What Is Mortgage Protection Life Insurance?

As a general agent for a life insurance company, I work with and recruit, agents from all over the country. Some sell life and health insurance products exclusively, while others also work in the property and casualty market as well. Discussing their insurance practices and learning what they do for their clients is always interesting to me. So you will understand why I wanted to do some asking when I kept hearing about "mortgage protection life". 

The problem was that every time I asked an agent about it, I would get a different answer, mostly because there are a few different kinds of policies. Some were actually selling "mortgage protection" insurance, which compensates the lender if the loan defaults. Not life insurance, but confusing because of the name. 

Next is Private Mortgage Insurance (PMI) which is a type of life insurance for conventional loans and arranged with a private company. It can increase your loan and is typically included in your total monthly payment. Typically it is required when someone purchasing a home puts down less than 20% of the home's purchase price. This policy protects the lender but you pay for it. The only real advantage to it is that it will allow you to make that home purchase if you don't have the 20% down payment.

Before the great recession of 2008, I considered selling PMI as part of my portfolio of products and asked a few agents I knew if it was worth their time. The answer was a resounding "no". Apparently people didn't like having to pay the premiums on a policy that would not benefit them. As home values were steadily increasing, the new homeowners would wait six months and having a new appraisal done on their houses. The values had increased in that short time and all of a sudden they had enough equity to drop the PMI coverage. 

Then there is "mortgage protection life insurance", which is designed to pay off the remainder of your mortgage if you were to die. Now this one actually is life insurance. In a nutshell, this is a decreasing term policy, which means the face amount of the policy decreases as the principle of decreases. 

You would think that a policy with a decreasing face amount would be a bargain. Unfortunately it isn't always. One of the problems is that these policies are not usually fully underwritten. There may be a minimal amount of health questions but for the most part you can be fairly unhealthy and still have a policy. This puts additional risk on the insurance company and they put that risk in your higher premiums.

Yet another problem is that the face amount decreases. And it won't coincide with in sync with the principle owed. Who wants that? Also, what if you refinance your policy and have to start another 20 or 30 mortgage? What a mess!

If you are a healthy person who does not use tobacco you are more than likely to be better off by purchasing a traditional life insurance policy to cover your mortgage. Because it is fully underwritten, your rate can be much lower. Who doesn't like lower premiums?

But the better part is that the face amount is level, which means you don't have to worry about getting less coverage as your policy continues. So if you were to die in year 3 or year 18 of a 20-year term policy, your family would receive the same amount. That extra money (assuming your family uses the bulk of the proceeds to pay off the note) could go for education costs or just replacing your lost income.

It took me several months to get this through the head of a new agent I met from Nashville. He had been working getting referrals from a local mortgage brokerage company and was afraid he would upset them if he didn't sell the decreasing term. Eventually he came around and found out that most of his clients would get a better deal with a traditional term life insurance policy. 

In the next post I'll go over some of the non-traditional policy terms we now offer. 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!

Do You And Your Partners Need A Disability Buy-Out Plan?

In a previous post I discussed buy-sell agreements between business partners and why they were necessary. To recap, in the case that a business partner dies, the surviving partner will more than likely want to buy out the deceased partner's interest, and to do that they may need money. With a life insurance policy in place for that purpose, the surviving partner will have the funds needed, thus avoiding a scenario where they are in business with their partner's spouse or other family members.

With that in mind, let's take a look at a similar scenario. For this example, we will name our business partners Bob and Neil. Both are married and have their own families, live in nice middle class neighborhoods and are making enough money to pay their bills while stowing a bit into a retirement account. 

One evening, Bob in on his way home and a car crosses the center line, hitting Bob's vehicle. Fortunately, Bob survives the crash, but unfortunately, he is severely injured. Bob is more than likely going to be permanently disabled and will not be returning to work. 

Luckily for Bob and his family, he had purchased a Disability Insurance (DI) policy early on and will have some income to help pay his personal bills. But what about the business? And what happens to Neil in this situation? Will Neil have to do the work for two people and split the profits with his now disabled partner? 

Here again, a good buy-sell agreement needs to be in place beforehand. This legally binding agreements sets the terms and conditions of the sale and the subsequent purchase of the disabled partner's ownership of the business. Having an insurance policy in place helps fund the buy-out, and can also help pay the disabled partner's bills. 

The payout can be distributed in a lump sum, monthly disbursements or a combination of both. This can be decided at the time of purchase.

In some instances the company pays the premiums for the policy. However some smaller businesses will do a "criss-cross" agreement, in which each partner pays the premiums and receives benefits from the disability policy covering the affected partner. 

After an illness or injury occurs, an elimination period, has to be met before benefits are paid. This elimination period is a waiting period that can be a few months or as long as a couple of years. Think of an elimination period as your deductible, but in time rather than money. And just like your car insurance, the higher the deductible, the cheaper the premiums will be. 

Having a buy-sell agreement avoids a lot of potential issues that can occur if a partner is sick or hurt and unable to work. This plan can prevent a financial loss or even bankruptcy by keeping the business afloat. In turn, this helps keeps those on the staff of the business employed as well. And the owners can be assured control of their business decisions, with the freedom to replace the injured owner with a person of their own choosing. Not to mention that they will not be forced into business with any family members of the disabled partner.

Since the purchase price of the business was stipulated in the original buy-sell agreement, the disabled partner should feel he or she was given a fair market price for their share in the business. I usually suggest that the numbers be updated every few years to keep up with the growth of the business.

If you have business partners and would like more information on how to fund a buy-sell in case your partner dies or becomes disabled, let us know. 

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!

Leave A Gift To Your Favorite Charity With Life Insurance

Every year people all across the country donate millions of dollars to their favorite charities, churches and non-profit organizations. Many of these folks are not too concerned about having their names put on a plaque or other accolades. Their motives may be different from one another, such as a tax write off or just wanting to know that they are making a difference somehow. A few dollars here and there can add up for a charity, but what if you could leave a sizable amount to your favorite non-profit? What if that amount is more than you had ever considered giving away?

You can donate tens of thousands of dollars through the use of a life insurance policy by naming a charity as a beneficiary. It isn't a new concept but it is underutilized. And there are a few ways to do this.

There are some life insurance policies that have a "charitable giving" rider. It allows you to name a non-profit to receive a percentage of your death benefit. The one issue is that there may be limits in place that have to coincide with the IRS's maximum gift giving amounts. The advantage is that these riders eliminate having to create a charitable trust and usually don't cost any extra. The charity does have to be a legitimate 501(c)(3) entity in the eyes of the Internal Revenue Service.

For those who would like to donate higher amounts of money without worrying about IRS limits, the best option is to take out a policy and then donate it to the charity. By transferring ownership of the policy, the charity can control the proceeds. 

For instance, let's assume you donate a policy to your church. Given that the policy will accumulate some cash value (I wouldn't suggest a term policy in this instance) the church can access that money for small emergencies, like a new refrigerator when one dies, rather than wait for someone to donate a fridge.

And since the church is the owner of the policy, they will be receiving the bill for the premium payments. As the donor, you can just write a check for the premium amount to the church and write it off your taxes.

When you do pass on to your great reward, the church, or whatever charity you choose, can receive the death benefit and use it at their discretion. I typically throw out examples like naming a Sunday school classroom after you or a scholarship fund.

Naming the charity of your choice is the simplest way of making sure a non-profit receives the death benefit from your policy. It doesn't offer with the tax advantages that come with donating your policy, but it still reduces the donor's estate by the amount of the death benefit.

If you aren't completely sure how you want to distribute your death proceeds you can name the charity as a revocable beneficiary. This gives you some flexibility in case your financial situation changes, or if you decide to no longer fund that charity. For example, a few years ago, a large non-profit was in the news because their board members were using funds to take expensive vacations. I don't think any of us would want to know that if we died we would be paying for a nice trip to the Bahamas for someone else. If that is the case, you can always change your beneficiary.

If you have a charity or non-profit that is important to you, give us a call and let us help you find a way to endow them through a life insurance policy. 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!

How Can Disability Insurance Help Me?

Let's assume you get sick or hurt and are unable to work. You may be in the hospital racking up bills, or worse, in a rehab facility. If you are lucky, you may be recuperating in your home, resting comfortably. Some people can actually function and carry on with most of their day-to-day tasks, they just can't perform the duties of their job. And this is where the real problem is.

As I have mentioned in the past, your number one asset is not your home, business or fancy car. Your biggest and best asset is your ability to earn a living. And if you are not able to work due to a disabling illness or accident, you more than likely are not going to be bringing home a paycheck. 

When I speak to groups about disability insurance I ask them the same question every time: If you are out of work, what happens to your bills? "They keep coming!" I hear from the crowd. 

You see, disability insurance (DI) is insurance for your paycheck. Insuring your income is how you can make sure that you can pay the utility bill, the rent or mortgage, and of course, keep food on the table. As a matter of fact, nearly half (46%) of all foreclosures on conventional mortgages are due to a disability. (Only 2% are due to death)

Won't the government take care of us if we can't work? Sure, the Social Security Disability Insurance program is there for you, but only if you have put in 10 years of work ahead of time. And it pays a whopping $722 each month on average. Plus, the criteria is so strict that only about 35% of those who apply actually qualify. There has to be a better option.

Of course that option is a DI plan. You can purchase one through work or on your own and neither is exorbitantly expensive when compared to the benefits offered. 

Generally speaking, you can insure up to 60-70% of your gross income (close to your "take home pay") and benefits are tax-free with a couple of exceptions. If your employer is paying for your premiums or if you have decided to have the premiums deducted on a pre-tax basis, you could be liable for income tax on your benefits. That's not a great scenario but it is still better than having nothing. 

There are certain factors that go into the underwriting of a DI policy. A few are:

• Your income. A policy based on your income will need verification of your income, so the insurance company may ask for recent tax returns at the time of application. Or they may request your tax returns when you file a claim. Either way, they do not want to pay you more when you are out of work than what you were making when you were healthy. 
• Your occupation. Some jobs are more dangerous than others and that will be reflected in the amount you pay for your policy. A roofer has a riskier job than an accountant. And some occupations are difficult to cover at all, like professional athletes. Fortunately, we have carriers who can insure a variety of jobs, and we even have one who will insure a stay-at-home spouse!
• Your health. A person who is unhealthy will have a harder time finding a policy than the one who is 4% body fat and runs five miles a day. And pre-existing conditions are a factor, but in many instances they may just be excluded from coverage. I had a gentleman client in the Charlotte, NC area years ago with an issue stemming from a previous accident that was excluded. He took the coverage anyway because he it would cover anything else that could happen to him.

How much coverage should you apply for if you are on a budget? I recommend the HUG plan. Coverage for housing, utilities and groceries should be the bare minimum and are essential. As I tell my clients, "Just because you are receiving a check doesn't mean you'll be eating at Outback every night."

If you would like more information on DI, drop us a comment or book a time to speak with us 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!

Thoughts On Supplemental Insurance

Part of my work is helping people with supplemental insurance benefits. A large percentage of this work is done in a worksite setting, which means that I help people at their place of work and the premiums are deducted from their paychecks. There are several carriers out there offering insurance products like disability, cancer, accident and critical illness plans, along with other insurance products. 

When I speak to other insurance agents who sell these products there is always a debate about which company has the best products. "Our cancer plan pays more than their cancer plan" or something along those lines is usually the way the conversation goes. Some of these agents work exclusively with one carrier so they can get a bit tribal when it comes to who has the superior products.

The truth is that the client really doesn't seem to get to concerned over these details. They basically just want to know if they have a disability plan if they get sick or hurt and can't work, or if the Hospital Indemnity plan will work if they are confined to a hospital. 

But many people do not have access to these plans because they are not part of a group that offers worksite benefits. With that in mind we have looked for some of the best carriers that take those of us who are self-employed or business owners into consideration. If you are a contract employee or just work from home, you can purchase a great cancer plan, disability insurance or other plan. 

I really appreciate hearing people tell me how these supplemental insurance products helped out when the client was in a time of need. One story involved a young boy, around 10 years old, who had cancer and was receiving treatments at a hospital about two hours away from his home. His father was having to take time off from work to travel back and forth and it was severely impacting his paycheck in a negative way. They were literally days away from having the power cut off at their home. 

The father's employer, who for some reason had no clue what was situation was, quickly realized that there was a cancer plan in place that the covered the child as well. They contacted the agent who sent in paperwork on a Thursday afternoon. By Monday, the family received a check for over $15,000. As the boy went on to continue treatments, the family continued to receive benefits from their policy. 

The best part of all this was that the boy's cancer went into remission and he is healthy. And so are the family's finances.   

One of my favorite stories involved a special education teacher at a middle school in North Carolina. She had taken some kids out to the schoolyard for some exercise and one child, who apparently was just a big as her, decided to make a dash for the exit and ran toward the adjoining property off of the campus grounds. This teacher, who I would guess was in her mid to late 50's, tried to get in front of the student, blocking his way. He ran her over like a football player would run into a linebacker, knocking her to the ground and breaking her arm. 

It was all the talk that afternoon among the rest of the staff. I mentioned that she had an accident plan that covered her, even while at work, and that she would likely receive a nice payout from the insurance carrier. The other teachers began asking for an accident plan for themselves. They realized that they could also be hurt at work and began to see the value of such a policy. 

If you are interested in our supplemental plans, please check out our products page on our website. And 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!

Is Life Insurance Taxable?

About once a year or so I will have someone ask if they have to pay taxes on life insurance proceeds. It's an interesting question, but generally speaking most life insurance benefits are not taxed, but there are a few exceptions. Here are a couple of things to look for.

Most of the time an insurance company will pay a death benefit in one lump sum. However there are times when the policy pays out in installments. The principal is held in an interest-bearing account and pays the benefit over a series of years, like an annuity. The original death benefit is tax free but the interest is taxable. 

Another way it can be taxable is if your life insurance is part of your estate, but this is only a problem if  your estate value is above the estate tax limit, which is over $11million this year. Not a problem for most of us, but one way to avoid this is to make sure your beneficiaries are updated. For instance, if your beneficiaries have died already, the company will generally pay the estate instead of surviving heirs. 

An exception is if the surviving spouse is the beneficiary, as spouses are generally exempt to estate taxes, even if they exceed the estate tax limit.

Generally speaking, life insurance involves two people - the insured, who is also the owner (and payor) of the policy, and the beneficiary. However there are times when there is a third person in the mix. This happens when the insured and the owner are two separate people. When this happens the IRS considers the benefits to be a "gift" from the owner to the beneficiary. 

The good news is that because of the way the gift tax works, you probably wouldn't have to pay it anyway. The tax wouldn't be due until your death and unless your estate is over that $11million threshold.This being said, you should still report any sizable gifts to keep track and stay honest with the IRS.

There is also the issue of "cashing out" permanent life insurance policies, like whole life or universal life. These policies build cash value internally and feature the option of letting you take out some or all of the proceeds if needed. A rule of thumb is that if you don't take out more than you have put in, you should be fine. 

The other option is to take out the funds as a loan. I know of clients who use this option instead of getting a loan from the bank, mostly for the convenience and not having to fill out a lot of paperwork. They will repay the loan and sometimes then repeat the process, as they "warehouse" their money in the life insurance policy. Be aware that if you "cash out" part of the face amount or take it as a loan, when you die, the insurance carrier will pay the benefits minus the amount you borrowed or cashed out.

One thing to keep in mind is that permanent cash value life insurance policies have the possibility of becoming a Modified Endowment Contract (MEC) by the IRS guidelines if you overpay your premiums. With life insurance having a special status, some people will take advantage of paying in more than the stated premiums and the IRS will allow this up to a limit, but beyond that limit your proceeds could be taxable.  

As I stated earlier, the tax liability of life insurance proceeds rarely is an issue, but for those clients who have in depth questions I always suggest they talk to a CPA or even check the IRS website. 

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!

What About Medicare Supplements?

Are you one of the millions of Americans in need of information about Medicare supplements? Each day, thousands of people who are on the cusp of turning 65 years old are getting bombarded by phone calls and brochures about the varying array of products. It can be confusing but luckily it's not as bad as one would think. However there are some basics that can help you understand the ins and outs of Medicare.

First off, the Medicare program was never designed to cover all the costs associated with health care, and it doesn't. This in turn has created a multi-billion dollar commoditized supplemental market. Today, 90% of Medicare beneficiaries have some form of supplemental coverage. 

Medicare supplement plans were standardized so that plans can be easily compared between carriers. For example, all plan A's are the same, and all of the plan B's are the same. The insurance companies are not allowed to add or subtract to them as this would make it even more confusing to those purchasing these plans.  This has made the market more about premium rates than anything else. 

So what does Medicare cover? There are two parts:

Medicare Part A - Hospital Insurance, covers hospital inpatient care and recovery care in a skilled nursing facility, hospice and home health services.

Medicare Part B - Medical Insurance, helps cover some medically necessary services from doctors and other health care providers plus preventative services. 

What does Medicare not cover? Again, it wasn't designed to cover all of your doctor and hospital bills. You are required to pay for a portion of those bills in which Medicare does not pay, including:

• Medicare Part A hospital benefit-period deductible and coinsurance
• Medicare Part B medical annual deductible, generally 20% coinsurance and those charges exceeding the Medicare eligible expense
• Skilled nursing facility coinsurance

These bills can be paid for by yourself or through the Medicare supplement policy that you purchase.

Medicare supplements do offer a great value. They include:

• No provider restrictions. You are not restricted to use a network of healthcare providers. Any healthcare provider who accepts Medicare patients accepts Medicare supplement insurance. If you move, your coverage goes with you.
• Instant coverage. There is no waiting period for preexisting conditions and benefits are paid from the time your policy is in force.
• Low out of pocket costs. Your Medicare supplement and Medicare Parts A and B work together to minimize your share of healthcare costs. With this additional insurance coverage, even unexpected medical events aren't likely to impact your financial health.
• Guaranteed renewable. Your Medicare supplement insurance policy renews as long as you pay the premiums on time and make no material misrepresentations (that means you are honest on your application).

There is some interesting information about Medicare that most people aren't aware of. Did you know that Medicare was started in the 1960's? Back then people paid about 19% of their income for their care. Since then, healthcare costs have skyrocketed but the income levels of older Americans haven't kept pace. And now Medicare constitutes about 14% of the federal budget.

Also, because of the aging Baby Boomer generation, the number of people on Medicare is expected to rise from 47 million to 78 million between 2010 and 2030. 

Obviously there is a lot of information here which makes it more important that you let an insurance professional help you choose which Medicare supplement is right for you.

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!