Bulletproof Your Lifestyle: Insurance Strategies for Legal Professionals Your partners in profit and...

Bulletproof Your Lifestyle: Insurance Strategies for Legal Professionals

Your partners in profit and efficiency

Insure Things You Can’t Afford to Lose Some things are insured because an

outside source (lender) requires it. For example, mortgage lenders require you insure your house.

Types of Insurance to be discussed today

Life Insurance Disability Insurance Health Insurance

Life Insurance

How much do I need? What is the right type? What determines cost? What is the best type?

How much do I need?

“Math” component Emotion component

Math Component

2,000,000

500,000

Capitalized Income Need

Debt

Emotion Component

Math tells you minimum needed Rest is a personal decision

Types of Life Insurance

Term Yearly Renewable Term Level Term Decreasing Term

Permanent Whole Life Universal Life Variable Life Equity Indexed Life

Yearly Renewable Term

Premiums increase annually as you age Death benefit remains level Must review at least every 3 years to

keep cost effective

Level Term

Premiums level for guarantee period Guarantee periods 5, 10, 15, 20, 25 years Death benefit remains level Cost effective for longer term situations

Decreasing Term

Premium is level for term (20 to 30) years

Death benefit declines as you age Typically used for debt “Dinosaur” Not very cost effective

Whole Life

Premium is fixed for life of policy Can be structured to be “paid up” Cash value develops to keep premium

level until death Designed to be in force until death

Universal Life

Flexible Premium Adjustable Life Minimum, Target, Maximum Premium Develops cash value like whole life but

with premium flexibility

Variable Life

Fixed premium like whole life Develops cash value Cash value can be directed by owner

into sub-accounts Greater return potential Greater risk Direct market exposure

Equity Indexed Life

Fixed premium Develops cash value Crediting rate on cash value is

determined by indirect exposure to market

Combinations

Universal Variable Life Universal Equity Indexed Life

What Determines Cost

Type of Insurance Underwriting

Super Preferred Preferred Standard Rated

Sex Smoking Family History Height/Weight Personal Medical History Blood Profile HOS

What is the Best Type?

Facts determine this Good and bad versions of every type Tool belt

Use right tool

If the death benefit is needed for a specific period of time

Especially at younger ages Term

If the death benefit is needed until death occurs, whenever that may be

Some form of permanent Individual facts determine which type

of permanent and how designed

Examples

Working professional couple, young children, still building personal wealth Term

Policy to fund ILIT for Estate Settlement Permanent

Significant age difference in couple Either Depends on facts

Designing Permanent Insurance

Premium Cash Value Death Benefit

Build Cash Value (i.e. Deferred Comp

Maximum Maximum Minimum

Minimum Minimum MaximumPermanent Death Benefit (i.e. ILIT)

Why Design to Build Cash?

All policies have a fixed cost component If you want to build cash value efficiently, you

must “overfund” the policy within IRS guidelines

80% of S&P 500 that have deferred comp plans informally fund them with overfunded permanent life insurance.

Creditor Protection, Tax Shelter, Self Completing

Disability Insurance

Short Term (STD) Pays up to 90 days

Long Term (LTD) Pays after 90 days

Pays income if you are sick or injured and can’t work

Group or Individual

Group Lower initial cost Guarantee issue Short premium guarantee More limits on contractual provisions

Group or Individual

Individual Higher initial cost Medically underwritten Long term premium guarantee More liberal contractual provisions

Components of Disability Insurance

Elimination Period (EP) This is your “deductible”. How many

days before benefits accrue. Benefit Period (BP)

How long are benefits paid; 5 years, Age 65, Lifetime.

Monthly Benefit Dollar amount of total monthly benefit.

Generally 60-70% of gross.

Components of Disability Insurance

Own Occupation Period/Definition Should protect occupation for benefit

period. Should be fairly short and simple, i.e. “Unable to do the main duties of your own occupation…”

Residual or Partial Provides a supplement to earned income

being generated while working part time.

Components of Disability Insurance

Cost of Living Adjustments (COLA) Be wary, very expensive rider, rarely is a

factor in most claims. Only applied while on claim.

Indexed Benefits/Update Benefits Adjusts monthly benefit amount each year

automatically to account for inflation. Guaranteed Increase Option

Guarantees right to increase monthly benefit in the future based solely on financial qualification regardless of current health.

For Most Clients

Combination of Group and Individual is most cost effective

Structure premium payments so benefits are tax free

Combo approach can cover a greater % of income

Disability Overhead Expense

Primarily for professionals Pays overhead expenses while they are

disabled Premiums are deductible Benefits are taxable but used to pay

deductible expenses Keep practice operating for return or

sale Structure with short EP (30 days) and

short BP (12 to 18 months)

Health Insurance

Group Individual

Group Health

Can be guarantee issue Can be written as low as 2 or 3

people on plan

Individual Health Insurance

Underwriting more challenging Focus on keeping premium as low as

possible Young and healthy larger deductible

HSA’s

High Deductible Coupled with tax favored account

that you own and control

Applications of Insurance Products

Life Insurance Income to family Income to business (key person) Stock redemption/Buy out Estate liquidity Deferred comp/SERPs

Disability Insurance

Income to self/family Cover overhead expenses

Case Study

Orthopedic Surgeon paying over $12,000 per year for $5,000,000 of level term

Underwriting classification, standard Table B, due to congenital heart issue.

Condition is NOT life threatening

Construct case with treating physician’s support

Case Study Outcome

Reclassified to Preferred Rates Premium reduced to a little over

$5000 per year Challenge underwriting class until

certain it is the best offer

Case Study Maximizing Disability Coverage

Monthly Pre Disability Income$20,000

In order to maximize coverage, individual MUST be

in place before GroupAt very high incomes, may have to add specialty line

(Lloyds of London) to cover

income

$10,000

Group LTD

$10,000

Individual LTD

Thank You

Larry W. Dykes, CLU, ChFC, AAMS

317.708.0383

ldykes@SkyView-Partners.com

SkyView Partners

1050 E. 86th Street, # 55-C

Indianapolis, IN 46240

http://www.linkedin.com/in/larrydykes