Thought for the day:
Knowledge is knowing a tomato is a fruit. Wisdom is not putting it in a fruit salad. -Unknown
If you will read no further:
For California Associates Only (for now)
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Thought for the week:
When your client buys an Index Universal Life Insurance policy he/she is actually depositing the premium into a cash value account that credits the balance with interest equal (typically) to the annual gain in the S&P up to 13% percent, locks it in and protects it from going down when the S&P loses value. Then the pure mortality cost of insurance is deducted along with some small fees. When the client dies the heirs get all of the cash in the cash value account plus the pure (term) insurance… income tax free. The result is that the pure insurance is very cheap and paid for with relatively high tax free interest. That’s what a Financial Planner does for a client.
You should see what happens when the policy is constructed so that the least allowable amount of insurance is purchased and the cash is allowed to build for retirement. This creates an alternative to a Roth IRA with none of the typical restrictions. The cash builds quickly at a tax free rate that competes with most conservative equity-based investment strategies, but with no down-side risk. Then it becomes a source of tax free retirement income and a tax free distribution of the remainder at death. That’s what Financial Planning does for a client.
Nancy and Randy can tell you all about how to set up a retirement “investment” strategy for your younger clients who aren’t ready to give you $50k or more to begin their retirement planning.
I have some bits and pieces this week that I think are important and generally interesting. They are kept brief so you won’t get bored. But pay attention because you will find yourself using them someday.
LTC Riders vs Chronic Care
In the past 18 months almost every insurance carrier has come out with a Chronic Illness rider they are promoting to be for long-term care; and they are. However, they have taken the cheap approach with these and qualified them under Section 101 of the IRS code which applies to life insurance. So, several things to be aware of with these if the client is buying them specifically as an LTCi strategy:
· The condition that justifies a claim must be permanent and irreversible. So many situations where a care giver is only required for several months to a year or more can be denied if there is any possibility of improvement or recovery.
· Typically, only a portion of the death benefit is accelerated and that amount is not really known until the claim is approved…. Like buying a policy without knowing what the benefit will be.
· Unused death benefit is often heavily discounted so the distribution for LTCi comes at great cost.
If you really intend to provide your client with an LTCi strategy (and you should) you should stick to the carriers whose riders are true LTCi qualified under Section 7702 of the code, Lincoln, Genworth John Hancock and State Life are the best right now. These do not require permanence and do not degrade the death benefit when taking accelerated benefits. And be sure to call us for assistance with these. No one knows more about these plans than the folks at Westland. And when something/anything better comes along we will have it and of course will let you know. For a complete discussion of this subject get our white paper by going to our great new website here and click “White Paper-Linked Benefit vs Hybrid”. While you’re at it, you might want to take a little tour around the site as it is brand new and we are very proud of it.
Annuities are becoming more main stream in Financial Planning.
The Treasury Department recently issued final rules making deferred income annuities even more desirable for many retirees. Deferred Income and SPIAs (Single Premium Immediate Annuities) are rapidly becoming the most popular strategy for boomers planning and or managing their retirement. And now the government is offering incentives to encourage the use of annuities to further enhance retirement security by allowing an investment of 25% up to $125k of qualified plan assets to be exempt from the Required Minimum Distribution calculation beginning at 70½. So if a client takes a portion of their IRA or 401k and moves it into a qualifying deferred income annuity they will save the taxes (approx. $1500) by reducing the amount to calculate the RMD until they pull the trigger on the income. Pretty cool.
Actually, none of the carriers have finished modifying their products to comply with the regulations; but we should know when the major players have products available. Look for current info from Westland Financial. In the meantime you should be building your knowledge of how these incredible instruments work to increase the clients’ income as well as their legacy. Call Josh VerHoeve and let him help you with a case.