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Assigning Your Life Insurance Policy

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 outst anding. 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 Engl and 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 Engl and Life Insurance Company, 501 Boylston Street, Boston, MA 02116

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Consider Inflation When Assessing Your Insurance Coverage

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 St andard 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 gr andchildren, 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 st andard 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.

L0910132069(exp1011)(All States)(DC)

This article appears courtesy of Karl Susman. Karl Susman is a representative of the New Engl and 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 Engl and Life Insurance Company, 501 Boylston Street, Boston, MA 02116

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Small Business Tax Credit

Small employers who provide health insurance coverage to their employees may not realize they can claim a federal income tax credit on their 2010 filing, due to the Patient Protection and Affordable Care Act (PPACA). Unfortunately, a very low percentage of qualified business owners are taking advantage of this credit according to recent government reports. Even if companies have completed their 2010 filing, they can still submit an amended filing to request this tax credit.

Eligibility Rules
Small group employers must meet the following guidelines to be eligible for this federal income tax credit1. The requirements are a combination of three factors related to the business – size of their company, percentage of health care coverage they provide, and total wages paid.

  • Firm size. First, there are restrictions on the number of employees that an employer may have. A qualifying employer must have less than the equivalent of 25 full-time workers when totaling all individuals’ hours of employment. When all part-time and full-time hours of employment are combined and divided by a full time 40 hour week, and if the number of employees needed to cover the total hours is less than 25 employees, the employer will qualify for the credit.
  • Provide health care coverage. Secondly, the employer must confirm that they cover at least 50 percent of the cost of health care coverage for their employees. To determine this, the firm size equivalent number determined above must be used. Next, the employer must know the cost they pay to cover a single full time employee’s insurance premium. The employer must then make the following calculation:
    • Equivalent firm size multiplied by (X) the cost paid for an individual premium and divided by (/) two.  
    • The above calculation is the percentage of health care coverage that the employer must cover in order to qualify for the credit. Therefore, they do not have to pay full coverage for each employee. They could reach the required premium with some full coverage and some partial coverage of employees.
  • Total Wages Paid. Finally, there are wage restrictions on the qualifications.
    • Employers with 10 or fewer Full Time Equivalent (FTE) employees, paying annual average wages of $25,000 or less will receive the maximum credit of 35 percent.
    • Employers with greater than 10 and fewer than 25 Full Time Equivalent (FTE) employees, paying annual average wages of less than $50,000 will also receive the minimum credit of 35 percent of premiums paid.
    • All tax-exempt organizations that meet either of the above criteria can only claim the minimum credit of 25 percent of premiums paid.

As the IRS states: “The credit is completely phased out for employers that have 25 or more FTEs or that pay average wages of $50,000 or more per year. Because the eligibility rules are based in part on the number of FTEs, not the number of employees, employers that use part-time workers may qualify even if they employ more than 25 individuals.2”

  • Amount of credit and years available.

As stated by the IRS: “Small businesses can claim the credit for 2010 though 2013 and for any two years after that. For tax years 2010 to 2013, the maximum credit is 35 percent of premiums paid by eligible small businesses and 25 percent of premiums paid by eligible tax-exempt organizations. Beginning in 2014, the maximum tax credit will increase to 50 percent of premiums paid by eligible small business employers and 35 percent of premiums paid by eligible tax-exempt organizations.2”

  • More information. Please visit the FAQ section on the IRS website as there are several examples listed and helpful questions and answers pertaining to different circumstances.

Claiming the Credit

  • Small employers, whether businesses or tax-exempt organizations, will use the new Form 8941, Credit for Small Employer Health Insurance Premiums, to calculate the small business health care tax credit.
  • For-profit small businesses will include the amount of the credit as part of the general business credit on their income tax returns.
  • Tax-exempt organizations will include the amount of the credit on Line 44f of revised Form 990-T, Exempt Organization Business Income Tax Return. Form 990-T has been revised for the 2011 filing season to enable eligible tax-exempt organizations, even those that owe no tax on unrelated business income, to claim the small business health care tax credit.

For your interest: In an Analysis of the Small Business Health Insurance Tax Credit and Effects on Coverage conducted by the Committee on Small Business Democrats U.S. House of Representatives, a document was created showing the Impact of Health Care Tax Credit, by State. Please take a look at this document, as it pertains to the small group market in each individual state.

In order to make this information easier to communicate to your clients, BenefitMall has provided a client letter explaining the details above – Small Business Tax Credit. Please feel free to add your personal contact information to better utilize this component with your clients.

For further details on this opportunity for your valued customers, please visit the IRS website. Here the IRS provides form 8941 filing instructions, an informational video as well as a useful FAQ. Also, for further assistance with specific questions which cannot be answered in the information or links provided above, please click here for a state-by-state IRS Taxpayer Assistance guide.

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Life Insurance–How Much Is Enough?

You are probably aware of the importance of having enough life insurance coverage to h andle the financial contingencies that may affect your family in the event of your death. However, determining the necessary amount of life insurance can be complicated. One general rule of thumb is that you should have enough coverage to equal five to seven times your annual salary. However, you may want to determine the “right” amount of life insurance coverage with a careful “needs analysis,” rather than using an arbitrary formula.

The needs analysis approach incorporates an evaluation of your family’s most important financial obligations and goals. This leads to planning insurance coverage to help address mortgage debt, college expenses, and future family income, as well as to provide liquidity for meeting future estate tax liabilities.

Mortgage Debt

The first point worthy of consideration is whether your life insurance proceeds will be sufficient to help pay the remaining mortgage on your home. If you are carrying a large mortgage, you may need a sizable amount. If you own a second home, that mortgage should also be factored into the formula.

College Expenses

Many people want life insurance proceeds large enough to help cover their children’s college expenses, and possibly, graduate school. The amount needed can be roughly calculated by matching the ages of your children against projected college costs adjusted for inflation. This calculation should be revised periodically as your children get closer to college age, and it may be a good idea to be as conservative as possible when estimating long-term savings goals.

Continuing Income for Your Family

The amount of income you will need to help provide for your surviving spouse and dependents will vary greatly according to your age, health, retirement plan benefits, Social Security benefits, other assets, and your spouse’s earning power. Many surviving spouses may already be employed or will find employment, but your spouse’s income, alone, may not be sufficient enough to cover the monthly expenses of your family’s current lifestyle. Providing a supplemental income fund can help your family maintain its st andard of living.

Estate Taxes

Life insurance has long been recognized as an effective method for establishing liquidity at death to pay estate taxes and maximize asset transfers to future generations. However, this use of life insurance requires qualified legal expertise to help ensure the proper results.

Existing Resources

If your current assets and retirement plan death benefits are sufficient to cover your financial needs and obligations, you may not need additional life insurance for these purposes. However, if they are inadequate, the difference between your total assets and your total needs may be funded with life insurance.

There are many factors to consider when completing a needs analysis. In addition to the areas already mentioned, some other questions you might want to address include the following:

1. How much will Social Security provide and for how long?

2. How do you “inflation-proof” your family income, so the real purchasing power of those dollars does not decrease?

3. What is the earning potential of your surviving spouse?

4. How often should you review your needs analysis?

5. How can you use life insurance to help provide retirement income?

6. How do you structure your estate to reduce the impact of estate taxes?

7. Which assets are liquid and which would not be reduced by a forced sale?

8. Which assets would you want your family to retain because of sentiment or future growth possibilities?

As you develop an insurance strategy, remember to analyze your existing policies. Calculate the additional coverage you may need based on your family’s financial obligations and any other resources, such as retirement benefits and savings. Remember, having the proper life insurance coverage can play a major role in any family’s financial protection.

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 advisers regarding your particular set of facts and circumstances.

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

L0410101464(exp0411)(All States)(DC)

This article appears courtesy of Karl Susman.  Karl Susman is a representative of the New Engl and 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 Engl and Life Insurance Company, 501 Boylston Street, Boston, MA 02116

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Asset Allocation: Composing Your Financial Symphony

Any classical music composer will tell you that creating a symphony requires a delicate balance of sounds, melodies, and harmonies. Each instrument creates unique sounds and vibrations, which, when heard alone, may not be particularly compelling. However, when the orchestra plays in unison, the end result can be a masterful composition. Hence, the true art of creating a masterpiece is arranging melodies and blending sounds. In this respect, composers and investors share some similarities. Successful investing typically combines a number of different investments in order to create a portfolio that is “in tune” with the investor’s goals and objectives. It’s no coincidence that such a technique is the foundation for one of the most basic financial investment principles—asset allocation.

Asset allocation is the process of attempting to decrease financial risk by investing monies in different asset categories. To effectively diversify, consider investing in at least three different asset classes. The major asset categories include stocks, bonds, and cash (saving and checking accounts, certificates of deposit, money market accounts, and Treasury securities). Mutual funds often represent a combination of asset categories, but they may consist of just one asset category, such as a bond fund.

Overall, asset allocation may help reduce investment risk while achieving potentially higher returns. That’s because different categories of investments react differently to changes in the economy. For example, while stock values might be plummeting, bond values may be rising or remaining level. With a well-diversified portfolio, you can ultimately come to own many asset categories, thus potentially reducing the impact market volatility may have on your total investments.

Creating Your Own Ensemble

Before deciding where to invest, you should review your personal financial goals and ask yourself the following questions:

  • What are my goals for my money?
  • How can I keep inflation from eroding my purchasing power?
  • How much risk am I willing to take with my money?
  • Will I be comfortable holding investments with daily price fluctuations?

Many investors use asset allocation as the foundation of their portfolios. However, it is essential to realize that this strategy does not eliminate risk or guarantee a profitable investment return.

To reduce risk, your financial portfolio should reflect your own personal financial goals and investment style. Among other factors, your age, income, expenses, family responsibilities, and risk tolerance can influence how you should build your portfolio.

Arranging a Masterpiece

One of the biggest challenges facing the average investor is deciding how to allocate personal savings or retirement assets. Naturally, most individuals hope to create an investment portfolio that is consistent with their personal objectives and risk tolerance level. However, the lure of potentially high rates of return can easily skew an investor’s objectivity, resulting in unrealistic expectations and unnecessary exposure to risk. Thus, it is important to adhere to a diversified investment strategy that conforms with your short- and long-range goals. With a little bit of patience, your future may bring music to your ears.

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

L0410102864(exp0511)(All States)(DC)

 

This article appears courtesy of Karl Susman.  Karl Susman is a representative of the New Engl and 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 Engl and Life Insurance Company, 501 Boylston Street, Boston, MA 02116

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Your Estate and Life Insurance: It All Adds Up

It’s easy to underestimate your net worth. After all, without a crystal ball, the future value of your home and savings is hypothetical. What’s not hypothetical, however, is the fixed amount of the death benefit provided by your life insurance policy. Adding this often significant sum to your asset pool could expose your estate to Federal estate taxes. Fortunately, there are trusts that can exclude life insurance from an estate.

Many people assume that because death benefit proceeds from a life insurance policy are generally not considered taxable income to the beneficiary, a life insurance policy is out of the reach of the Internal Revenue Service (IRS). However, when the policy’s death benefits are added to the appreciated value of your home and savings, it may come as a shock to find that the value of your estate may exceed the applicable exclusion amount.

Taxpayers should be aware that, under current law, Federal estate taxes are repealed in 2010. However, according to the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), estate taxes will be reinstated in 2001, with an applicable exclusion amount of $1 million and a top tax rate of 55%. Congress may retroactively change the rules before the end of 2010, reinstating the estate tax at the same or new levels.

Although the unlimited marital deduction allows spouses to transfer assets to each other without assessment of estate taxes, non-spousal heirs face the possibility of seeing a life insurance policy inflate an estate’s value past the scheduled exemption amount in the year of death.

One Strategy: A Credit-Shelter Trust

One way to protect life insurance policy proceeds from estate taxation is to use a type of bypass trust known as a credit-shelter trust. This trust can be established during life, even if left unfunded, or at death through a will.

For estate conservation purposes, a trust could be set up to maximize each spouse’s applicable exclusion amount, perhaps sheltering more assets from estate taxation than may be possible through use of just the unlimited marital deduction. At the death of one spouse, an amount equal to his or her applicable exclusion amount could pass to a trust to benefit the surviving spouse but intentionally designed not to qualify for the marital deduction, with the remainder of the assets passing outright to the spouse. Then, at the death of the surviving spouse, assets in the credit-shelter trust could be paid to the couple’s children—without being subject to Federal estate tax. Any assets outside the trust upon the surviving spouse’s death, and therefore potentially subject to estate tax, could be further sheltered by the second spouse’s applicable exclusion amount for that year.

Another Approach: An ILIT

Especially when children are intended to receive the proceeds of a life insurance policy and the owner wants to exempt the policy from the estate’s total worth, an irrevocable life insurance trust (ILIT) is another approach. In this case, the trust is the owner and the beneficiary of the policy. Keep in mind, however, the term “irrevocable” means beneficiaries may not be changed and loans for the benefit of the insured may not be paid out from the policy once it is put into the trust. Putting a hefty life insurance policy into such a trust could help beneficiaries finance the purchase of a family business or pay estate taxes. However, funding an ILIT may result in gift taxes due.

Park Your Policy in the Right Spot

A trust, depending on the type, can help reduce or defer taxes on high-value assets such as life insurance. More broadly, a trust can be the means to help ensure the policy’s benefits go directly to the intended beneficiary. With the flexibility of trusts, however, comes complexity. It is always best to consult with an estate attorney who is experienced in tax matters before proceeding.

MetLife, nor its affiliates, their agents, and representatives, may not give legal or tax advice. You should consult with and rely on your own independent legal and tax advisors regarding your particular set of facts and circumstances.

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

L0310095214(exp0311)(All States)(DC)

This article appears courtesy of Karl Susman. Karl Susman is a representative of the New Engl and 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 Engl and Life Insurance Company, 501 Boylston Street, Boston, MA 02116

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Life Insurance—How Much Is Enough?

You are probably aware of the importance of having enough life insurance coverage to h andle the financial contingencies that may affect your family in the event of your death. However, determining the necessary amount of life insurance can be complicated. One general rule of thumb is that you should have enough coverage to equal five to seven times your annual salary. However, you may want to determine the “right” amount of life insurance coverage with a careful “needs analysis,” rather than using an arbitrary formula.

The needs analysis approach incorporates an evaluation of your family’s most important financial obligations and goals. This leads to planning insurance coverage to help address mortgage debt, college expenses, and future family income, as well as to provide liquidity for meeting future estate tax liabilities.

Mortgage Debt

The first point worthy of consideration is whether your life insurance proceeds will be sufficient to help pay the remaining mortgage on your home. If you are carrying a large mortgage, you may need a sizable amount. If you own a second home, that mortgage should also be factored into the formula.

College Expenses

Many people want life insurance proceeds large enough to help cover their children’s college expenses, and possibly, graduate school. The amount needed can be roughly calculated by matching the ages of your children against projected college costs adjusted for inflation. This calculation should be revised periodically as your children get closer to college age, and it may be a good idea to be as conservative as possible when estimating long-term savings goals.

Continuing Income for Your Family

The amount of income you will need to help provide for your surviving spouse and dependents will vary greatly according to your age, health, retirement plan benefits, Social Security benefits, other assets, and your spouse’s earning power. Many surviving spouses may already be employed or will find employment, but your spouse’s income, alone, may not be sufficient enough to cover the monthly expenses of your family’s current lifestyle. Providing a supplemental income fund can help your family maintain its st andard of living.

Estate Taxes

Life insurance has long been recognized as an effective method for establishing liquidity at death to pay estate taxes and maximize asset transfers to future generations. However, this use of life insurance requires qualified legal expertise to help ensure the proper results.

Existing Resources

If your current assets and retirement plan death benefits are sufficient to cover your financial needs and obligations, you may not need additional life insurance for these purposes. However, if they are inadequate, the difference between your total assets and your total needs may be funded with life insurance.

There are many factors to consider when completing a needs analysis. In addition to the areas already mentioned, some other questions you might want to address include the following:

1. How much will Social Security provide and for how long?

2. How do you “inflation-proof” your family income, so the real purchasing power of those dollars does not decrease?

3. What is the earning potential of your surviving spouse?

4. How often should you review your needs analysis?

5. How can you use life insurance to help provide retirement income?

6. How do you structure your estate to reduce the impact of estate taxes?

7. Which assets are liquid and which would not be reduced by a forced sale?

8. Which assets would you want your family to retain because of sentiment or future growth possibilities?

As you develop an insurance strategy, remember to analyze your existing policies. Calculate the additional coverage you may need based on your family’s financial obligations and any other resources, such as retirement benefits and savings. Remember, having the proper life insurance coverage can play a major role in any family’s financial protection.

This article appears courtesy of Karl Susman.  Karl Susman is a representative of the New Engl and 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 Engl and Life Insurance Company, 501 Boylston Street, Boston, MA 02116

 

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 advisers regarding your particular set of facts and circumstances.

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

L0410101464(exp0411)(All States)(DC)

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Understanding the Importance of Insurance

An unexpected occurrence, such as a death, disability, or other personal loss, is certainly not the type of event for which you can easily plan. Yet the financial ramifications can be staggering—not only to you, but to your family as well. Therefore, it is important to make a risk management plan part of your overall financial strategies.

Insurance, in all its varied forms, is quite simply a method for h andling risk. In order to plan an effective insurance program, you need to consider the risks to which you and your family are exposed and how financial loss could affect you. For each risk exposure, the key elements to consider are the severity and frequency of loss.

All Risks Are Not Created Equal

Insurance is oftentimes required in certain situations: For example, some states require a driver to obtain auto insurance in order to receive or maintain a license, and some lending institutions will not approve a mortgage application if the potential owner does not also purchase homeowner’s insurance. In these situations, while a base level of coverage may be required, you, as the insured, still may have choices as to the amounts and levels of coverage purchased, according to your specific risk needs.

Some risks may be so negligible that you may decide to accept more responsibility for any potential loss. In insurance language, you “self-insure” for risks you choose to accept. For example, it is rarely cost-effective to carry a large amount of collision coverage on a ten-year-old automobile. Since collision coverage generally pays actual cash value, and since a ten-year-old car may have little current fair market value (FMV), it is common to self-insure a larger portion of collision coverage in such cases. In making this choice, you assume more responsibility for any accidental damage to the vehicle that you might cause.

In contrast, in other situations, the risk is so large (or the cost of self-insurance so great) that the best strategy is to try to avoid the risk entirely. You practice risk avoidance in daily life when you invoke the phrase “not worth the risk” to describe your decision not to participate in some events. In addition to required coverages, you may oftentimes customize insurance to protect against certain extras according to your needs. For example, it may be wise to purchase a policy rider for your homeowners policy if you own an antique art collection that is worth more than the value of more st andard coverage.

Sometimes, for instance, risk can be reduced by taking extra measures to control the potential conditions that may lead to loss. Installing an automobile anti-theft device or a home security system may reduce the chances of burglary to your car or home.

Risk Transfer and Risk Sharing

Buying insurance is the process of transferring risk you cannot afford, or choose not to accept. Since you may be unable to afford to rebuild your home and replace all its contents in the event of fire, you may choose to transfer that risk to an insurer by purchasing the appropriate amount of homeowners insurance. However, even in situations of risk transfer, it is quite common to share some of the risk. For example, the deductible on an automobile or homeowners insurance policy is a form of risk sharing—you accept responsibility for a small portion of the risk while transferring the bulk of the risk to the insurer.

Taking a closer look at the different types of risks that are faced on a daily basis can help you answer questions such as the following: What is my risk level and how much of that risk can I afford to shoulder? What types of insurance, in addition to required coverage, might I need? And, how much coverage should I purchase? The fundamental rationale behind all forms of insurance is to determine what risks can be transferred on a cost-effective basis.

This article appears courtesy of Karl Susman.  Karl Susman is a representative of the New Engl and 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 Engl and Life Insurance Company, 501 Boylston Street, Boston, MA 02116

 

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

L0910130651(exp0911)(All States)(DC)

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Divorce and Retirement Plan Proceeds

Unfortunately, divorce is increasingly common in our society. Because divorce entails the dividing of assets, some of which have tax implications, it is important to be aware of potential “tax traps” when you begin planning. One such trap in the area of retirement plan assets is the existence of vested account balances.

In the past, with traditional defined benefit plans, the plan participant was promised a retirement benefit, but he or she had no vested retirement account balance. However, with the shift toward defined contribution plans, vesting for employee contributions is immediate, and vesting for employer contributions builds quickly. Consequently, as more Americans participate in 401(k) plans and other defined contribution retirement plans, dividing vested retirement plan assets in divorce situations has created complex financial issues.

Protect Yourself with a QDRO

A qualified domestic relations order (QDRO) is a judgment or order that involves child support, alimony, or property rights pertaining to a spouse, former spouse, child, or other dependent. A QDRO can be used to establish one spouse’s right to part or all of the other spouse’s retirement plan(s)— and to ensure that the recipient spouse pays the tax.

To be protected through a QDRO, it must specify the following:

o The name and address of the plan participant and the “alternate payee” (typically, the participant’s spouse).

o The name and account number of each retirement account involved.

o The percentage (or dollar amount) of each plan that is to be paid to the alternate payee.

o The period of time or the number of payments covered by the QDRO.

The QDRO must be a part of the divorce decree or a court-approved property settlement document. The decree should also specify that a QDRO is being established under Section 414(p) of the Internal Revenue Code (IRC) and the particular state’s domestic relations laws. Intent to establish a QDRO is insufficient; it must be spelled out in the divorce papers.

Getting divorced can be “taxing” enough, but it need not be made more difficult by mish andling the division of assets in a retirement plan. And, although this particular decision does appear to provide room for straying from the precise wording of the statute, applying the proper language in a divorce decree may help ease some of the inevitable complications that can arise, facilitating a smoother transition for all involved. Qualified legal advice should be obtained to help ensure that any desired planning actions are worded and structured properly.

This article appears courtesy of [Reps full name]. [Reps first name] is a Registered Representative offering securities through MetLife Securities, Inc.(MSI) (member FINRA/SIPC), New York, NY 10166. Insurance and annuities offered through Metropolitan Life Insurance Company (MLIC), New York, NY 10166. MSI and MLIC are MetLife companies. [He/She] focuses on meeting the individual insurance and financial services needs of people [in/from] [name occupation/profession/business/or lifestyle market]. You can reach [rep first name] at the office at [registered branch office address and phone number, including area code]. MetLife does not provide tax or legal advice.

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 Engl and 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 Engl and Life Insurance Company, 501 Boylston Street, Boston, MA 02116

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Institute of Business & Finance Announces a New CFS® Designee

San Diego, CA, March 22, 2011 – The Institute of Business & Finance (IBF) recently awarded
Karl Susman with the first nationally recognized mutual fund designation, CFS® (Certified Fund
Specialist®). This graduate-level designation is conferred upon c andidates who complete an 135+
hour educational program focusing on closed-end funds, mutual funds, ETFs, REITs, UITs and
modern portfolio theory. Over $10 trillion is invested in mutual funds in the United States; half
of all households own shares in at least one mutual fund.

CFS® certification requires mastery of portfolio construction, risk measurement, manager
selection, monitoring, income strategies, retirement accounts, titling, taxation and the
psychological aspects of finance. According to IBF, “The vast majority of investors and advisors
do not know how to properly select a mutual fund, underst and what criteria are important, asset
category correlation or what historical statistical information is a good predictor and what is a
poor indicator of what is likely to happen in the future.”
The student must pass three comprehensive exams and a written case study as well as adhere to
the IBF Code of Ethics and IBF St andards of Practice as well as fulfill annual continuing
education requirements. The CFS® program, since 1988, is designed for brokers and advisors
who have clients that either own or are considering investing in mutual funds or exchange-traded
funds.

ABOUT THE INSTITUTE OF BUSINESS & FINANCE – Founded in 1988, IBF is a nonprofit
provider of financial education and designations to members of the financial services
industry. IBF is the fourth oldest provider of financial certification marks in the United States. In
1988, IBF launched its first certification program, CFS® (Certified Fund Specialist®). Today IBF
offers four additional financial designation programs: CAS® (Certified Annuity Specialist®),
CES™ (Certified Estate Planning Specialist™), CIS™ (Certified Income Specialist™) and CTS™
(Certified Tax Specialist™).