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Supplemental Income Using Life Insurance. Presenter: Date:. What We’ll Cover. Why supplemental income The importance of life insurance The effect of over-funding your policy How supplemental income works Case Study. Why Supplemental Income. Evaluating your client’s goals

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Presenter date

Supplemental IncomeUsing Life Insurance

Presenter:

Date:


What we ll cover

What We’ll Cover

  • Why supplemental income

  • The importance of life insurance

  • The effect of over-funding your policy

  • How supplemental income works

    • Case Study


Why supplemental income

Why Supplemental Income

Evaluating your client’s goals

  • How much is required for retirement

    • Active lifestyles in retirement

    • Impact of longer life expectancies

  • Inflation


Impact of longer lives

Client needing $75,000 in retirement

Retiring at 65; Inflation averaging 3%, Assets growing at a net 6%

Need to Start With

$ 661,348

$ 927,275

$1,157,642

$1,375,206

$1,530,081

Impact of Longer Lives

Living to Age

75

80

85

90

95


Impact of inflation

Impact of Inflation

  • Costs increase over time

    • Salaries vs. Fixed Income

  • Consumer price index average

    • Twenty year average = 74.06%*

*This is based on a 20 year moving average from 1989-2009 based on the consumer price index. This will vary from time period to time period.


Increasing dependence on savings

Increasing Dependence on Savings

The higher one’s income, the greater the reliance on personal savings

Employee Benefit Research Institute, Social Security Administration. March 2007. Survey, Web. www.ebri.org


How supplemental income works

How Supplemental Income Works

Range of clients’ choices

  • IRAs & 401ks

  • Savings & Investments

    • Equities

    • Tax Exempts

  • Annuities


Alternatives

*

Alternatives

* Only appropriate if there is a death benefit need. Please be advised this chart is based on our general understanding of federal tax rules for U.S. Individuals and is not intended as legal or tax advice. Your clients should consult their own tax advisor. Also your clients should consult with their advisor regarding the individual characteristics of any product or investment purchase. All these products and investments have different characteristics and levels of risk. Neither AXA Equitable nor AXA Distributors does not provide tax and legal advice. Clients should consult with tax and legal professionals on these matters.

*

*


The importance of life insurance

The Importance of Life Insurance

  • The need for life insurance

  • Types of life insurance

  • How life insurance works


The importance of life insurance1

The Importance of Life Insurance

  • The need for life insurance

    • Personal and family needs

      • Death benefit protection

      • Cash accumulation


The importance of life insurance2

The Importance of Life Insurance

  • Types of life insurance

    • Term insurance

    • Whole life insurance

    • Universal life insurance


The importance of life insurance3

The Importance of Life Insurance

  • How life insurance works

    • Pricing

    • Cost of insurance

    • Underwriting


How supplemental income works1

During Your Retirement Years When you have a reduced life insurance need

How Supplemental Income Works

During your working years when you have a life insurance need

You contribute dollars to a life insurance contract as premiums

Upon your death, the policy proceeds will be paid to your beneficiaries

The Insurance company will take out certain expenses for its operations and state premium taxes

You can take withdrawals and loans to help supplement your retirement

Your Text

Your remaining contributions build cash value

Loans and Withdrawals reduce the policy's cash value and death benefit and increase the chance that the policy may lapse.  If the policy lapses, terminates, is surrendered or becomes a modified endowment, the loan balance at such time would generally be viewed as

distributed and taxable under the general rules for distributions of policy cash values.


Dialing your tax bracket

Dialing Your Tax Bracket

  • With proper planning, cash values taken from the life insurance policy as withdrawals and loans can be received income tax free

    • In retirement – when you may need less death benefit – you can take withdrawals and loans as needed

  • Dialing your tax bracket

    • Take income from required sources – Social Security, Pensions – to fill lower tax brackets

    • In years when you need more money, use life insurance cash values but avoid triggering higher tax brackets

*You must pay the minimum premium to maintain the life insurance and there is an upper cap on how much can be contributed and still allow the contract to fall within the definition of life insurance under Tax Code Section 7702


Roth ira alternative 401k supplement

*

Roth IRA Alternative/401k Supplement

  • Many retirement vehicles limit contributions

    • IRAs & Roth IRAs - $5,000

    • 401ks - $16,500

    • Additional amounts for individuals over 50

    • Limits on contributions to employer sponsored plans

  • Life Insurance offers an additional approach to place funds

    • Can avoid limits imposed by other savings options – 401ks, IRAs Policy can become a Roth IRA Alternative or 401k supplement

    • You can dial how much you want to put into the life insurance policy*

*You must pay the minimum to maintain the life insurance and there is an upper cap on how much can be contributed and still allow the contract to fall within the definition of life insurance under Tax Code Section 7702


Managing your tax bracket

Managing Your Tax Bracket

46% Savings of $8,025!


The effect of overfunding

The Effect of Overfunding

  • After paying enough premiums to cover policy charges, additional premium payments are available for tax-deferred cash value accumulation.

  • For policies with a Level Death Benefit Option (Option A), increased cash values lower the “Net Amount at Risk” for which mortality charges are assessed.

  • Risk that the policy may lapse or will require additional unexpected premiums in the future is reduced.

  • Greater cash value accumulation may result in a higher Death Benefit in some cases.


How overfunding works

How Overfunding Works

Larger Premium Payment

Smaller Premium Payment

Process

Mapping

Tax Deferred and Investment Portion

Policy Charges and Expenses

Policy Charges and Expenses

Tax Deferred and Investment Portion

Premium Payments

Premium Payments


Case study

Case Study

  • Matt – 45 years old who needs $200,000 life insurance to care for his family

  • Non-Smoker Preferred Underwriting Class

  • Purchases an AXA Equitable universal life policy

    • Premium is approximately $500/month ($6,000/year)

    • Cash surrender value grows income-tax free

  • At 65 – Cash Surrender Value is $195,000 with a death benefit of $410,000

    • Will allow $19,000 of withdrawals & loans for 15 years (to age 80)

    • Equivalent of $26,500 taxable income (assuming a 28% income tax bracket)

    • Death Benefit at age 80 will be $110,000 - needed to maintain life insurance


Disclosure

Disclosure

The policy premium and death benefit amounts used for this case are only intended to help demonstrate the planning concept discussed and not to promote the sale of a specific product. The rates are broadly representative of rates that would apply for a policy of this type and size for insureds of good health in the ages mentioned. To determine how this approach would work with your clients, individual illustrations should be prepared or requested for your review. If different rates were used, there might be significantly different results.

This is a supplemental illustration and must be read in conjunction with the basic illustration. The basic illustration contains values using the same underwriting assumptions as this supplemental at both guaranteed charges and guaranteed interest rates and contains other important information. The values represented here are for a $195,000 Athena Indexed ULSM policy on a 45-year-old male preferred non-tobacco user. These values are based upon 20 years premium payments of $6,000 annually. The values represented here are non-guaranteed and assume current charges and a projected interest rate of 7.55%. If guaranteed rates and charges are used, the policy would fail in year 23.


Weighing the choices

For life ins. savings

Death Benefit protects family in case of early death

Under current tax law

Cash Values Grow tax free

Can take tax free withdrawals & Loans

Choice of investment options for cash value

Flexibility in contributions in the form of premiums

Other considerations

Can be an expensive place to accumulate cash –only use if there is an insurance need

Although cash value increases tax free – insurance policies carry charges not associated with other investment vehicles

Care must be taken when receiving withdrawals and loans

Excessive use of policy cash values may cause a contract to fail as life insurance

Weighing the Choices

Loans and Withdrawals reduce the policy's cash value and death benefit and increase the chance that the policy may lapse.  If the policy lapses, terminates, is surrendered or becomes a modified endowment, the loan balance at such time would generally be viewed as distributed and taxable under the general rules for distributions of policy cash values.


Long term care services sm rider

Long Term Care ServicesSM Rider

  • Cost-efficient

  • If you don’t use it, you don’t lose it

  • Benefits you want


Cost efficient

Cost-Efficient

  • Two separate policies in one can be less expensive then purchasing a separate life insurance policy and a stand alone long term care policy.

  • Provides you with a cost efficient policy that will meet most of your long-term care needs.


Presenter date

If You Don’t Use It, You Don’t Lose It

  • You may be concerned about spending dollars on a policy you might not use.

    • No requirement to use

    • 100% of unused benefit passed to beneficiaries upon death

  • Therefore, your premium dollars can either be used to provide coverage for long-term care benefits or be passed to your beneficiaries upon death. Either way, you will receive benefits from the dollars you commit to the life insurance premium.


Presenter date

Benefits You Want

  • You can choose the benefit amount at policy issue, either 1%, 2%, or 3% of the death benefit on a monthly basis

  • “Per diem” Benefit- No paperwork to

  • submit each claim

  • Advantageous over more common

  • “reimbursement” plans that tend to

  • discourage claims because of all the

  • paperwork involved.

  • Please note: Benefits paid under the Long-Term Care ServicesSM Rider are an advance of the life insurance death benefit and will reduce the death benefit otherwise payable at the Insured’s death.

Any loans or withdrawals or loans of the cash value accumulated in the policy may result in a reduction of the death benefit.


Disclosure1

Disclosure

All guarantees are based on the claims-paying ability of AXA Equitable Life Insurance Company and do not apply to the investment portfolios.

Life products are issued by AXA Equitable Life Insurance Company and distributed by an affiliate of AXA Distributors, LLC, both are located at 1290 Avenue of the Americas, New York, NY 10104.


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