The Insurance Doctor

Category: Insurance

The Magic of Premium Finance Life Insurance

By: Robert C. Intelisano CLU, CSA, LUTCF

How does it work?

Those who don’t understand the true benefits of life insurance premium financing worry this is a tool dependent on interest rates or policy performance. But even when interest rates have been high and markets have been shaky, financially savvy brokers have been closing deals by funding life insurance premiums.

Why? Because in order for high-net-worth individuals to continue to grow and protect their wealth, they need to take advantage of leverage and actively look for investment opportunities that yield returns greater than the cost of capital. In other words, many need life insurance to address inheritance, business and tax issues, but they’d prefer to keep the funds they would spend on life insurance premiums in investments that yield more profitable returns.

The economy, although sluggish, is moving again, and with rates hovering at all-time lows, premium financing life insurance makes more sense than ever.

The reason? Retained capital.

In this instance, retained capital is the amount of money a client can hold on to — and ultimately invest elsewhere — by paying interest on a loan that covers the cost of a premium versus paying the premium itself. Many high-net-worth clients report that they earn 10 percent to 15 percent or more on their money. If that’s the case, why take funds out of profitable investments in order to pay a premium?

But let’s be clear. Premium finance is not a gimmick. It is not free insurance. It never was and never will be. It is not a play on the potential arbitrage between policy crediting rates and interest rates. Your client will have to pay interest to a lender and will have to post collateral equal to the difference between the cash surrender value of the policy and the loan balance. It is simply a tool to help your client reduce the initial out-of-pocket expenses relating to the purchase of a life insurance policy and a way to keep their money working for them in their investments of choice.

To finance or not to finance?

To better understand what an asset premium financing can be, we have to look at the potential profit our clients would lose out on if they don’t use it. In other words, the lost opportunity cost. So, let’s take a look at the numbers and consider the lost opportunity cost of paying a $100,000 premium out of pocket.

If an individual truly earns 10 percent on the funds he would use for a premium payment, then he would lose the opportunity to grow his net worth by $10,000 if he were to pay the premium himself. Utilizing the benefits of premium financing, if the client finances the $100,000 premium at 5 percent interest, his out-of-pocket cost in year one is $5,000, and his retained capital is $95,000. That client could re-invest the $95,000 in a vehicle that returns 10 percent and end the year with $104,500 and a life insurance policy to protect those assets. Over time, this growth compounds. This is the power of premium finance!

June 9, 2016
The Best Pizza & Planning in NYC!

The best pizza in NYC resides outside of Manhattan and can be found in Brooklyn and Queens! The following list represents the best pizza places to do financial and insurance planning.

DiFara: in Brooklyn. Best designer pizza and best place to do your estate planning. Dom DeMarco can only make so many pies in a day, folks may not live to eat the pie by the time it comes out. When he passes, so does DiFara.

Rosa’s: metropolitan ave in queens. Best grandma’s slice and best place to do your life insurance planning.

L&B Spumoni Gardens: Brooklyn. Best Sicilian square slice and best place to review your auto insurance as it’s crazy outside with limited parking.

Newpark: Howard beach queens. Best traditional thin crust slice and best place to review your homeowners insurance as it’s in the middle of a residential area.

Lucali: Brooklyn. Best brick oven pies and best place to do your retirement income planning by reading the “pie charts”!

Nicks: Forest Hills, queens. Best gourmet-style thin-crust pizza with the best toppings. Order the “half and half” red and white pizza. Best place to review your health insurance as those toppings clog the arteries.

Roberta’s: Bushwick Brooklyn. Best wood-fired pie and best place to review your disability income insurance. Total hipster chaos outside, watch out crossing the street.

Let’s meet up for a slice and some planning! Call Rob at 917-359-3985 today or email Rob here.

March 12, 2015
Agent or Broker? Why it Matters.

Robert discusses the important difference between an insurance agent or broker and which will save you substantial money when shopping for your health insurance policy.

March 5, 2015
Obamacare: What You Don’t Know May Cost You

Watch part 1 of our three part series on understanding and maximizing the benefits of Obamacare compliant health insurance policies.

February 19, 2015
Obama Care: The Factors that Drive Premiums

By the time you are reading this article the enrollment window will have closed for 2014 and the administration will surely be telling us how wonderful things are going. By hiring navigators (that are not licensed) and cutting broker compensation by a staggering 80% it’s clear to me is that they are trying to phase brokers out. This leaves the public vulnerable and on their own to solve the health insurance puzzle and whether or not to go onto the exchange.

It’s important for readers to understand how these policies work as many brokers are either exiting the business or not accepting new health insurance clients anymore.
The initial factor that drives premiums is the insurance company that you choose. Be careful with this as there are several new insurance companies that have entered the marketplace. These companies have no track record.
TIP#1: Don’t buy strictly on price as many of these new carriers are using very limited doctor networks. The price might be attractive but if your primary care physician doesn’t accept that plan (in-network) you will have to change doctors or foot the whole bill yourself.

TIP#2: Contact all of your preferred doctors and ask them which companies they are in-network with and which networks they accept. For example Oxford has 3 networks so you need to specify which one(s) your doctor takes before changing plans.

The second factor is the type of plan. Will it be in-network only or in and out of network plan? Going with an in-network only plan (also known as EPO or HMO) can save you as much as 20-40% on your monthly premiums.

TIP#3: Take note that the in and out of network plans (also known as PPO’s or POS plans) have changed the way they reimburse for out of network usage. These subtle reductions can drop your reimbursement amounts to under 50% so be sure to ask for a “summary of benefits” before buying these pricey plans.

The third factor is the plan-design. This takes into account variables such as office co-pay, hospital co-pay, drug card, deductibles and co-insurance amounts. The higher the co-pay the lower your monthly premiums.

TIP#4: Use a broker to help decipher how to read the spreadsheets and to help find the “sweet spot” where the premiums are the most reasonable. Insist the broker shop the market every year. The price will be the same so why do it yourself? Unlike the banking system and stock market, the insurance industry is regulated by individual states who decide the premiums.

TIP#5: People ask me “Robert, when would it make sense to go onto the exchange?” If you earn less than $46,000 as an individual or $94,000 as a family of 4 and are willing to leave your doctors-then take about 40 minutes with your tax return, fill out your profile and see if you qualify for free/subsidized coverage. If not then you will do better off the exchange.

Some positives on the new Obama care plans are that pre-existing conditions are covered, kids can stay on their parents’ policies until age 26 (age 29 with the purchase of a rider) and many plans include dental and vision options. Keep in mind that these benefits incur a cost and it may make sense to keep your pre-Obama care plan should you still have access to it. I’m always interested in reader’s feedback so feel free to contact me at robcintel@aol.com or at www.InsuranceDoctor.us with questions or concerns.

By:
Robert C. Intelisano CLU,CSA,LUTCF
Intelisano & Associates, Inc.
Forest Hills, N.Y. 11375

July 9, 2014
Buying Life Insurance the Smart Way

Valuable Tips When Buying Life Insurance

Life insurance is one of the most interesting and flexible financial products ever created. It single-handedly can solve a myriad of problems. The 2 greatest issues people face is dying too soon or living too long and outliving their money! A sound life insurance policy can pay off a lump sum at death and is also tax free.

TIP #1. Find a good independent agent/broker. First, the price of life insurance is the same whether you go through the internet or use a broker. So why not get the professional advise you need face to face and for free? Life insurance can be confusing, is different than other types of insurance and needs to be custom-tailored to the buyer based on need, income, budget and family situations. How can a broker who only represents 1 or 2 companies find the right product at the right price for you? Also, I suggest searching for an agent with advanced-planning life insurance designations like CLU (Chartered Life Underwriter) or LUTCF.

TIP #2. How much do I need? Good question. Each situation is unique. Some advisors say 5-7 times annual income and go to 10 times if there’s young kids and a lot of debt. People ask me, “Robert what is the best policy”? I tell them the best policy is the one that pays when you need it! A spouse never said to me what type of insurance is it, they only ask how much and do I have to pay tax on the proceeds. I suggest buying what your need is first and worrying about what type it is later.

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TIP #3. What type should I buy? This question is unique to everyone and also based on personal beliefs. The 2 primary types of life insurance are term and whole life. Term is temporary, has no cash value and eventually terminates or runs out. Whole life is permanent, has a cash value and other tax advantages. There are pluses and minuses to each.

TIP #4. Take a look at some of the newer hybrid policies. For those people that say “whole life is too expensive and 20 year term is also unsatisfactory because after 20 years I lose the insurance and all the money I put in” there’s a great alternative called (ROP) return of premium term.

For example, if a 35 year old buys a 20 year ROP term and lives the 20 years, he/she would then get back 100% of all premiums paid in a lump sum with no taxation. There are also life insurance policies that have long-term care riders that can cover that risk without having to buy an expensive long term care policy. This way you are getting both types of insurance in one policy. Food for thought.

TIP #5. Get a second opinion. After the new census information released in 2010 reflected longer life spans, the insurance companies were forced to lower rates. We have been able to help folks with existing policies save money on premiums even though they are now older and perhaps in worse health. For more information feel free to go to www.InsuranceDoctor.us
Call Robert at 917-359-3985 Contact Robert here

By: Robert C. Intelisano CLU, CSA, LUTCF, The Insurance Doctor

March 19, 2014
Disability Income Insurance 101

Imagine that you own a special machine that you keep in your basement. The device is able to print money. How would you treat it? You would keep it well-oiled, perhaps cover it so it doesn’t get dusty. You would protect it and certainly would INSURE it!

You call the insurance company to get a quote for your “cash machine” insurance and they say it costs between 2-4% of the amount of money it prints out per year. That wouldn’t be so bad right?

Think of yourself as the cash machine and the cost to replace a portion of your annual income is that 2-4% insurance premium.

The 47 million Americans with no private health insurance was a major catalyst for the approval of the ACA (Obama Care affordable care act). What about the roughly 100 million working Americans that have no private disability income insurance?

Just about every working American needs his or her income to survive. Because wage earners almost always depend on a continuing income stream, protecting their income is a vital step towards financial security.

Limra (life insurance marketing & research association) says that 71% of Americans say they would find it difficult to meet their current financial obligations if their paycheck were delayed for one week. Yet very few people have individual disability insurance.

The purpose of disability income insurance is to replace the income if one is unable to work. There are two main types of disability policies, group and individual. Group is usually offered by an employer at a nominal fee. Individual is usually purchased from an agent somewhat similar to life insurance. Suffice it to say the chances are anywhere from two to seven times greater (depending on age) of being disabled than dying prematurely.

What are the odds it can happen to you? The odds change based on a few factors (age, type of work, smoker etc). To find out your own odds go to www.whatsmypdq.org to ascertain your own personal disability quotient.

The two biggest mistakes most brokers make is to sell based on price and to suggest that clients use the annual premiums paid to take a small tax deduction. The saying “you get what you pay for” is most appropriate when evaluating disability policies. The “definition” of disability is the most important factor in a policy. You want what is termed “own occupation” as the definition. Group policies rarely include that.

The easiest way to explain this is with an example. If a surgeon gets his or her right hand mangled in an accident and they have “own occupation” as their disability definition, they can go on claim and return to work supervising others. The other definition would be something akin to “they can’t work in any area of their chosen field”. In that scenario that surgeon would not be on claim and has to take a big pay cut.

The second mistake is to get greedy and take a small tax deduction on the premiums paid. If disability policies are paid with pre-tax money than the benefits are 100% taxable. If premiums are paid with after-tax money then all benefits are tax free.

One final point is that many disability policies start to reduce their income benefits at age 55 or 60. This is an age where it’s important to meet with your broker to see if it makes sense to reduce or cancel your disability insurance and re-position those premiums for long term care insurance.

I’m always interested in reader opinions or suggestions for future topics and can be reached at robcintel@aol.com.

Call Robert at 917-359-3985 Contact Robert here

November 10, 2011