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(Presentations in this blog were created using the InsMark® Illustration System)

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Bob Ritter's blog #180 Image A New Look at Various Financial Alternatives (It Will Knock Your Socks Off)

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According to the Investment Company Institute, “As of September 30, 2018, 401(k) plans held an estimated $5.6 trillion in assets.”

A substantial portion of those assets should be in a Split Funded 401(k).

Strategy for a Split Funded 401(k)

  • Take maximum advantage of an Employer’s matching contribution.
  • Redirect the after tax cost of the balance of the contribution to a cash value life insurance policy — my favorite is Indexed Universal Life (IUL).
  • Compare the projected results with retaining the contribution to the 401(k) in excess of the employer’s match.

Case Study of a Split Funded 401(k)

Tom Graves, age 35, plans to take advantage of the $19,000 maximum contribution to his 401(k) effective January 1, 2019.  His employer matches the first $4,000.  Can an effective case be made for diverting the after tax cost of the remaining $15,000 beyond the employer’s match into a personal, non-deductible, retirement plan?

In Tom’s 30% marginal tax bracket, the after tax cost of putting that last $15,000 into his 401(k) plan is $10,500.

Let’s see what his retirement cash could look like if that $15,000 increases by 3.00% yearly representing potential increases to 401(k) contribution limits.  We’ll compare that to the retirement cash flow generated by contributing that same $10,500 (increasing annually by 3.00%) to an increasing death benefit Indexed Universal Life (IUL) policy with an initial face amount of $513,647.

See the results in the graphic below.

Image 1
IUL vs. 401(k)
(Comparison of Benefits)

Bob Ritter's blog #185 Image IUL vs. 401(k) Comparison of Benefits

It is difficult for some consumers to accept that such differences can really occur in favor of the IUL.  Here are the reasons that favor IUL:

  • Cash values securing loans participate in the selected index;
  • Retirement cash flow via policy loans is free of income tax;
  • Policy death benefits are free of income tax including any cash value component whether policy loans exist or not;1
  • Overall plan costs (fees, taxes, mortality charges) are lower with IUL than alternative investments (see the graphic below).
1IRC Section 101 provides that the proceeds of life insurance maturing as a death claim are exempt from federal income tax.  This means that if the policy is retained until death, any gain in gross policy values in excess of premiums paid remains tax free.

Below is a graphic comparing the difference in overall Plan Costs between the 401(k) and the IUL.

Image 2
IUL vs. 401(k)
(Comparison of Plan Costs)

Bob Ritter's blog #185 Image IUL vs. 401(k) Comparison of Plan Costs

* The Comparison of Plan Costs graphic above compares the management fees (1.00%) and income taxes (30%) on retirement withdrawals from the 401(k) to the mortality charges and policy expenses associated with the life insurance policy.  (There is no income tax on loans from the IUL.)  Even though the costs of the IUL continue to accrue after the 401(k) values expire in year 41 (age 75), the overall costs associated with the IUL at age 95 (year 60) are only 45.83% of the expired 401(k).

Click here to view the full illustration with contributions, premiums and benefits.  On Pages 6 and 7, you can see the year-by-year costs associated with each plan.  (Note my margin comments on Page 6 of the illustrations.)

Alternative Investments

Have we provided this client with sufficient data for an informed decision?  Perhaps not.  What other factors should be considered?  Let’s add two more alternative investments along with the 401(k):

  • 401(k): 6.85% Yield (1.00 mgt. fee)
  • Tax Deferred Account (like an indexed annuity): 6.85% Yield
  • Equity Account: 6.85% Growth; 2.00% Dividend (1.00 mgt. fee)

(822) 787-4755 for comments on “Yields and Sequence of Returns”.

See below for a graphic that compares the IUL with these three alternatives, each one funded with $10,500 indexed at 3.00%.

Image 3
Various Financial Alternatives
(Comparison of Benefits)

Bob Ritter's blog #185 Image InsMark Illustration System Various Financial Alternatives VFA Comparison of Benefits

See below for a graphic of the difference in costs associated with the IUL, 401(k), Tax Deferred Account, and Equity Account.

Image 4
Various Financial Alternatives
(Comparison of Plan Costs)

Bob Ritter's blog #185 Image InsMark Illustration System Various Financial Alternatives VFA Comparison of Plan Costs

Click here to view the entire illustration.

Term Insurance

It is inevitable that term insurance will surface from folks like Dave Ramsey and Suze Orman as well as the occasional attorney and CPA (and most stockbrokers).

“Why go to all this fuss?  Just keep the 401(k) and buy some cheap term insurance.”

OK, let’s see how much this bad advice costs this client.

I searched the web to find the lowest cost for $500,000 of 30-year, level term and found an annual rate of $435 for a male, age 35.  So let’s analyze term insurance in combination with the 401(k).  In this case, we will reduce the $15,000 (indexed) funding of the 401(k) each year by the $435 term cost so we have an even comparison.

Image 5
IUL vs. Term and 401(k)
(Comparison of Benefits)

Bob Ritter's blog #185 Image InsMark Illustration System Various Financial Alternatives VFA IUL vs. Term and 401(k) Comparison of Benefits

Click here for the full comparison report.

Conclusion

Every client with a 401(k) contribution in excess of the company match should consider a Split Funded 401(k).

Anyone with an IRA, Keogh, or 403(b) plan is also a candidate for a split funded alternative – and so are employer-paid, profit sharing plans.

Note: Contributions to a 401(k), IRA, Keogh, 403(b), or profit sharing plan can be reduced or eliminated during times of financial stress – and restarted later.  The same is true of most variations of 21st century, cash value life insurance – including IUL.

“I can only wonder if another asset with the same qualities as life insurance would be implemented more frequently — if it wasn’t called life insurance.”

Bill Boersma

Video Analysis of the Comparison of Plan Costs

856-614-6950 for an 11-minute video refresher for the specifics of the InsMark Comparison of Plan Costs including details of the data input procedure.  (It is the same for all three comparison modules in the InsMark Illustration System.)

Coming Attraction

In my next Blog #186, I’ll examine a Solo 401(k) for a dentist, age 50, with a contribution of $62,000, the 2019 limit for those age 50 and older.

Licensing InsMark Systems

To license the 9135445104, visit us online or contact Julie Nayeri at (412) 392-4077 or 888-InsMark (467-6275).  Institutional inquiries should be directed to David Grant, Senior Vice President — Sales, at (778) 529-4146 or (925) 543-0513.

Creating Similar Presentations

If you would like some help creating customized versions of the presentations in this Blog for your clients, watch the video below on how to download and use InsMark’s Digital Workbook Files (or contact our Referral Resource in the section that follows).

Files For This Blog

New Zip File Downloaders
Watch the video.

Digital Workbook Files For This Blog

Blog185.zip

(450) 884-8695

Experienced Zip File Downloaders Download the zip file, open it, and double click the Workbook file name to open it in your InsMark System.

Before downloading and reviewing any files, be certain you have installed the most current updates to your InsMark System(s).  Do this using Live Update available under Help on the main menu bar of the System or this icon on the main menu bar:

LIVE UPDATE BUTTON

Note:  If you are viewing this on a cell phone or tablet, the downloaded Workbook file won’t launch in your InsMark Systems.  Please forward the Workbook where you can launch it on your PC where your InsMark System(s) are installed.

If you obtain the digital workbook for Blog #185, 979-383-2190 for a guide to its content.  It will be invaluable to you.

InsMark’s Referral Resources
(Put our Illustration Experts to Work for Your Practice)

We created Referral Resources to deliver a “do-it-for-me” illustration service in a way that makes sense for your practice.  You can utilize your choice of insurance company, and there is no commission split.  They are very familiar with running InsMark software.

Mention my name when you talk to a Referral Resource as they have promised to take special care of my readers.  My only request is this: if a Referral Resource helps you get the sale, place at least that case through them; otherwise, you will be taking unfair advantage of their generous offer to InsMark licensees.

Save time and get results with any InsMark illustration.  Contact:

Testimonials

“The InsMark software is indispensable to my entire planning process because it enables me to show my clients that inaction has a price tag.  I can’t afford to go without it!”
David McKnight, Author of The Power of Zero, InsMark Gold Power Producer®, Grafton, WI

“InsMark’s referral resource, Brian Manderscheid from LifePro, has been a gem to work with!  He helps us use InsMark with every one of our cases.  The genius factor is InsMark’s commitment to “Compared to What.”
Glenn Main, InsMark Platinum Power Producer®, McMurray, PA

“The reason I use InsMark products is because they are so good at explaining financial concepts to all three parties: 1) the producer trying to explain the idea; 2) the computer technician trying to illustrate it; 3) the customer trying to understand it.”
Rich Linsday, CLU, AEP, ChFC, InsMark Platinum Power Producer®, Top of the Table, International Forum, Pasadena, CA

“InsMark is the Picasso of the financial services world — their marketing savvy never fails to amaze me.”
Doug Peete, Past President, Top of the Table, InsMark Silver Power Producer®, Overland Park, KS

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“InsMark” is registered trademark of InsMark, Inc.

Split Funded 401(k) is a trademark of InsMark, Inc.

Copyright © 2019 InsMark, Inc.
All Rights Reserved

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Important Note #1:  The hypothetical values associated with this Blog assume the nonguaranteed values shown continue in all years.  This is not likely, and actual results may be more or less favorable.  Life insurance illustrations are not valid unless accompanied by a basic illustration from the issuing life insurance company.

Important Note #2:  The information in this Blog is for educational purposes only.  In all cases, the approval of a client’s legal and tax advisers must be secured regarding the implementation or modification of any planning technique as well as the applicability and consequences of new cases, rulings, or legislation upon existing or impending plans.

Important Note #3:  Many of you are rightly concerned about the potential tax bomb in life insurance that can accidentally be triggered by a careless policyowner when policy loans are present and net cash values are so low that the income tax on the gain on surrender (calculated using gross cash values less basis) is more – often significantly more – than the net cash surrender value.

This lurking tax bomb can be present in all forms of whole life and universal life where policy loans of any type are utilized.  It can be avoided, and you, the producer, are key to making sure your clients are aware of how to sidestep it.

A tax bomb can be avoided if the policy is neither surrendered nor allowed to lapse, since the policy death benefit wipes away the income tax liability.  The foundation of this special treatment is IRC Section 101.  This statute provides that the proceeds of life insurance maturing as a death claim are exempt from federal income tax.  This applies to the full death benefit, including any cash value component whether loans exist or not.

Can your clients remember these facts years into the future?  If they are incapacitated, will family members understand the issues?  It is probably best to file a short note with the policy – something like this (although your compliance officer will likely have preferred language):

If/when you take policy loans on this policy, be sure to talk to your financial adviser before surrendering or lapsing the policy in order to anticipate unexpected tax consequences that may otherwise be avoided.

Does this note make it harder or easier to deliver the policy?  It’s harder if you haven’t discussed it with your client; easier if you have.  And that’s the point – you should discuss it.

Some life insurance companies have concierge units that monitor loan status at the point of lapse or surrender, and you would be well-advised to select an insurance company with this capacity.  To be effective regarding the tax bomb, such carriers need to be proactive in their client relationships, not merely reactive to client inquiries.  I hope that ultimately the policyholder service division of all life insurance companies will bring this potential liability to the attention of those surrendering or lapsing policies, particularly those policies with 50% or more of the gross cash value subject to outstanding loans.

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More Recent Blogs:

Blog #184: Knock Your Socks Off (Part 2)

7067486547

Blog #182: Endorsement Split Dollar with Salary Continuation at Retirement

Blog #181: Endorsement Split Dollar with Optional Transfer

Blog #180: A New Look at Various Financial Alternatives (It Will Knock Your Socks Off)

 

3 Reasons Why It’s Profitable For You To (313) 413-7460 These
Blog Posts With Your Business Associates and
Professional Study Groups (i.e. “LinkedIn”)

 

Robert B. Ritter, Jr. Blog Archive

 

Blog #184: It Will Knock Your Socks Off (Part 2)

(Click here for Blog Archive)
(Click here for Blog Index)

(Presentations in this blog were created using the InsMark® Illustration System)

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Bob Ritter's blog #180 Image A New Look at Various Financial Alternatives (It Will Knock Your Socks Off)

Recently in Blog #180, we announced a critical upgrade to our comparison modules in the InsMark Illustration System involving the ability to compare internal plan costs.  In addition to values, you can now illustrate the difference between investment taxes and fees vs. the mortality and administrative expenses of life insurance.  The alternatives never match up to the life insurance, and this feature is a significant breakthrough in illustration capacity.

We typically use an illustration like our Various Financial Alternatives (VFA) where you can compare cash value life insurance to a variety of investments, e.g., a taxable account, a 401(k), a tax deferred account, an equity account, etc.  We also compare the life policy to just one other investment using the Other Investment vs. Your Policy illustration module.  We also address “buy term and invest the difference” by including a companion term policy with an alternate investment using the Permanent vs. Term illustration module.

Click here for an 11-minute video for specifics of this strategy including details of the data input procedure.  (It is the same for all three comparison modules in the InsMark Illustration System.)

In my next Blog #185, scheduled for posting in January 2019, you will see a presentation of illustrations and graphics featuring this concept.  The Case Study involves a client in a 30% tax bracket contributing $19,000 to a 401(k).  We recommend retaining only that portion of the 401(k) matched by the employer, $4,000 in our example.  We also recommend diverting the after tax cost of the $15,000 unmatched balance, $10,500 in our case, to Indexed Universal Life (IUL).

The results will not only stun you but also prove conclusively that life insurance is a far better alternative than retaining the unmatched portion of a 401(k).  This result applies to virtually all taxpayers up through age 55 (or even age 60 for those planning to delay retirement until age 70).

In my subsequent Blog #186, I’ll address this same issue for a more upscale client with even more dramatic results.

Below is a Flow Chart of a comparison of a 401(k) to Indexed Universal Life:

401(k) vs. Indexed Universal Life

Bob Ritter's blog #180 Image Flow Chart of a comparison of a 401(k) to Indexed Universal Life

Licensing InsMark Systems

To license the well-carved, visit us online or contact Julie Nayeri at Julien@insmark.com or 888-InsMark (467-6275).  Institutional inquiries should be directed to David Grant, Senior Vice President — Sales, at dag@insmark.com or (925) 543-0513.

InsMark’s Referral Resources
(Put our Illustration Experts to Work for Your Practice)

We created Referral Resources to deliver a “do-it-for-me” illustration service in a way that makes sense for your practice.  You can utilize your choice of insurance company, and there is no commission split.  They are very familiar with running InsMark software.

Mention my name when you talk to a Referral Resource as they have promised to take special care of my readers.  My only request is this: if a Referral Resource helps you get the sale, place at least that case through them; otherwise, you will be taking unfair advantage of their generous offer to InsMark licensees.

Save time and get results with any InsMark illustration.  Contact:

Testimonials

“InsMark is the Picasso of the financial services world — their marketing savvy never fails to amaze me.”
Doug Peete, Past President, Top of the Table, InsMark Silver Power Producer®, Overland Park, KS

“The InsMark software is indispensable to my entire planning process because it enables me to show my clients that inaction has a price tag.  I can’t afford to go without it!”
David McKnight, Author of The Power of Zero, InsMark Gold Power Producer®, Grafton, WI

“InsMark’s referral resource, Brian Manderscheid from LifePro, has been a gem to work with!  He helps us use InsMark with every one of our cases.  The genius factor is InsMark’s commitment to “Compared to What.”
Glenn Main, InsMark Platinum Power Producer®, McMurray, PA

“The reason I use InsMark products is because they are so good at explaining financial concepts to all three parties: 1) the producer trying to explain the idea; 2) the computer technician trying to illustrate it; 3) the customer trying to understand it.”
Rich Linsday, CLU, AEP, ChFC, InsMark Platinum Power Producer®, Top of the Table, International Forum, Pasadena, CA

separator bar

“InsMark” is a registered trademarks of InsMark, Inc.

Copyright © 2018 InsMark, Inc.
All Rights Reserved

separator bar

Important Note #1:  The hypothetical values associated with this Blog assume the nonguaranteed values shown continue in all years.  This is not likely, and actual results may be more or less favorable.  Life insurance illustrations are not valid unless accompanied by a basic illustration from the issuing life insurance company.

Important Note #2:  The information in this Blog is for educational purposes only.  In all cases, the approval of a client’s legal and tax advisers must be secured regarding the implementation or modification of any planning technique as well as the applicability and consequences of new cases, rulings, or legislation upon existing or impending plans.

Important Note #3:  Many of you are rightly concerned about the potential tax bomb in life insurance that can accidentally be triggered by a careless policyowner when policy loans are present and net cash values are so low that the income tax on the gain on surrender (calculated using gross cash values less basis) is more – often significantly more – than the net cash surrender value.

This lurking tax bomb can be present in all forms of whole life and universal life where policy loans of any type are utilized.  It can be avoided, and you, the producer, are key to making sure your clients are aware of how to sidestep it.

A tax bomb can be avoided if the policy is neither surrendered nor allowed to lapse, since the policy death benefit wipes away the income tax liability.  The foundation of this special treatment is IRC Section 101.  This statute provides that the proceeds of life insurance maturing as a death claim are exempt from federal income tax.  This applies to the full death benefit, including any cash value component whether loans exist or not.

Can your clients remember these facts years into the future?  If they are incapacitated, will family members understand the issues?  It is probably best to file a short note with the policy – something like this (although your compliance officer will likely have preferred language):

If/when you take policy loans on this policy, be sure to talk to your financial adviser before surrendering or lapsing the policy in order to anticipate unexpected tax consequences that may otherwise be avoided.

Does this note make it harder or easier to deliver the policy?  It’s harder if you haven’t discussed it with your client; easier if you have.  And that’s the point – you should discuss it.

Some life insurance companies have concierge units that monitor loan status at the point of lapse or surrender, and you would be well-advised to select an insurance company with this capacity.  To be effective regarding the tax bomb, such carriers need to be proactive in their client relationships, not merely reactive to client inquiries.  I hope that ultimately the policyholder service division of all life insurance companies will bring this potential liability to the attention of those surrendering or lapsing policies, particularly those policies with 50% or more of the gross cash value subject to outstanding loans.

seperator bar

More Recent Blogs:

867-391-9561

Blog #182: Endorsement Split Dollar with Salary Continuation at Retirement

Blog #181: Endorsement Split Dollar with Optional Transfer

4104159003

Blog #179: Helping Millennials with Financial Decisions

 

3 Reasons Why It’s Profitable For You To Share These
Blog Posts With Your Business Associates and
Professional Study Groups (i.e. “LinkedIn”)

 

Robert B. Ritter, Jr. Blog Archive

 

Adventism

(Click here for Blog Archive)
all-sustainer

(Presentations in this Blog were created using InsMark’s Wealthy and Wise® System.)

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Bob Ritter's Blog #183: Are Your Clients Too Old to Use IUL in a Retirement Plan? image

This Blog addresses an awkward situation.  James and Allison McNamara are both age 55 with a current net worth of $4.75 million.  They are at the peak of their earning (and saving) years and intend to retire at age 65.  They are reviewing an Indexed Universal Life (IUL) presentation involving a Private Retirement Plan (PRP).

Some people think IUL does not work very well with loan activity starting as early as ten years.  This presents a dilemma that involves the difficult task of demonstrating to James and Allison the value of a retirement strategy that produces no retirement cash flow for 20 years – 10 years after retirement begins.

To address this, you cannot rely on the usual illustration format and try to talk your way through the problem as the issue is so obvious; however, our Wealthy and Wise® System can handle it easily since the System merely finds the needed retirement cash flow from other assets.  The results of this analysis should open up a whole new market segment for Private Retirement Plan presentations, i.e., those at or near retirement with large sums available for retirement savings but who would usually pass on a plan that doesn’t begin to produce income until well past retirement.

Below is a summary of James and Allison’s current net worth:
$ 2,000,000  Equity Assets @ 6.50% growth; 1.00% dividend
500,000  Taxable Assets @ 5.00%
600,000  Tax Exempt Assets @ 4.00%
500,000  Retirement Plan Assets @ 7.50%
850,000  Principal Residence1 @ 3.00% growth
400,000 Personal Property @ -5.00% growth
300,000  Rare Coin Collection @ 6.00% growth
   500,000  Vacation Home @ 3.00% growth
$ 5,500,000  Total Net Worth
1They intend to sell their principal residence at retirement and move to their vacation home.

Click here for comments on yields and Monte Carlo simulations.

Case Study

James and Allison are in a 37% tax bracket which they expect will reduce to 30% at retirement.  They would like to have at least $250,000 a year in after tax cash flow at retirement, and they want to include 3.00% indexing as an inflation offset.  Between their retirement and age 100, this will require $15,115,521 of after tax cash flow.  They do not want their net worth to diminish after they retire.

Strategy 1 will reflect the McNamaras’ current situation.

Strategy 2 will be identical to Strategy 1 with the exception that it will include $1,863,066 million of IUL insuring Allison.  (James has a couple of medical issues that indicates Allison is the preferred insured.)  The IUL has scheduled premiums of $100,000 a year for six years with policy loans of $150,000 beginning in year 21 (age 75), ten years after they retire.  These loans will supply a substantial portion of their needed retirement cash flow, leaving other assets to accumulate more rapidly.

Click here to review the IUL report.  The illustration includes participating policy loans (cash values securing these loans continue to participate in whatever indexed interest is credited to the policy).  This feature can produce significantly better results than fixed loans which is why I tend to illustrate IUL in situations involving policy loans for retirement cash flow.  For a demonstration of this, see my Blog #52: Participating Loans vs. Fixed Loans.  (Whole life cannot compete with this feature.)

The key to the power of this analysis lies in your understanding that Strategy 2 does not require James and Allison to “spend” $100,000 of their current income for the next six years to fund the policy.  Instead, Wealthy and Wise finds the cash flow for the premium from their existing assets, i.e., asset reallocation.  The results may surprise you because not only does their asset base provide the premiums for the life insurance, it will cost James and Allison almost $8 million in illustrated long-range net worth and wealth to heirs if they don’t acquire this policy!  You can see this effect in the graphic below.

Image 1
Current Plan
vs.
Current Plan + Indexed Universal Life

Bob Ritter's Blog #183 image 1 effect on net worth after providing spendable cash flow

Their long-range net worth is increased by almost 145%, and as you can see below, wealth to heirs is similarly enhanced.

Image 2
Current Plan
vs.
Current Plan + Indexed Universal Life

Bob Ritter's Blog #183 image 2 effect on wealth to heirs

Imagine this conversation:

James: “That looks great, but instead of growing net worth to over $25 million, what if we withdrew more cash flow.”

Allison: “We’d like to have a cash flow cushion for travel and supplemental medical costs as well as help the grandchildren with some of their needs, like education or down payments on a house.”

The precise answer for James and Allison is $71,889 of additional after tax cash flow is available to them every year from age 65, when they retire, through age 100. (I was able to tell the McNamaras this number accurately in about 30 seconds.  Access to a report on how you can calculate this using the new Cash Flow Availability Calculator in our Wealthy and Wise software is available below.)

James: “What I like about this approach is that we would still have plenty of cushion in case of any financial ups and downs.”

Below is the revised net worth and cash flow graphic.  Strategy 3 produces $2,516,115 ($71,889 x 35 years) more supplemental cash flow with net worth ending up virtually identical to Strategy 1 – all caused by the presence of the IUL.

Image 3
Current Plan
vs.
Current Plan + Indexed Universal Life
vs.
Current Plan + Indexed Universal Life + Additional Cash Flow

Bob Ritter's Blog #183 image 3 effect on net worth after providing spendable cash flow

Below are the revised graphics for wealth to heirs and cumulative cash flow for the McNamaras including the Strategy 3 assumptions.

Image 4
Current Plan
vs.
Current Plan + Indexed Universal Life
vs.
Current Plan + Indexed Universal Life + Additional Cash Flow

Bob Ritter's Blog #183 image 3 effect on wealth to heirs

Wealthy and Wise Reports

Click here to review the 38 Wealthy and Wise reports associated with Strategies 1, 2, and 3.  That is a lot to consider, I know; however, I recommend that you have all the reports for a specific client in your possession particularly if you are visiting with a client’s attorney or CPA.  Wealthy and Wise backs up every number shown, and you will likely need access to some of the reports for the multiple times you get asked this question by a client, attorney, or CPA: “How was this number calculated?” Incidentally, those professional advisers are typically very impressed with the scope of Wealthy and Wise.

Many Wealthy and Wise users select a few critical illustrations in the main section and put the balance in an Appendix.  You can accomplish more elaborate report organization by adding a Table of Contents and Section pages which I did by selecting the following prompt available at the bottom right of the Workbook Main Window:

print client presentation

Conclusion

As you can see, the strategy of including investment-grade life insurance in a retirement plan is effective – particularly IUL with participating loans.  Virtually every age group can generate remarkable results with this technique – even those close to, or in, retirement.  There is a similar analysis in 5188160837 for a couple both age 60 and another in Blog #58 for a couple in their 40s.  I have seen its effectiveness even at age 70.

Cash Flow Availability Calculator

$71,889 a year for 35 years (age 65 to 100) in addition to the indexed retirement cash flow of $250,000 for 35 years is very significant.  How is this calculated?

6396329388 for the essential details of the Cash Flow Availability Calculator in Wealthy and Wise that was used for Strategy 3.

Final Thought #1

I know that many of my readers are comfortable selling the retirement cash flow features of IUL using a stand-alone illustration not integrated with a client’s other assets.  Clients typically consider the premiums for such plans to be an expense.  Changing to a Wealthy and Wise analysis creates a new learning curve because your presentation changes to an asset transfer.  Believe this: the wealthier a client, the easier it is to convince him or her of the power of integrating IUL into their portfolio of assets with this type of analysis.  With allocations from current assets as the source of the IUL premiums as shown in this Blog, it becomes a case of “comparing assets and cash flow if you do it – with what happens if you don’t”.  That is an entirely different presentation that can have compelling results for you.  With some clients, Strategy 2 (greater net worth) will be sufficient; others will be very impressed (perhaps even astonished) with your Strategy 3 logic (greater cash flow) – or, maybe, somewhere in between.

The payoff?  You will develop much higher average compensation per case, and a client locked into your planning expertise, not just an IUL policyholder.  Tended to carefully, you will likely have this client for life.

If you are an experienced user with Wealthy and Wise, putting a case together like this will be relatively straightforward.  (See below to obtain the electronic Workbook I used to prepare the data for all the Strategies evaluated in this Blog.)

That’s the good news.  The bad news for some is that you have to gather all of your client’s financial data for this type of analysis.  How do you feel about asking a prospective client to reveal details of economic data?  You have to earn a potential client’s confidence to do that.  My suggestion for the best way to gain that confidence is to share examples of how this concept works for others – this Blog, for example, or the Wealthy and Wise reports associated with it.

Note:  A Fact Finder is available in Wealthy and Wise to guide you in your data gathering (see Tools on the main menu bar).  Many of our licensees tell me they think the Fact Finder is best filled out with the client(s) present and involved in the process.

At first glance, the Fact Finder may look intimidating, but on most pages, you will be entering data in only a few of the listed categories.  To acquaint yourself with it, try filling one out for your situation.  Then enter that data in your Wealthy and Wise System – you may be pleasantly surprised.

Final Thought #2

I am frequently asked if a Wealthy and Wise analysis can be reliable projected so far into the future.  A plan like this cannot be reliably projected if you perceive retirement planning as a “one and done” analysis.  To be a dependable adviser to your clients, you must meet with them at least once a year and bring all the data current.  Each year represents a fresh look at the future, and this is what turns prospects into clients, not just policyholders.  If you follow this procedure, soon your clients won’t make a significant financial move without asking you to run it through Wealthy and Wise.  Otherwise, changes in finances will make your original evaluation obsolete, and you will lose clients to other advisers.

This approach also gives you a sound basis for charging an annual monitoring fee for the analysis.  If you can develop fee revenue from clients who are glued to you for service, it has a significant impact on the value of your practice.  These days, recurring revenue is hard to develop, and monitoring fees are an excellent way to do so.  (855) 651-6508 covers this issue in detail including how to include such fees within a presentation so they are paid for out of plan assets not by addition out-of-pocket costs by the client.  Be sure to check with compliance if you are considering monitoring fees.

If you prefer a “one and done” solution, comprehensive retirement planning is not for you.  That is not to say there isn’t plenty of opportunity for you – just not in this field.

If you are new to this planning logic and want to pursue it (and are licensed, or become licensed, for Wealthy and Wise), consider contacting our Referral Resource noted below for design assistance.

Licensing InsMark Systems

To license Wealthy and Wise, visit us online or contact Julie Nayeri at Julien@insmark.com or 888-InsMark (467-6275).  Institutional inquiries should be directed to David Grant, Senior Vice President — Sales, at dag@insmark.com or (925) 543-0513.

Creating Similar Presentations

If you would like some help creating customized versions of the presentations in this Blog for your clients, watch the video below on how to download and use InsMark’s Digital Workbook Files.

Digital Workbook Files For This Blog

New Zip File Downloaders
Watch the video.

Digital Workbook Files For This Blog

770-301-6405

Download all workbook files for all blogs

Experienced Zip File Downloaders Download the zip file, open it, and double click the Workbook file name to open it in your InsMark System.

Before downloading and reviewing any files, be certain you have installed the most current updates to your Wealthy and Wise and InsMark Illustration System.  Do this using Live Update available under Help on the main menu bar of the System or this icon on the main menu bar:

LIVE UPDATE BUTTON

Note:  If you are viewing this on a cell phone or tablet, the downloaded Workbook file won’t launch in your InsMark Systems.  Please forward the Workbook where you can launch it on your PC where your InsMark System(s) are installed.

If you obtain the digital workbook for Blog #183, 403-619-1348 for a guide to its content.  It will be invaluable to you.

InsMark’s Referral Resources
(Put our Illustration Experts to Work for Your Practice)

We created Referral Resources to deliver a “do-it-for-me” illustration service in a way that makes sense for your practice.  You can utilize your choice of insurance company, and there is no commission split.  They are very familiar with running InsMark software.

Mention my name when you talk to a Referral Resource as they have promised to take special care of my readers.  My only request is this: if a Referral Resource helps you get the sale, place at least that case through them; otherwise, you will be taking unfair advantage of their generous offer to InsMark licensees.

Save time and get results with any InsMark illustration.  Contact:

Testimonials

“If you don’t get the client to distinguish cash flow from net worth, you won’t make the case sale. In my experience, Wealthy and Wise is the only system that recognizes this important estate planning component.”
Stephen Rothschild, CLU, ChFC, CRC, RFC, International Forum Member, Saint Louis, MO

“Major cases we are developing have all moved along successfully because of the sublime simplicity and communication capability of Wealthy and Wise. I guarantee that the proper use of this tool will dramatically raise the professional and personal self-image of any associate who dares to take the time to understand it . . .”
Simon Singer, International Forum Member, InsMark Platinum Power Producer®, Encino, CA

“I am writing to give you a ringing endorsement for the Wealthy and Wise System. As you know, I am a LEAP practitioner, and the Wealthy and Wise software has helped me supplement my LEAP skills and increase my commissions. I have been paid for many cases using Wealthy and Wise as support, the smallest of which was $27,000, the largest was $363,000. With those type of commissions, you would have to be nuts not to buy it.”
Vincent M. D’Addona, CLU, ChFC, MSFS, AEP, InsMark Power Producer®, New York, NY

“InsMark helps us help our clients understand their money and their choices. I always learn something new that changes what we do and how we can do it more efficiently. That translates to a better bottom line for us and for our clients. It’s making more money for everyone – just by pushing InsMark buttons on the computer.”
Kay Corbin, CLU, ChFC, InsMark Platinum Power Producer®, Phoenix, AZ

“The InsMark software is indispensable to my entire planning process because it enables me to show my clients that inaction has a price tag. I can’t afford to go without it!”
David McKnight, Author of The Power of Zero, InsMark Gold Power Producer®, Grafton, WI

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“InsMark” and “Wealthy and Wise” are registered trademarks of InsMark, Inc.

Copyright © 2018 InsMark, Inc.
All Rights Reserved

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Important Note #1:  The hypothetical values associated with this Blog assume the nonguaranteed values shown continue in all years.  This is not likely, and actual results may be more or less favorable.  Life insurance illustrations are not valid unless accompanied by a basic illustration from the issuing life insurance company.

Important Note #2:  The information in this Blog is for educational purposes only.  In all cases, the approval of a client’s legal and tax advisers must be secured regarding the implementation or modification of any planning technique as well as the applicability and consequences of new cases, rulings, or legislation upon existing or impending plans.

Important Note #3:  Many of you are rightly concerned about the potential tax bomb in life insurance that can accidentally be triggered by a careless policyowner when policy loans are present and net cash values are so low that the income tax on the gain on surrender (calculated using gross cash values less basis) is more – often significantly more – than the net cash surrender value.

This lurking tax bomb can be present in all forms of whole life and universal life where policy loans of any type are utilized.  It can be avoided, and you, the producer, are key to making sure your clients are aware of how to sidestep it.

A tax bomb can be avoided if the policy is neither surrendered nor allowed to lapse, since the policy death benefit wipes away the income tax liability.  The foundation of this special treatment is IRC Section 101.  This statute provides that the proceeds of life insurance maturing as a death claim are exempt from federal income tax.  This applies to the full death benefit, including any cash value component whether loans exist or not.

Can your clients remember these facts years into the future?  If they are incapacitated, will family members understand the issues?  It is probably best to file a short note with the policy – something like this (although your compliance officer will likely have preferred language):

If/when you take policy loans on this policy, be sure to talk to your financial adviser before surrendering or lapsing the policy in order to anticipate unexpected tax consequences that may otherwise be avoided.

Does this note make it harder or easier to deliver the policy?  It’s harder if you haven’t discussed it with your client; easier if you have.  And that’s the point – you should discuss it.

Some life insurance companies have concierge units that monitor loan status at the point of lapse or surrender, and you would be well-advised to select an insurance company with this capacity.  To be effective regarding the tax bomb, such carriers need to be proactive in their client relationships, not merely reactive to client inquiries.  I hope that ultimately the policyholder service division of all life insurance companies will bring this potential liability to the attention of those surrendering or lapsing policies, particularly those policies with 50% or more of the gross cash value subject to outstanding loans.

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