and need the benefits to cover the cost of your care, you may exhaust your life insurance benefits which could be of use to your survivors when you die.

This is where the buckets come in. Many of these policies have one bucket of money, and like stated above, can be used for either life insurance or long term care expenses, but not both. (I have seen a version that keeps a small amount of life insurance aside, say $10,000). 

On the other hand, there are also policies with two buckets of money, with each being able to pay out. For example, let's say you have a $100,000 policy and have a stroke. You can use up to the $100,000 for your care until that bucket is empty. If you should die, the second bucket is still full for your life insurance needs. 

The "two bucket" policy can cost more, and that is because of the potential for paying out twice (once for your chronic illness, again at your death). 

Let's try another example of the same $100,000 policy, but change things up a bit. Again, you have a stroke, but after using half of the money, $50,000, you pass away. At that point the life insurance bucket pays out it's $100,000, so the total payout is $150,000.

When I talk to clients about LTCi one objection is raised far more than others. "What if I die before I need it?" It's a reasonable question, because LTCi can be expensive and if someone were to suddenly pass away, the premiums would be for nought. However, with a combo plan, it will still pay out the death amount, so nothing is "wasted". 

Also, traditional LTCi policies have a claus that states that the insurance carrier has the right to raise the premiums of policies that are in force if they need to. This happened after the Great Recession of 2008. The insurance companies had invested heavily into the stock market, and when the market dropped so did the amount of money on hand needed to pay claims. Several companies raised premiums 15-20%, with at least one carrier going for a second premium rate hike not long after the first. With life insurance, your rate is locked in.

Combo products can be a useful part of an insurance plan for a lot of people but make sure you ask your agent or insurance broker about your options and how it will pay if you need it.

Chris Castanes is the president of Surf Financial Brokers, helping people find affordable life and disability insurance coverage. He's also is a professional speaker helping sales people be more productive and efficient and has spoken to professional and civic organizations throughout the Southeast. And please subscribe to this blog!

Tuesday, August 23, 2022

Do You Have A Rainy Day Fund?

We often hear about people who need funds in an emergency. Someone who has a medical emergency, for example, may need some quick cash for hospital bills, deductibles, co-pays. Along with that could be a shortage of money to pay bills while out of work. 

A general rule of thumb has been to make sure you have six months of money saved to pay bills, but many rarely do this. The solution has been to wait until an emergency occurs, then start a GoFundMe page and ask friends or family (or even strangers) to contribute. People who know I sell insurance will ask me "Why didn't you sell that person some insurance?"  My answer is "I tried but they didn't find it important enough at the time."

However, if one owns a permanent life insurance policy that builds cash value, asking friends and strangers to kick in doesn't have to happen. And by overfunding a policy*, building that cash value can happen faster. 


I knew of a gentleman who had quickly built a small fortune in a life insurance policy and would "warehouse" his money until he needed it. If he saw a piece of property he wanted to purchase he would call the insurance carrier and "borrow" against his policy, and within 6-8 months he would have the loan paid off. By using this method he avoided having to fill out loads of paperwork at a bank and, in most cases, he would have the money within a few business days.

The point of this is that life insurance that builds cash value can be used for emergencies, like a critical illness, or many other things. If you have questions about how this works, visit our site and book a short phone appointment to discuss. In the meantime, please stay healthy. 

*There are limits as to how much one can contribute to a policy which are set by the IRS. Tax penalties can apply if the policy isn't structured correctly.

Chris Castanes is the president of Surf Financial Brokers, helping people find affordable life and disability insurance coverage. He's also is a professional speaker helping sales people be more productive and efficient and has spoken to professional and civic organizations throughout the Southeast. And please subscribe to this blog!

Wednesday, June 16, 2021

How Can I Use Life Insurance To Fund College Tuition Costs? 2023

During a discussion with a friend of mine, whom I'll call Bob, we talked about paying for his child's education costs if and when he went off to college. Bob had been divorced a couple of years and his son was in first grade at the time of our conversation. 

Bob has his own business and does pretty well financially, but he isn't a millionaire by any stretch of the imagination. He told me that he hoped that his son would get some sort of scholarships down the road, but due to his above average income, the child probably wouldn't be eligible for any financial aid when the time came. I agreed with him on this point. 

One of the first things we did was run an estimate* of how much a four year college would cost 12 years out. When I say "estimate", it truly is just that, because there are so many variables like the following:

  • Will the child go to a public or private college?
  • Will the school be in state or out of state?
  • What if the child decides to get an associates degree at a 2-year school?
  • What if the child doesn't go to school at all?

These are important things to think about because of the nature of our current college savings plans. Most of these plans, like the 529 or Coverdell plans, give tax breaks for setting aside money for college. And as most things that are "tax related" go, there is going to be plenty of paperwork and documentation involved. That means Bob and his child would have to disclose any college savings plans and the amount of cash accrued inside those plans. 

During this discussion I asked Bob if he had any life insurance, which he did. He had a term life policy that covered the mortgage on his house and his ex-wife was the beneficiary due to the court determining this at the time of their divorce. 

This is when I brought up using life insurance as a college savings plan. The reason I like to consider this is because it takes care of two problems at once. First, Bob needed additional life insurance as his term policy was not enough cover the cost of college for his son if he were to die too soon. Secondly, the cash value inside the policy would not need to be disclosed on any financial aid applications.

He agreed to look at some numbers. We had planned on taking money out of the policy during his son's freshman year, but a phone call gave us another strategy. My friend at the insurance company suggested a strategy where Bob's son apply for college loans. Since the loans wouldn't be due until he graduated, he could pay them back then with little to no interest in full. By waiting until the child was out of college to repay the loans, the cash value would have an additional four years to build cash value. 

Because Bob was healthy and an non-smoker, he was able to get more "bang for his buck" out of the policy. After some consideration, Bob and I agreed that the best way forward was to use an indexed universal life insurance plan, as a whole life plan would cost more and not build cash value as quickly. 

Another reason we liked the plan was that if the child, for some reason, didn't need the money, Bob could use the cash value to supplement his own retirement or take advantage of the living benefits** if he were to become chronically ill. 

If you have questions regarding using life insurance while you are living, drop us a note. In the meantime, please stay healthy!


*There are many calculators out there that can help you estimate the future costs of your child's education. We recommend this one.

**Living benefits are not available on all plans but were included at no extra charge in this case.

Chris Castanes is the president of Surf Financial Brokers, helping people find affordable life, disability, long term care, cancer, accident and other insurance coverages in North Carolina, South Carolina, Virginia, Tennessee and Georgia. He's also is a professional speaker helping sales people be more productive and efficient, and has spoken to professional and civic organizations throughout the Southeast. And please subscribe to this blog! 

Monday, June 7, 2021

My Discussion With Michael Seabolt

I recently met Michael Seabolt through a LinkedIn insurance professionals' group. As I am an agent who works directly with clients, I thought it would be interesting to give you some insights from the perspective of someone who works behind the scenes with agents and financial advisors. 

Michael Seabolt is currently the managing member of Flower Risk Advisors, LLC, a cannabis industry focused tax and risk mitigation consultancy. In this role, Michael consults with cannabis business owners and executives, and their tax and legal advisors, providing risk and tax management solutions for the legal cannabis and hemp industries.

Michael also is a contracted consultant with Bell & Associates Consulting, LLC is Phoenix, AZ which is an independent insurance brokerage firm representing over 70 of the largest life insurance and annuity carriers. In this capacity, Michael consults with financial intermediaries (financial advisors, insurance agents, tax and legal advisors) to provide tax mitigation and risk protection solutions for their business owner and high net worth clients.

Michael has over 25 years of professional experience in the financial services industry, primary in wholesale distribution of managed money, investment advisory and insurance space. His experience includes VP of sales and business development for an international asset and wealth management firm. In this role Michael developed relationships with financial advisors, family offices, insurance and trust companies and private banks to broaden product offerings for their institutional and high net worth clients.

Previously, Michael spent nine years with a London based hedge fund and wealth management firm. The position involved extensive international travel with offices in London, Hong Kong, Nassau and Switzerland. His responsibilities here included private client meetings, conference presentations, panel board advisory and executive level relationship management.

In his free time, Michael enjoys spending time with his three children. You can find them on the ski slopes in the wintertime and the golf course in the summer.

With an impressive resume like this, you can understand why I wanted to discuss with him how his part of the insurance industry works.

Thanks for taking the time to talk today. You have an very interesting background, but I'm curious as to how you got into the insurance industry.


I've been in the financial services industry for 25 years, the last 9 of which have been in the insurance industry. I spent 5 years with Allianz, one of the world's largest insurance companies, covering US broker-dealer distribution. I've had my private consulting practice for the last 4 years, focusing on utilizing life insurance for tax and risk mitigation.

How do you find your prospects?

My clients are insurance agents, financial advisors, CPA's and attorneys. I help them with their largest clients and most complex needs. 

How do you prepare for a client meeting?

I perform stringent due diligence on the financial professional with the goal of understanding their practice so I can be most effective in our meeting. 

We met through LinkedIn. Have you had much success with it?

LinkedIn is a good medium for connecting with colleagues in the industry.

I agree. I think too many people avoid networking within their own industry sometimes because some of those people are competitors, but I've gotten some great sales tips and advice.

Not counting my book, do you recommend any good books on sales?

"Tax Free Retirement" by Patrick Kelly and "The Power of Zero" by David McKnight. 

I also enjoy Patrick Kelly's books. He has some good videos on YouTube as well. That leads to my next question. Do you have a mentor? How have you become a mentor for others?

I have been fortunate enough to have had several mentors and sources of influence in my career. I enjoy "paying that forward" and train agents and advisors on how to optimize their practice and gain traction in the business owner and High Net Worth client channel.

Has Covid affected your practice?

I have been unaffected personally from the pandemic, however my practice has flourished. Mortality risk has become front and center in our daily lives and clients appreciate the benefits of life insurance and long term care protection. The massive Federal debt spending which injected capital into our financial systems will lead to significantly higher taxes in the future. We need to educate and empower our clients today to protect themselves for this coming tax risk.

I agree. Sooner or later we're going to have to pay the bill. On a related note, what did you do with your first commission check?

1999 Chateau Haut Brion and aged petit filet.

That is great! That must have been one nice commission check. Last question, have you ever had a strange or unusual encounter with a client?

I am fortunate to have engaging conversations on a daily basis. I will share a story of a client whom passed away last year from Covid after recently purchasing a life policy from us. I felt blessed to be able to deliver a ix-figure death benefit claim check to his surviving spouse. There are fewer more fulfilling moments in our industry.

When it comes down to our business, that is what we do. Thanks for your time! I am sure our readers appreciate this information as well. 

Michael can be reached through is website at www.consultbell.com

Chris Castanes is the president of Surf Financial Brokers, helping people find affordable life, disability, long term care, cancer, accident and other insurance coverages in North Carolina, South Carolina, Virginia, Tennessee and Georgia. He's also is a professional speaker helping sales people be more productive and efficient, and has spoken to professional and civic organizations throughout the Southeast. And please subscribe to this blog!

Wednesday, May 12, 2021

What Is The Mix And Match Life Insurance Strategy? 2023

Can you imagine having one wrench in your toolbox that is supposed to take care of all sizes of nuts and bolts, but you know deep down that that wrench can't do all that the jobs it is advertised to do. It works fine on some things, but not all things. Your life insurance is like that as well.

When someone tells me that they only buy term life insurance or they only buy whole life I always asks why. The most common answer is something like, "That's what my mother always had." I want to respond that my mother drove an AMC Gremlin, but you don't see me with one. 

The other answer I get is that they heard a financial "guru" on television who is an "expert" in all things pertaining to personal finance. This guru suggested they "buy term and invest the difference". I won't go into that argument but I did cover it in the previous post.

This is why it is important to know about the different types of insurance and the needs they fill. Having only one type of insurance at a time, or for your entire lifetime, can be inefficient and expensive.

First and foremost, life insurance is at it's cheapest when you are young and healthy. Leveraging your age and good health can work to your advantage, especially when it comes to permanent life insurance coverage. In a perfect world, one could afford to buy all the life insurance they need when they are in their 20's. But our lives are not always ideal.

Some people will buy term coverage during their working years with the intent of buying permanent insurance, like whole life or universal life, when they "have the money" or retire. Others will try to buy an expensive plan when they are young, only to stop paying for it when they need the money for something else. 

If you know what features each kind of life insurance work best, you can develop a better strategy for securing your family's financial future while keeping it in your budget. A great way to do this is to "mix and match" a couple of types of insurance. 

For instance, let's say that you have met with your agent have agreed that you need $500,000 of life insurance coverage. That would be an expensive policy if it was all in one whole life program. However, you also know that you may need some permanent coverage down the road when you are older.

At this point you could, assuming you are fairly young and in good health, purchase a $450,000 term policy, either 20 or 30 years, for a affordable rate. Then you could cover the difference of $50,000 with a permanent policy, like an Indexed Universal Life plan. That would make sense to most people and fit in their budget.

An important part of all of this is having an independent agent who can offer a wide variety of plans. Some agents only want to sell term life while others really push whole life to their clients. It's like going to a car lot that only offers sedans, but you need a truck. Why bother? 

Make sure that your agent has all the insurance products you need. If you feel as if he or she is pressuring you into one plan instead of giving you several options, look for someone else to help you. 

If you have any questions about this, let us know. In the meantime, please stay healthy. 

Chris Castanes is the president of Surf Financial Brokers, helping people find affordable life, disability, long term care, cancer, accident and other insurance coverages in North Carolina, South Carolina, Virginia, Tennessee and Georgia. He's also is a professional speaker helping sales people be more productive and efficient and has spoken to professional and civic organizations throughout the Southeast. And please subscribe to this blog!

Monday, May 10, 2021

Should I Buy Term and Invest the Difference? 2023

There is a school of thought that when it comes to life insurance, people should "buy term and invest the difference". What does this mean and why should it matter when you are trying to secure your family's finances?

First off, the people who like to preach this method of buying life insurance have some sort of issue with purchase permanent life insurance. Whether it is whole life or universal life, they think that the cost too high. These people also think that the growth inside the policy, building cash value, is not as good as putting your money in the market. 

One of my pet peeves in the financial services industry is the large number of financial gurus who give generic blanket advice. These gurus, who are prevalent on TV, radio and other media, including books, seem to feel that everyone is in the same boat. As someone who has been working in the insurance industry for over 20 years, I can attest that financial situations are like fingerprints - no two are alike.

Another issue that many of the agents out there who like the "buy term and invest the difference" mantra are captive agents who work for companies that do not offer good permanent products. Even worse, these agents have been given bad information as to how some permanent life insurance products work by their managers. I have worked for a few of these companies and have heard it myself. 

As I have said in the past, all insurance products have a need somewhere, but not all insurance products are for everyone. This applies to term life as well. Term life insurance is great if you can quantify your specific need. An easy example of this is a loan that needs to be secured. If you have a 30 year mortgage on your home, a 30 year term policy fits the bill, because if you were to die your family could pay off the note. The lender will be happy to know this too.

For many families, there are more things going on than just a mortgage though. There may be other debt, like credit cards and car payments. A young family may want to consider education costs of their kids as well. After doing the math, a 20 year term policy may do the job while the debt is there and the kids are still living at home.

Let's assume that our young family did the math (with their trusted life insurance agent, of course) and realized they needed $300,000 worth of life insurance. A term life policy may cost them around $50 each month (these are estimates). But a permanent policy would cost around $150 each month. According to the gurus, they should purchase the term policy and put $100 into an investment each month. What kind of investment? Mutual funds, hopefully tax deferred, like an IRA. 

Here's the main problem with this strategy. They almost always will buy the term life policy (if the agent has effectively communicated the need) but they rarely do the investing part. "Check back with me in a few months," is the refrain when it comes to putting that extra $100 somewhere. It may be a budget issue or the client just isn't sure about the markets. Either way the plan is not complete.

People have varying degrees of risk tolerance, which is fine. As mentioned, no two situations are the same. Not everyone wants to be in the market and the ones that do can do so through online trading platforms nowadays. 

So what is a suitable alternative that will help a client efficiently and in their budget? Drop us a note or book a short phone appointment to discuss. In the meantime, please stay healthy.

Chris Castanes is the president of Surf Financial Brokers, helping people find affordable life, disability, long term care, cancer, accident and other insurance coverages in North Carolina, South Carolina, Virginia, Tennessee and Georgia. He's also is a professional speaker helping sales people be more productive and efficient and has spoken to professional and civic organizations throughout the Southeast. And please subscribe to this blog!

Wednesday, April 14, 2021

What Is The Convertibility Feature In Term Life Insurance?

People who buy term life insurance usually do it because it is extremely affordable and it fits well within their budget during their working years. At some point down the road, however, a permanent policy that can build cash value may seem more attractive. Perhaps the insured can afford to pay a bit more or they just don't need as much coverage. In other words, situations change.

Most term life insurance policies include a stipulation that one can "convert" the policy to a permanent policy, either a universal life or a whole life, within a specific time frame. Instead of purchasing a new policy, one can convert all or some of their current policy, which is much easier. That is because with a conversion there are no health questions or exams. Yes, the new policy will be based on the age of the insured at the time of the conversion, but that would be the same if one were to purchase a new policy.

Without having to worry about health questions, one can convert their policy regardless of changes in health. For example, say you purchased a 20-year term policy 10 years ago, but since then your health has declined significantly. A heart attack, cancer or diabetes would probably keep you from getting a new policy or have one issued at a higher premium . However, you could convert some or all (depending on the insurance carrier) of the face amount without being concerned if your current health situation will affect the rates.

In other words, if you were healthy when you bought the term policy, the new permanent policy will be priced as if you were still healthy, even if you are not.

Why do people want to convert a term life policy? The first reason is to lock in on a premium that will not increase. At the end of the policy's term period, the rate will jump up dramatically and will do so each year. This becomes an "annual renewable term" (ART) which in essence is a series of 1-year term policies. No one really wants that. 

On the other hand, permanent policy will stay the same price as long as you continue to pay the premiums. No more having to worry about outliving your life insurance.

Another reason people will convert a term policy is to start building some cash value. That money grows inside the policy tax-free and can be used down the road for all kinds of purposes*. The earlier one converts the policy the faster the cash value grows. 

The important point is too find out when you purchase a policy as to what your options are. Some carriers will only let you convert in the first 10 years while others will allow for a conversion anytime before the term ends. 

Also, find out what kind of policies you can convert your term policy to. You may not want a traditional universal life policy and that may be your only option, while other companies only have whole life. These are good questions to ask your agent, or drop us a note and we'll help you out. 

Know what your options are when purchasing life insurance! 

*Depending on the amount of cash that has accumulated in a policy, the funds can be either surrendered (cashed out) or borrowed. Surrendering the cash value could have tax implications, but getting the money in the form of a loan is a great way to use the funds for a retirement supplement. Any outstanding loan amounts will be deducted from the face value of the policy at the time of death.

Chris Castanes is the president of Surf Financial Brokers, helping people find affordable life, disability, long term care, cancer, accident and other insurance coverages in North Carolina, South Carolina, Virginia, Tennessee and Georgia. He's also is a professional speaker helping sales people be more productive and efficient and has spoken to professional and civic organizations throughout the Southeast. And please subscribe to this blog!

Friday, April 9, 2021

The Cost of Waiting

People generally don't want to have to take on a new monthly bill, especially if it is for something they do not plan on using, like life insurance. But putting off the purchase of a policy can cost you more money in the long run.

Life insurance, as well as disability and other types of insurance, are based on your age. As we get older the rate goes up until you "lock in" on a rate. Life insurance rates are based on risk, and the risk of you dying each year goes up as you age, thus making the premium increase. Buying life and disability insurance when you are younger can save you money in the long run while giving you the coverage you need in case something should happen to you.

This is the first reason why you should not put off buying insurance. As we age our health declines. Unless you are one of the few people who decide, in the midst of a mid-life crisis, to get back into shape, your health will more than likely get worse as you age. 

I currently have a client who is in desperate need of more life insurance, but her health issues have made it nearly impossible to find a policy for her that fits in her budget. Over the last 20 years that I have worked with her and her family, she has had tremendous weight gain which has brought on an onslaught of other issues, like diabetes, high blood pressure, cholesterol and joint pain. 

If she had taken a serious look at a policy when I first met her she would have had the coverage she needs now. Unfortunately, her best bet down the road will probably be for a "guaranteed issue" policy which will cost her a lot of money for just enough to bury her.

Leveraging your good health can be a great way to keep your insurance costs down. It also helps when overfunding a life insurance policy for accelerated growth inside a cash value policy. Permanent policies, like Indexed Universal Life (IUL) can be used for things other than the death benefit, like long term care expenses, chronic illness and a retirement supplement.

Another reason to buy early is to protect your loved ones. Just because you are young doesn't mean you don't have responsibilities. The sudden and unexpected death of a young parent can be even more catastrophic to a family's financial future because young children are involved, as well as the fact that the mortgage payment is mostly interest, leaving little to know equity in the home. That means the burden of making a mortgage as well as funding the educations of the kids could end up on the shoulders of a single parent.

Consider this for a moment. A permanent life insurance policy can be paid up early, so if a young person buys a policy that is paid up in 10 years (or at age 65), that piece of the financial puzzle is taken care of before old age and bad health sets in. And you won't have to deal with it later.

The same is true with most other kinds of insurance. Many cancer plans, for example are based on the age of the insured when the application is taken, thus locking in that rate for as long as one keeps the policy. Take advantage of your good health and young age. You'll be glad you did in the long run and so will your family. 

Chris Castanes is the president of Surf Financial Brokers, helping people find affordable life, disability, long term care, cancer, accident and other insurance coverages in North Carolina, South Carolina, Virginia, Tennessee and Georgia. He's also is a professional speaker helping sales people be more productive and efficient and has spoken to professional and civic organizations throughout the Southeast. And please subscribe to this blog!

Friday, April 2, 2021

How Can I Help My Kids Avoid College Debt?

The cost of going to college has soared in the last 25 years. For kids who who need financial help, loans are the first, and often last, resort to pay for an education. So if you have kids or grandkids or are the legal guardian of some college bound children, here are a few tips that may help ease the burden.

There are several things to consider when planning to fund your kids' education.

1. How much of the cost do you want? Some parents want to pay the full cost of tuition, while others say they want their children to at least pay some portion. I've had clients tell me they refuse to pay any of the costs. 

One of my clients used the last bit of logic with me one day, stating "I paid my way through college and she can do the same." I asked what the parent paid and found that father's tuition was never more than $500 a semester. Today, his child is looking at over $2000 each semester. When we added in books, room and board and other living expenses, that cost was closer to $5000. It was an eye opener to the parent who said, "I don't have that kind of money." Should we expect an 18 year old to have it?

2. No one has a crystal ball. I've heard parents say things like "My kid will get a football scholarship" or "She's going to Harvard". Mind you, the child is barely walking.  It's great to have hopes and dreams for your child, but be realistic.

Even though your child may still be in diapers you can still start a small savings account with some discipline. That means that you may have to treat it like a monthly bill and throw an extra $50 or $75 in each month. If, for some reason, you feel your child is not college material, you can use those funds for other expenses. On the other hand, if your child starts showing signs of brilliance in grade school you can move that money to a college savings plan gives tax breaks like a Coverdell IRA or a 529 plan.


3. 529 plans are great, but have drawbacks. For instance, when applying for financial aid or a scholarship, you have to disclose any and all college savings plans. If your 529 is loaded, it could keep you from getting that scholarship. Also, if your child doesn't go to school, you can transfer the funds to another child, but if used for something other than education expenses, expect a tax penalty on those monies.  Finally, remember that those funds are typically invested in the stock market. If your child is ready to go off to school and the market drops, that when you'll remember the...

4. Two-bucket approach. Some folks will partially fund a 529 plan and then have a second "bucket" of money, usually an overfunded cash value life insurance policy (see the next entry). If the market drops, you can use the life insurance cash value to pay for a year or so of college until the market rebounds. If you die, the death benefit can be used for college funding as well. Also, you don't have to disclose life insurance when applying for financial aid.

5. Life Insurance. Whole life has been sold for years as a "forced savings plan", which is a good concept but may be too conservative for the kind of growth you made need. If a parent is healthy and doesn't smoke (this is life insurance after all, so there is underwriting involved), we typically suggest a Indexed Universal Life (IUL) policy. With an IUL you can "over fund" it by paying additional premiums that are capped by the IRS. 

I recently had an appointment with a single father whose daughter was in the first grade. He truly wanted to help her fund her education (as much as possible) so we looked at an IUL on him. The cash value grew well up to age 18, when his daughter would be going to school, but the cash value grew even more between the ages of 18 and 22, when she would be (hopefully) graduating. Since repayment of college loans wouldn't start until she graduated, she could secure loans and repay them all at once when she left school by using her dad's policy.

6.  Roth IRA. Did you know that you can withdraw money from your Roth IRA for education costs without a tax penalty? And if your kids don't go to school, you can use that money for your retirement.

In this economic environment we are experiencing currently budgets are tight. For those who are fortunate enough to have a little bit extra each month it can be tough to decide where to allocate it. Most of us who are "forward thinkers" are trying to plan for several things at once, like our kids' educations, retirement planning and more enjoyable things too, like that once in a lifetime vacation.

I once had a conversation with a client who had enough in the budget to pay for either retirement or college funding.  She said, "My child can borrow for college, but no one is going to loan money for my retirement."  She had a point.

If you have questions about helping to fund your child's education, let us see if we can help out by booking an appointment from our website. In the meantime, stay healthy.

Chris Castanes is the president of Surf Financial Brokers, helping people find affordable life and disability insurance coverage. He's also is a professional speaker helping sales people be more productive and efficient and has spoken to professional and civic organizations throughout the Southeast. And please subscribe to this blog!


Monday, March 29, 2021

Why Should I Update My Beneficiaries?

As I mentioned a few weeks back, updating your beneficiaries on your policies is an important part of owning life insurance. How often you should do these updates is up to you, but in a perfect world we would have a reminder.

When we change our clocks those two nights of the year, we're also reminded to check the batteries in our smoke detectors. What a great way to take care of the important task that could save the lives of your loved ones. And doing the "maintenance" on your life insurance policy is just as important to your family.

I recommend you pick a day, say Independence Day for instance, to review your life policies. By taking a few minutes you may realize that your the person you originally chose to get your death benefit is no longer in the picture. As our lives change from marriage, divorce and death, so do the people and situations that can impact your family upon your death.

My father passed away last year and we eventually found a few life policies. Unfortunately, none of the beneficiaries were up to date, leaving us in a position where the insurance company had to  pay the benefits into my dad's estate, instead of paying directly to his heirs.

One of the advantages of life insurance over leaving directives in a will is that the policy is a contract in the eyes of the law, thus taking precedent over a will. However, if the beneficiaries have predeceased the insured, you may have to wait for those proceeds.




While checking your life insurance policies, you may as well check all of your other policies as well. Many non-life policies also have beneficiaries that you may have forgotten about. Have a cancer plan through work? It's probably got a beneficiary. These types of policies, called worksite, voluntary or ancillary products, pay you a benefit directly, but if you die in the middle of medical treatments, the policy will pay any leftover proceeds to whomever you name.

I had a client in North Carolina who was in an accident and was eligible for benefits as he was in the hospital. Unfortunately he died a few days later and his family didn't realize there was an accidental death benefit until I mentioned it to them. The policy also paid his beneficiary for the other benefits while he was receiving treatment.

Just like you do maintenance on your car or home, take the time to do a quick check up on your policies, or ask us to take a look at them for you with no obligation. In the meantime, please stay healthy.

Chris Castanes is the president of Surf Financial Brokers, helping people find affordable life and disability insurance coverage. He's also is a professional speaker helping sales people be more productive and efficient and has spoken to professional and civic organizations throughout the Southeast. And please subscribe to this blog!

Wednesday, March 17, 2021

Does A Tax Free Retirement Plan Exist?

Keeping with the theme of taxes this week, I wanted to share some information on a life insurance plan and how to use it to your advantage when it comes to taxes, or should I say "tax avoidance". One product in particular may help you supplement your retirement without having Uncle Sam reaching into your pocket. 

First, I have to again give the obligatory disclaimer that I am not a tax expert and if you have questions or concerns regarding any of this you should consult your own tax professional. 

As an insurance agent I have worked with many products and, for the most part, my clients are made up of middle class people. Many of them are small business owners (less than 50 employees) or self-employed individuals in sales or other related professions. In a nutshell, I'm not working with a lot of millionaires.

Life insurance for most of these people is usually term, which is affordable, but does not offer many other features other than a death benefit. When I ask about their retirement plans they usually have a small amount of money put away, but not much. (After the Great Recession of 2008 many used their 401(k) plans to pay their bills). 

With this in mind, I let them know that life insurance has a special status when it comes to taxes. The death benefit is almost always non-taxable. Once people figured this out they started taking advantage of this and companies developed policies like whole life and universal life insurance that could build some cash value internally.

These policies also allowed for "over funding", which means you can pay additional premiums into the policy, over and above the stated price of the insurance, with the intention of having some money accumulating. The IRS made some guidelines to prevent the abuse of this loophole, by declaring a policy with too much premium going in as a Modified Endowment Contract* (MEC). 

However, permanent life insurance policies do allow one to access that cash value inside the policy. How they access the money is the tricky part (it's not that tricky) to avoid paying any taxes on it. 

Taking the cash out of the policy as a loan removes the tax burden on insured person because everyone assumes that the loan will be repaid. And if the person dies before repayment, that loan is deducted from the death benefit. And this is where these policies are most effective. 

Because that loan is tax-free, one can over fund a policy to its maximum (without becoming a MEC) and use that money as a "retirement supplement" without paying a dime to the government. 

Here is where I have to give another disclaimer. First and foremost, these are life insurance policies and NOT investment vehicles. For years when the interest rates were high, agents sold universal life as a way to make money instead of protecting money. This practice is frowned upon in our industry.

And since it is life insurance, an insured age, tobacco usage and medical history can affect the cost of the policy, as well as the cash accumulation. A 30 year old healthy non-smoker will get much more out of this plan than a 40 year old obese smoker with high blood pressure and diabetes.

Even though this can be done with a whole life insurance policy, the most efficient way to do this is with an indexed universal life (IUL) policy. I will acknowledge that there are detractors to these policies who see the problems from the past when traditional universal life policies failed to provide the cash when interest rates began to fall. 

The secret here is to structure an IUL properly from the beginning. If done properly, an insured can access the money in the policy in the form of a loan for many years. 

If you would like information on how to use a life insurance policy a tax-free retirement supplement, let us know. In the meantime, please stay healthy.

*When a policy becomes a MEC it also becomes taxable. Since no one wants that too happen we, as life insurance agents, will run an illustration to get as close to a MEC without having it become one. 


Chris Castanes is the president of Surf Financial Brokers, helping people find affordable life and disability insurance coverage. He's also is a professional speaker helping sales people be more productive and efficient and has spoken to professional and civic organizations throughout the Southeast. And please subscribe to this blog!