Retirees are often ready, willing, and able to start new careers or businesses late in life that may earn them valuable incomes. However, some may feel that it is not worthwhile to work for wages, only to have to “give up” some of those earnings in the form of higher income taxes. Frustrating as that may sound, it is important to understand the fundamentals of Social Security income and taxation so you can make your retirement years more “golden” and less “taxing.”

Income Limits—Paying to Work?

The first factor you must consider is your age and the so-called Social Security “giveback.” If you are age 62 or older, under the full retirement age (65–67 depending on your birth year), and receiving reduced Social Security benefits, you must “give back” $1 for every $2 earned above $14,160 in 2010. If you attain full retirement age in 2010, your benefits will be reduced by $1 for each $3 earned over $37,680. Upon attainment of full retirement age, you may earn as much as you like and Social Security benefits are not reduced.

How Much Is Taxable?

A second factor affecting your Social Security benefits is the potential income taxation of those benefits. Let’s assume you are working and you also receive a check from the Social Security Administration (SSA) each month. You must first determine how much, if any, of your benefit is included in your gross taxable income. The first step in estimating this is to add up the following items: your wages, taxable pensions, interest, dividends, and other taxable income; all tax-exempt interest; any exclusions from income; your net earnings (net income less net losses) from self-employment; and half of your Social Security benefits.

This total is then compared to a first-tier threshold of $25,000 for a single taxpayer or a married taxpayer who is filing separately and lived apart from his or her spouse for the entire year, or $32,000 for a married taxpayer filing jointly. For a married taxpayer filing separately, who lived with his or her spouse for any period during the year, the first-tier threshold is $0.

For the sake of illustration, suppose your total applicable earnings are $27,000, and you are married and filing jointly. Since the total does not exceed the applicable threshold amount of $32,000, then no portion of your Social Security benefit is taxable. However, if the total exceeds the applicable threshold amount, a further, more complicated, calculation must be performed to determine the amount of your benefits that are taxable. You can refer to IRS Publication 915, Social Security and Equivalent Railroad Retirement Benefits, for more information, or consult your financial or tax professional.

As you can see, performing these calculations is no simple task. Thus, it is important for anyone who is thinking about taking Social Security benefits while still working to understand the potential tax consequences and to plan accordingly. As with all tax planning matters, it is wise to consult a tax professional to help ensure your planning decisions are consistent with your overall goals.

Pursuant to IRS Circular 230, MetLife is providing you with the following notification: The information contained in this document is not intended to (and cannot) be used by anyone to avoid IRS penalties. This document supports the promotion and marketing of insurance products. You should seek advice based on your particular circumstances from an independent tax advisor.

MetLife, its agents, and representatives may not give legal or tax advice. Any discussion of taxes herein or related to this document is for general information purposes only and does not purport to be complete or cover every situation. Tax law is subject to interpretation and legislative change. Tax results and the appropriateness of any product for any specific taxpayer may vary depending on the facts and circumstances. You should consult with and rely on your own independent legal and tax advisors regarding your particular set of facts and circumstances.

Copyright ã 2010 Liberty Publishing, Inc. All rights reserved.

L0510108090(exp0511)(All States)(DC)

This article appears courtesy of Karl Susman. Karl Susman is a representative of the New England Life Insurance Company. He focuses on meeting the individual insurance and financial services needs of people on the West Coast. You can reach Karl at the office at (424) 785-4337. New England Life Insurance Company, 501 Boylston Street, Boston, MA 02116

Since it first became available in 2006, many employers have added the Roth 401(k) to their benefits packages as a retirement savings option. A Roth option, which is available for Individual Retirement Accounts (IRAs), as well as sponsoring 401(k) and 403(b) accounts, may be appropriate for some individuals, depending on their circumstances. So, is a Roth 401(k) right for you? Let’s take a closer look.

To Roth or Not to Roth

In order to decide whether the Roth 401(k) option has a place in your retirement plan, it is important to weigh the advantages and disadvantages of both types of 401(k)s. With a traditional 401(k), you make contributions on a pre-tax basis, which lowers your current taxable income, and earnings are tax-deferred. However, your retirement distributions will be subject to ordinary income tax. With a Roth 401(k), your contributions are not tax deductible, but earnings and distributions are tax free, provided you have held the account for at least five years and are at least 59½ years old. Is it better to pay taxes on your retirement funds now or later? The best choice for you depends on your current tax situation and your long-term financial goals.

It is important to keep in mind that the 401(k) annual deferral limits—$16,500 for taxpayers under the age of 50 and $22,000 for those over age 50 in 2010—apply to all 401(k) contributions, regardless of whether they are made on a pre-tax or after-tax basis. If you contribute to a Roth 401(k), you may have to reduce or discontinue your contributions to your employer’s conventional 401(k) plan to avoid exceeding these limits. However, you may contribute to both types of 401(k) plans.

Also, matching contributions made by employers must be invested in a traditional 401(k), not a Roth account. So, even if you make contributions exclusively to a Roth 401(k) account, you will still owe tax in retirement on withdrawals from funds contributed on a pre-tax basis by your employer.

What about the Roth IRA?

The Roth 401(k) is only available through an employer-sponsored plan, whereas the Roth IRA is available to all taxpayers (with income limitations). How do the two Roth options compare? First, you can save more money in a Roth 401(k) than in a Roth IRA. The 2010 annual contribution limits for IRAs of all kinds are set at $5,000 for taxpayers under the age of 50 and $6,000 for older workers. The Roth 401(k) is subject to the more generous elective salary deferral limits that apply to conventional 401(k)s—$16,500 or $22,000 for those over age 50 in 2010.

Furthermore, the Roth IRA is subject to adjusted gross income (AGI) limits; only those with AGIs below $120,000 for single filers and $177,000 for joint filers are eligible to contribute after-tax dollars to a Roth IRA in 2010. These income limits do not apply to Roth 401(k)s.

In addition, contributions to a Roth 401(k) can be made through payroll deductions, which puts retirement saving on autopilot. To participate, an employee who is currently contributing to a traditional 401(k) plan could, for example, opt to have his or her contributions diverted to a Roth version of the same plan. Unlike the Roth IRA, however, you will be required to begin taking distributions from a Roth 401(k) after the age of 70½.

If a Roth 401(k) makes sense for you, ask your company’s benefits administrator if the feature is available for your retirement plan. If it is not already in place, expressing interest in the Roth feature may increase the likelihood that your company will adopt the option.

Neither MetLife nor its representatives offer tax or legal advice. You should consult your own advisors with respect to such matters.

Pursuant to IRS Circular 230, MetLife is providing you with the following notification: The information contained in this article is not intended to (and cannot) be used by anyone to avoid IRS penalties. This article supports the promotion and marketing of retirement plans. You should seek advice based on your particular circumstances from an independent tax advisor.

Copyright © 2011 Liberty Publishing, Inc. All Rights Reserved.

L0410101431(exp0411)(All States)(DC)

This article appears courtesy of Karl Susman. Karl Susman is a representative of the New England Life Insurance Company. He focuses on meeting the individual insurance and financial services needs of people on the West Coast. You can reach Karl at the office at (424) 785-4337. New England Life Insurance Company, 501 Boylston Street, Boston, MA 02116

Sometimes, our desire to give leads us to make commitments that are difficult to fulfill. Any endeavor worth undertaking, especially one that can benefit others, deserves our careful consideration before we begin. Doing so can yield the greatest results. When contemplating making charitable gifts, consider the following:

· Choose Your Causes. Good causes abound and regularly demand our attention. Choose a limited number of organizations that concentrate on areas that are important to you, and then research what kind of help they need.

· Budget Your Gifts. When planning your annual budget, include charitable gifts. Spreading your donations over the year can both lessen the impact on your finances and increase the total you may be able to give.

· Plan Your Volunteer Career. Volunteering can be a personally rewarding experience, especially when you can see the fruits of your labor. Carefully determine the time you have available to ensure your best efforts for your cause, and avoid overloading yourself.

· Review Your Plans. Just as you review your annual financial budget, you should review your annual time/value budget. Revise your volunteer commitments to include those where the rewards have been the greatest for both you and your cause.

· Consider a Testamentary Gift. If you are fortunate enough to be in a position to increase the amount you donate, or you are concerned about the future of the organizations you support, consider making a Testamentary gift.

What Is a Testamentary Gift?

Quite simply, a testamentary gift is a promise of funds to be made available from your estate upon your death, typically through your estate. However, using your estate as a conduit can lead to a reduction in your intended gift if any of the following are experienced:

· A decrease in the fair-market value of your assets before your death;

· Unforeseen estate expenses that must be made from your assets; and,

· The elimination of your gift if your will is contested.

You may be able to protect your gift from estate problems through the establishment of a trust; however, the legal and administrative costs associated with doing so may also have an adverse impact on your gift.

Guaranteed Protection for Your Charitable Gift

Your intentions—and your gift—can be protected against many of the factors above through the use of life insurance. The potential leverage of life insurance may result in a larger gift than you had hoped.

In addition, the simplicity of doing so and the satisfaction you will gain will add to the rewards of giving. The policy can be purchased with funds that you contribute to the charity, and as such, they are tax deductible as a charitable gift. The policy can be owned by the charity and removed from your estate, thus protecting your gift from the taxation, creditors, or legal contest to which your estate may be subject. As owner of the policy, the charity can decide whether they want to use your gift to pay the premiums or let the policy lapse. As beneficiary, the charity will receive the proceeds of the policy at your death. Depending on the type of policy purchased and the charity’s willingness to use your contributions to maintain the policy, these proceeds may be guaranteed and may even increase over time. Depending on the performance of the policy and other factors, the proceeds may exceed the amount you would have otherwise given outright during your lifetime or upon your death.

Imagine What You Could Do

Your gift through life insurance could allow you to give far more than you ever thought possible. It could help guarantee funding for your chosen organization and help ensure the continuance of its good works. It could mean that your best intentions become reality. The satisfaction that comes from knowing you have done the most you could will be your final, and well-deserved, reward.

All insurance guarantees are based on the financial strength and claims paying ability of the issuing insurance company.

Neither MetLife nor its representatives offer tax or legal advice. You should consult you own advisors before making any decisions.

Pursuant to IRS Circular 230, MetLife is providing you with the following notification: The information contained in this article is not intended to (and cannot) be used by anyone to avoid IRS penalties. This article does not support the promotion and marketing of this life insurance. You should seek advice based on your particular circumstances from an independent tax advisor.

Copyright © 2010 Liberty Publishing, Inc. All Rights Reserved.

L0410103705(exp0511)(All States)(DC)

This article appears courtesy of Karl Susman. Karl Susman is a representative of the New England Life Insurance Company. He focuses on meeting the individual insurance and financial services needs of people on the West Coast. You can reach Karl at the office at (424) 785-4337. New England Life Insurance Company, 501 Boylston Street, Boston, MA 02116

One “extracurricular” activity that every student should master while in college is personal money management. Typically, a student’s day-to-day spending is done on an improvised basis, meaning that overspending is often the norm rather than the exception.

It is estimated that during a school year the average college or university student will spend approximately $4,000 for books, supplies, transportation, and personal expenses (Trends in College Pricing—2009, The College Board). However, there is often room for economizing. The first place to look is at food and telephone calls. Difficulty may occur in controlling these expenses, especially if pizza is ordered regularly at 2 am and long-distance friends are simply a phone call away.

While many students may assume it costs less to live off campus than in a dorm, they may be in for a surprise. In college towns with a high demand for off-campus housing, accommodations within walking distance of the campus may tend to be expensive. Some landlords require a one-year lease—a period longer than the school year—thus, subleasing privileges should be included as part of an “economical” lease. However, off-campus students can save money by sharing housing and doing their own cooking.

Money Smarts 101

The following may serve as important steps toward helping your student understand college finances:

1. Before your student leaves for college, sit down and have an open discussion of expectations—both your child’s and yours.

2. Consider providing a lump sum each semester, making it clear how long the money must last.

3. Explain when checks or money transfers can be expected, the amounts that will be received, and any rules concerning the use of funds.

Since most students rely on savings and checking accounts—regardless of whether they include parental funds, their own, or a combination of both—it is important for them to understand how these accounts work. The ability to balance an account accurately and make needed corrections is especially critical.

Many undergraduates may keep most of their funds in hometown financial institutions. However, managing financial affairs long-distance can be difficult. Verifying an account balance quickly with an out-of-state bank can be both costly and time-consuming. So, it may be a good idea to keep a smaller account on campus.

While some parents may fear a credit card can give a student who has difficulty managing his or her affairs too much of a cushion, others find a credit card can provide a useful backup, especially in an emergency or for certain expenses. For instance, it can help with car rentals, plane fares, and railroad tickets. In addition, trying to get money to college students in different locations can be frustrating, and it is often impossible for anyone to cash personal checks away from home.

Making the Grade

Ideally, college students should take full charge of a semester’s spending. Life becomes much easier for parents when college-age children can manage their own finances, and the students will learn valuable life skills in the process.

Copyright © 2010 Liberty Publishing, Inc. All Rights Reserved.

L0510104870(exp0511)(All States)(DC)

This article appears courtesy of Karl Susman. Karl Susman is a representative of the New England Life Insurance Company. He focuses on meeting the individual insurance and financial services needs of people on the West Coast. You can reach Karl at the office at (424) 785-4337. New England Life Insurance Company, 501 Boylston Street, Boston, MA 02116

Imagine you are at an auction and an antique lamp you love is about to come on the block. When you viewed the auction items earlier, you placed a value of $100 on the lamp. It is late in the auction, you have planned your bidding carefully, and you have exactly $100 in cash left in your pocket.

Price Equals Value

When the bidding reaches $90, you and one other bidder are still in the game. So, what is the likely outcome? If the bidding goes to $100, you will either get the lamp or drop out of the game. In this case, the amount of cash you have left equals the value you assigned to the lamp and effectively limits the amount you can pay. Assuming you are alone and cannot borrow some money from a friend, what you are willing and able to pay is controlled by how much money you have in your pocket. In this example, we might say the price of the lamp equals its value.

Expanding Value

Let’s now modify the scenario slightly and see how the outcome might change. Instead of it being late in the auction, this is one of the early items to go on the block, and it will be the first item on which you will bid. You have $500 in your pocket, the total amount you have allotted for the entire auction. The bidding has reached $90. What should you do? What are you likely to do?

Since you originally placed a value of $100 on the lamp, you should be prepared to drop out if a $100 bid does not secure the lamp. However, unlike the first scenario, in which you only had $100 left, you have a full pocket. Depending on how much you want the lamp, it is possible that you would exceed your initial limit and continue bidding, particularly if you thought that a bid slightly over $100 might be successful. What’s the big deal about going over a little? After all, you may not even be successful on some other items of interest.

Although in this case it’s probably not a “big deal,” you have expanded your definition of value. What was originally a $100 value has been expanded to, perhaps, a $110 value. Notice how easy it is to lose one’s sense of value and have something that you want become something that you feel you need.

The “Value” of Increased Buying Power

Okay, now let’s change the scene once more. This time, in addition to cash, the auction house will accept payment by credit card. What can happen to your sense of value when your buying power has been increased?

It appears that people may be less quality conscious in their buying behavior, may not negotiate as skillfully, and may pay more when buying by credit card than when making an identical purchase by cash. If the bidding were to surpass $100, it is quite likely that you would be willing to pay far more than your original assessment of what the lamp was worth.

This possibility suggests that “hard money” and “plastic money” carry different meanings. Hard money (i.e., actual dollars in your pocket or checking account) tends to be perceived as finite—when you run out of dollars, you’ve exhausted your buying power until you obtain more dollars. On the other hand, credit cards can expand your buying power up to the credit limit of the account.

The alluring aspect of being able to buy on credit can become transformed into an expanded sense of value. In the process, it is easy to lose track of the relationship between price and value, and to pay more than we know an object is worth. It is this changed sense of value that is, perhaps, the most concerning aspect of credit card purchases. We simply lose our sense of what a good deal is all about, and we become less smart about our shopping.

Buying on credit can be a great convenience, and it can make sense when we are temporarily short of cash. However, when buying on credit becomes our standard way of doing business, it can have some highly undesirable consequences. One way to guard against credit card abuse is to ask two questions when making a credit card purchase. First, would I still purchase the item if I were paying cash? Second, would I pay the same price if paying by cash?

By keeping the focus on value, you can better distinguish between things you would like to get and things you absolutely must have. Making this distinction can help you avoid the major pitfalls of buying on credit—overpaying on individual items and spending beyond your means.

Copyright © 2010 Liberty Publishing, Inc. All Rights Reserved.

L0410100933(exp0411)(All States)(DC)

This article appears courtesy of Karl Susman. Karl Susman is a representative of the New England Life Insurance Company. He focuses on meeting the individual insurance and financial services needs of people on the West Coast. You can reach Karl at the office at (424) 785-4337. New England Life Insurance Company, 501 Boylston Street, Boston, MA 02116

It takes four years, on average, to graduate from most colleges and universities. During that time, students can amass some hefty debts. But, for many people, the degree is certainly well worth the burden of accumulated debt. So, these questions remain: How should you repay the debt? And, are there any plans that can help make the “payback” easier?

Today, there are more plans available that offer flexible payment schedules. Students applying for a federal student loan now can choose a graduated repayment plan that will allow you to make smaller payments upon graduating and larger payments at a later time when you may be earning more money in the working world.

Students also have the choice of an income-contingent repayment plan. This plan calls for them to pay a fixed percentage of your postgraduate income toward their student loans. This percentage could be approximately 5% to 10% of anything above the poverty level of a single person, which is $10,830 according to the Department of Health and Human Services (2009).

A third choice is an extended repayment plan that can lower monthly payments an estimated 20% to 30% and allow graduates to stretch out their loan payment schedules from 10 to 15, or even 20, years.

Consolidation Offers Flexibility

There is also good news for students who are already debt-laden. Under the Student Loan Reform Act of 1993, existing loans can be consolidated with a direct loan from the government. This plan offers a more flexible repayment schedule while interest rates remain the same.

To be eligible for this plan, student loan recipients need to ask their original lenders for an “income sensitive” repayment option. This plan adjusts the monthly payments for the loan’s capital, but not the interest, to annual income. If the original lender will not agree to this option, they may then be eligible for a direct loan from the government.

Two advantages of a direct government loan are as follows: First, the monthly installment payments of principal and interest are contingent upon income. Because the payments are withdrawn from wages, there will be less paperwork to muddle through. Second, as wages increase, the percentage withdrawn from pay will also rise, allowing the loan to be paid off more quickly and with less accrued interest expense.

For students who need to borrow for the current school year, direct loans (and the income-adjusted repayment plan) are also available if they’re attending one of the schools participating in this plan. Parents may also be able to take out a direct loan for as much as the entire cost of their children’s college education.

For information or inquiries regarding federal student aid programs, contact the Federal Student Aid Information Center at 800-433-3243, or check them out online at www.studentaid.ed.gov.

Material discussed is meant for general illustration and/or informational purposes only and it is not to be construed as specific tax, legal, or investment advice. Although the information has been gathered from sources believed to be reliable, it is not guaranteed. Please note that individual situations can vary therefore, the information should be relied upon when coordinated with individual professional advice. The client must rely upon his or her own professional advisor before making decisions with respect to these matters.

Copyright © 2010 Liberty Publishing, Inc. All Rights Reserved.

L0610113593[exp0611][All States][DC]

This article appears courtesy of Karl Susman. Karl Susman is a representative of the New England Life Insurance Company. He focuses on meeting the individual insurance and financial services needs of people on the West Coast. You can reach Karl at the office at (424) 785-4337. New England Life Insurance Company, 501 Boylston Street, Boston, MA 02116

How do you feel about life-support systems for the terminally ill? How much thought have you given to the decisions your family may face when contemplating the choice of maintaining or terminating life-sustaining medical treatment for you? Certainly, it is an easy subject to avoid considering. However, it is important to recognize there are measures you can take now that can help solidify your thoughts and wishes on the subject, thus providing your loved ones with guidance in the event such decisions become necessary.

A Closer Look

At the present time, nearly all states have passed some form of law dealing with the requirements for living wills or health care proxies. While a health care proxy allows you to appoint someone to make decisions on your behalf, a living will generally allows you to specify the particular types of treatment you would like to have provided or withheld. Each state has its own set of requirements.

A living will is a medical directive—written in advance—that sets forth your preference for treatment in the event you become unable to direct care. The document may be drafted to include when the directive should be initiated and who has the decision-making responsibility to withdraw or withhold treatment. In addition to allowing respect for your wishes, the living will can help alleviate feelings of guilt or uncertainty experienced by those faced with the responsibility of making important decisions for loved ones.

The Patient Self-Determination Act

A far-reaching federal law, known as the Patient Self-Determination Act, requires all health care providers that receive Medicare and Medicaid to inform everyone over age 18 of their right to determine how they want to deal with this issue and to ask whether they want to fill out a living will. If you have received information on this subject, it’s no coincidence, since the law also requires increased emphasis on community outreach and education.

This law impacts virtually every hospital, nursing home, and health maintenance organization (HMO) throughout the country. It is important to note that the law does not mandate that health care providers require their patients have a living will. Instead, it stipulates that health care providers must provide written information about the patient’s rights to make decisions about medical treatment, including the right to make an advance determination about life-sustaining medical treatment, and record whether the patient has done so.

At the present time, it appears most of these organizations have determined this question can most appropriately be handled when a patient is admitted. Therefore, the next time you are admitted to a hospital—even for something as minor as having a mole removed—don’t be surprised if you are given information about these rights and are asked to fill out a form that asks whether you currently have a living will or wish to have one.

The living will is a legal document, and each state has its own specific requirements. A qualified legal professional can help you understand the benefits of a living will and what has to be done to assure its validity.

Before implementing any strategy discussed herein, you should consult with your own financial, tax, and/or legal advisors to determine its applicability in light of your own situation.

Copyright © 2010 Liberty Publishing, Inc. All Rights Reserved.

L0410101704(exp0411)(All States)(DC)

This article appears courtesy of Karl Susman. Karl Susman is a representative of the New England Life Insurance Company. He focuses on meeting the individual insurance and financial services needs of people on the West Coast. You can reach Karl at the office at (424) 785-4337. New England Life Insurance Company, 501 Boylston Street, Boston, MA 02116

Many estate planning practitioners view the irrevocable life insurance trust (ILIT) as one of the most flexible and useful tools they can put to work on behalf of their clients. While the issue of where the ILIT fits into the overall estate planning process can be somewhat confusing, a closer look reveals its potential advantages.

Inheritance Comes with a Price

Typically, the size of your assets dictates the amount of estate tax planning necessary in your personal situation. Under current law, the estate tax is repealed in 2010. However, this does not eliminate the need for planning because the repeal is in effect for one year only. According to the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), the estate tax will be reinstated in 2011, with an applicable exclusion amount of $1,000,000 per individual and a maximum tax rate of 55%.

If you are married, a properly drafted and executed will and inter vivos (living) trust for you and your spouse—coupled with proper asset ownership—could help you pass the first $2,000,000 (in 2011) of your estate to your heirs free of federal estate taxes. However, estates exceeding this amount (or $1,000,000 for single individuals) may incur federal estate taxes. For this reason, the ILIT has become a popular technique to help provide liquidity for estate taxes and to ensure the maximum amount of your assets are passed to your family in full.

Opportunity Knocks

When properly implemented, the proceeds of an ILIT will not be included in your estate. They will be payable to the ILIT’s beneficiaries (generally, children and grandchildren) without being diminished by estate taxes.

An ILIT can purchase a life insurance policy on your (the donor’s) life, with the policy premiums funded by annual gifts you make to the ILIT. If properly structured and administered, your annual gift tax exclusion ($13,000 annually per donee and $26,000 for gifts made by husband and wife) can be used to make gifts to the ILIT.

In more advanced uses, an ILIT can be a useful strategy to help ensure continuity in a closely held business. For instance, passing a family-owned business of substantial value to heirs may be hampered if the heirs are required to produce the funds (in cash) to pay the associated large estate taxes. These taxes, in some instances, may require a forced sale of the business in order to raise the necessary cash to pay them. However, an ILIT can purchase/own a life insurance policy on the owner, with the death benefit providing the cash needed to help meet estate tax obligations and keep the business in the family.

Securing Your Future

Estate planning is an ongoing process that requires a personal commitment and the assistance of an experienced estate planning attorney in order to help ensure your desired intentions are fulfilled. Although an ILIT can be an integral part of your overall plan, it is important to understand that effective estate planning strategies are usually the result of the coordinated efforts of your insurance, legal, and tax professionals.

Pursuant to IRS Circular 230, MetLife is providing you with the following notification:

The information contained in this article is not intended to (and cannot) be used by anyone to avoid IRS penalties. This article supports the promotion and marketing of life insurance. You should seek advice based on your particular circumstances from an independent tax advisor.

Neither MetLife nor any of its affiliates, employees or representatives provides tax or legal advice. Please consult with your tax advisor or attorney regarding your personal situation.

Copyright © 2010 Liberty Publishing, Inc. All Rights Reserved.

L0910133905(exp1211)(All States)(DC)

This article appears courtesy of Karl Susman. Karl Susman is a representative of the New England Life Insurance Company. He focuses on meeting the individual insurance and financial services needs of people on the West Coast. You can reach Karl at the office at (424) 785-4337. New England Life Insurance Company, 501 Boylston Street, Boston, MA 02116

Getting approval on a loan can sometimes depend on one or two very important issues. For example, lenders often ask borrowers the question, “How will this loan be repaid in the event of your death?” Your answer may be to suggest assigning your life insurance policy.* This useful feature of a life insurance contract can help provide the necessary comfort level and security for a lender.

You can freely assign your life insurance policy unless some limitation is specified in your contract (your insurance company can furnish the required assignment forms). Through an assignment, you can transfer your rights to all, or a portion, of the policy proceeds to an assignee. The extent to which these rights are transferable depends on the assignment provisions in the policy, the intention of the parties as expressed in the assignment form, and the actual circumstances of the assignment.

In general, no interest deduction is allowed when the indebtedness is used to purchase or carry a life insurance contract. However, there is an exception that will allow the interest deduction as long as the indebtedness is incurred in connection with a trade or business.

Types of Assignments

There are two types of conventional insurance policy assignments:

1. An absolute assignment is normally intended to give the assignee every right in the policy that you possessed prior to the assignment. When the transaction is completed, you have no further financial interest in the policy.

The terminology of absolute assignments differs from contract to contract. In essence, it states that you transfer all rights, title, and interest in the policy to the assignee. Some insurance companies use an “ownership clause” to accomplish this transfer.

2. A collateral assignment is a more limited type of transfer. It is a security arrangement to protect the assignee (lender) by using the policy as security for repayment. After the indebtedness is repaid, the assignee releases his or her interest in the policy.

In other words, the assignee will revert to you the rights transferred by the assignment. Under the usual procedure, if the collateral assignment is still in force at your death, the assignee informs the insurance company of the remaining indebtedness including interest and receives that amount in a lump sum. Any excess proceeds are then payable to your named beneficiary in accordance with the beneficiary designation in your policy.

To fully protect the assignee, notice must be given to the life insurance company that the assignment has been made. If a company with no notice of assignment makes payment of the proceeds to another assignee or to a named beneficiary, the insurance company cannot be made to pay a second time.

Policy Provisions

Some typical policy provisions concerning assignments may include the following:

1. The assignment will not be binding until the original, or a duplicate thereof, is filed at the insurance company’s home office.

2. The insurance company assumes no obligation as to the effect, sufficiency, or validity of the assignment.

3. The assignment is subject to any indebtedness to the insurance company on the policy.

Thus, it is important to ensure that an assignment is made properly, regardless of whether it is absolute or collateral.

*Although loans generally are not taxable, there may be tax consequences if the policy lapses or is surrendered (even as part of a 1035 exchange) with a loan or assignment outstanding. The taxable income from the surrender, 1035 exchange, or lapse of the policy may exceed the cash proceeds received from it. If the policy is a modified endowment contract (MEC), pre-death distributions from the policy, including loans and assignments, are taxed on an income-first basis, and there may also be a 10% federal income tax penalty for distributions prior to age 59½.

Pursuant to IRS Circular 230, we are providing you with the following notification: The information contained in/on this article, illustration is not intended to (and cannot) be used by anyone to avoid IRS penalties. This [document, brochure, article, illustration, flyer, website] supports the promotion and marketing of life insurance. You should seek advice based on your particular circumstances from an independent tax advisor.

Copyright © 2010 Liberty Publishing, Inc. All Rights Reserved.

L0910132110(exp1211)(All States)(DC)

This article appears courtesy of Karl Susman. Karl Susman is a representative of the New England Life Insurance Company. He focuses on meeting the individual insurance and financial services needs of people on the West Coast. You can reach Karl at the office at (424) 785-4337. New England Life Insurance Company, 501 Boylston Street, Boston, MA 02116

When Brenda and Jake purchased their life insurance policies 20 years ago, they thought they did things the right way. They assessed their insurance needs, taking into account their home mortgage, the projected college education costs of their children, and their living expenses. Well, that was then. . .this is now.

Recently, as they contemplated retirement, Brenda and Jake reevaluated their insurance needs and were surprised to discover their insurance coverage is inadequate. How could this be? The answer, in a word, is inflation.

Because inflation affects purchasing power, it may also affect life insurance needs. For couples like Brenda and Jake, inflation means that life insurance coverage that was adequate years ago may now be insufficient. With this in mind, consider three of the more common uses for life insurance proceeds that may be affected by inflation:

Paying Off Your Mortgage. If you have recently purchased a new home or upgraded a home you already own, you may need to consider increasing your life insurance to help cover your mortgage payments. Insurance proceeds may be used to help pay off the mortgage in the event of the insured’s death.

Funding Future College Expenses. Compared to the previous year, the average annual cost of tuition, fees, room, and board for the 2008–09 academic year increased by over 5.5% at both private and public four-year colleges (The College Board, 2009). To be prepared, be sure to factor inflation into your college savings strategies. In addition, have a contingency plan in the form of adequate life insurance to help cover college expenses in the event of an untimely death. Review your strategy periodically, and consider increasing your coverage to reflect the anticipated future cost of higher education.

Maintaining Your Standard of Living. Over time, the costs associated with the normal expenses of everyday life, as well as the special pleasures most people look forward to in retirement—traveling, visiting children and grandchildren, and engaging in favorite hobbies and leisure time activities—are affected by inflation. As a result, the lifestyle you hope to enjoy in retirement could be affected, too. Your life insurance coverage, based on yesterday’s needs and the current cost of goods and services, may be potentially shortchanging the future standard of living of your loved ones. Factoring inflation into your life insurance program can help your loved ones maintain their lifestyle upon your death. In addition, if the policy allows, you can make withdrawals to fund your retirement years. However, any loans and withdrawals will decrease the amount of life insurance proceeds, and interest will be charged if the loan is not paid back before the insured dies.

Future Projections

Determining current life insurance needs is one thing, but figuring out how much coverage you’ll need in the future requires you to pay careful attention to inflation and how it can affect your family’s lifestyle. Regular reviews of your insurance coverage can make a great deal of sense. Plan to set aside time at least once each year to help ensure that your life insurance program is keeping up with inflation.

Copyright © 2010 Liberty Publishing, Inc. All Rights Reserved.

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This article appears courtesy of Karl Susman. Karl Susman is a representative of the New England Life Insurance Company. He focuses on meeting the individual insurance and financial services needs of people on the West Coast. You can reach Karl at the office at (424) 785-4337. New England Life Insurance Company, 501 Boylston Street, Boston, MA 02116