Blog #26: Exceptional Benefits for Outstanding Executives

(Presentations were created using the InsMark Illustration System, Premium Financing System and Cloud-Based Documents On A Disk.)

Getting Started with InsMark Training Video

Bob Ritter's Blog #26 exceptional benefits for outstanding executives life insurance executive bonus plans premium financing image

Lion all mine image
Zero-Split-Case-Premium-Financing-click-here-to-receive-more-information
spacer image

Executive Bonus Plans are one of the most generous of non-qualified benefits. Deductible bonuses are paid by the employer to selected executives to cover the premiums on a life insurance policy with an emphasis on cash accumulation.

The life insurance is typically designed to produce significant amounts of tax free cash flow to the executive during retirement as well as protection for the family in the event of the executive’s premature death.

Standard Variations
(#1, #2, #3, #4 can all be illustrated in the InsMark Illustration System.)

  1. Single Bonus Plan: The executive pays the income tax on the bonus. This is the lowest level of executive bonus plan, but in, say, a 30% tax bracket, the executive owns all the policy values at 30 cents on the dollar — quite a valuable fringe benefit.
  2. Graded Bonus Plan: A single bonus gradually increases so it ends up covering both the premium and the tax on the bonus. This rewards an up-and-coming executive with a calibrated increase in bonuses.
  3. Gross-up Bonus Plan: A bonus is large enough to cover the premium and the tax on the bonus in all years. This is top dog among the standard variations and is the most rewarding.
  4. Controlled Bonus Plan: The executive has an obligation to repay all (or a portion of) the bonus if termination of employment occurs by a certain date or an event such as retirement. All the plans listed can include this feature. Often perceived as a better, less-complicated alternative than loan regime split dollar, this version is typically used with non-owner executives. It also provides a benefit for the employer through recovery of previously paid bonuses when an executive leaves the firm earlier than designated in the agreement establishing the plan. The death of the executive usually voids any repayment obligations. The Controlled Bonus Plan is also effective for officers and directors of publicly-owned companies where, thanks to Sarbanes-Oxley legislation, loan regime split dollar cannot currently be used.

Leveraged Variations

(#5 can be illustrated in the InsMark Leveraged Compensation System.)

(#6 can be illustrated in the InsMark Illustration System.)

(#7 can be illustrated in the InsMark Premium Financing System.)

  1. Leveraged Bonus Plan: This is generally used with single bonus plans combined with loans from the employer to cover the executive’s tax on the bonus. This adds a recovery benefit for the employer through the loan repayment.
  2. Self-Leveraged Bonus Plan: This combines a single bonus from the employer with loans on the policy made by the executive during premium paying years to provide the cash flow for the income tax on the bonus. This variation is very cost efficient to both the employer and the executive; however, the policy loans during premium paying years reduce the policy cash value which correspondingly reduces the tax free cash flow to the executive during retirement. This can be offset by increasing the premiums and face amount of the policy.
    Note:  A Self-Leveraged Bonus Plan was examined in detail in Blog #2.
  3. Bank-Leveraged Bonus Plan: This combines a single bonus from the employer with a loan from a bank to cover the executive’s tax on the bonus. (Some life insurance companies provide the loan for the tax on the bonus, and InsMark can illustrate this feature as well.) With bank loans, the employer often uses its banking connections to facilitate the loans to the executive. Funds to repay the loans are usually borrowed from the policy. This reduces the policy cash value which reduces the executive’s tax free cash flow from policy loans during retirement. This can be offset by increasing the premiums and face amount of the policy.

Options

  • Unrestricted Access to Cash Values: This is generally used with sole or majority owner-executives, but can be applied to all variations.
  • Deferred Access to Cash Values: This involves an Endorsement of Ownership Rights agreement often used with non-owner key executives ensuring that the cash values of the policy are used as intended, typically for retirement income.

monitor and gavel imageInsMark’s Documents On A Disk™ has specimen documents for all the bonus plans and options.

 
 

InsMark’s Referral Resources

If you would like assistance with any InsMark illustration, contact any of the Referral Resources listed below.  All are InsMark Agency Platinum Power Producers®, and they are highly skilled at running InsMark software and can help you using your choice of insurance company.  Mention my name when you talk to one of our Referral Resources as they have promised to take special care of my readers.

For a license to use any of the InsMark Systems noted above, go to InsMark or contact Julie Nayeri at InsMark at julien@insmark.com or (888) InsMark (467-6275). Institutional inquiries should be made to David A. Grant, Senior Vice President — Sales at (925) 543-0513 or dag@insmark.com.

seperator image

More Recent Articles:

Blog #25: Is Indexed Universal Life Too Good To Be True?

Blog #24: Maybe The Best Lead Generation Idea Ever

Blog #23: Give Yourself Some Wiggle Room

Blog #22: My Daughter Will Be Running My Business

Blog #21: Equity Rescue Made Easy

 

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

 

Blog #25: Is Indexed Universal Life Too Good To Be True?

(There are no InsMark presentations used in this blog.  It is a an informational blog only)

Getting Started with InsMark Training Video

Bob Ritter's Blog #25 is indexed universal life too good to be true life insurance investing and annuities image

Lion all mine image
Zero-Split-Case-Premium-Financing-click-here-to-receive-more-information
spacer image

Allianz Life Insurance Company of North America is the Platinum Title Sponsor of the InsMark Symposium scheduled for November 7 – 9, 2013, in Las Vegas, NV.

One of our Main Platform speakers November 8 is Todd Petit, AVP, Actuarial Product Development, the key designer behind the development of Allianz’s fixed indexed universal life (FIUL).

Recently I asked Todd some questions about the cash value accumulation potential based on the positive changes in an external index and the downside protection that FIUL policies offer. Below is the exchange between us.

Bob Ritter: Some people think that FIUL policies are too good to be true. How can they really offer the potential for cash value accumulation with limited downside risk?

Todd Petit: An advantage fixed index universal life insurance policies offer is protection – first and foremost, death benefit protection. They also offer the potential for cash value accumulation which is protected from negative index performance. With FIUL, the policy has the upside potential of receiving cash value accumulation based on positive changes in an external index, with the downside protection from negative index performance.

Here’s how. A large portion of the premium is placed into our company’s general account. This account is very conservative and is made up of mostly bonds. This provides the downside protection.

Consider this hypothetical example. Think of a $1,000 premium split into two parts ($950 and $50). $950 will grow back to $1,000 after one year thanks to the yield of the general portfolio. This helps us back the promises on our policies that provide downside protection, meaning that if the index performance is flat or negative, your client will not lose cash value due to the index performance. (Keep in mind that fees and charges will reduce cash value.)

A smaller portion of the premium is used to purchase options. These options provide the potential for the policy to build cash value based on the positive performance of an external index. When the external index has positive performance, the cash value is credited with indexed interest. Allianz spends the same amount regardless of the index allocations chosen. If the chosen index increases, the options will provide a return that is equal to the amount needed for the policy. If the chosen index decreases, the option will not provide a return.

Bob Ritter: Why are the caps on life insurance and annuities so different?

Todd Petit: A common myth in the FIUL marketplace is that life insurance caps are artificially inflated which makes them much higher than annuity caps. Annuity caps are much lower for three main reasons:

  1. The method of investing: Life insurance uses a portfolio method of investing and annuities use the new money method of investing. In the current interest rate environment, most carriers’ portfolio rates are exceeding the new money rates for annuities.
  2. Differing investment spreads: Life insurance policies have other sources of profit such as mortality charges and expenses that annuity products do not have. Because of this, life insurance products have lower spreads than annuities. The spread is the only source of profit on annuities.
  3. Life insurance invests in longer duration bonds: Life insurance policies are longer term contracts. Because we can invest longer with life insurance policies, we are able to purchase higher yielding investments which can lead to higher caps on life insurance policies.

Bob Ritter: What is an appropriate illustrated rate to use when illustrating FIUL policies?

Todd Petit: This may be the most controversial question out there in the FIUL marketplace. Currently, there are no regulations on illustrated rates which is resulting in confusion among life insurance carriers. Carriers are not offering information on how to use an illustrated rate and they are not consistent in determining look-back periods. The many index allocation choices also leads to confusion.

One thing to keep in mind is that all FIUL policies should not be illustrated at the same rate. All carriers do not have the same option budget – so all policies should not be illustrated at the same rate. Illustrating all policies at the same rate is virtually just comparing the fees and charges within the policy.

We will talk in more detail about this at the InsMark Symposium coming up in November, so be sure to attend!

Bob Ritter: Thanks, Todd. We’re looking forward to your presentations.

InsMark’s Referral Resources

If you would like assistance with any InsMark illustration, contact any of the Referral Resources listed below.  All are InsMark Agency Platinum Power Producers®, and they are highly skilled at running InsMark software and can help you using your choice of insurance company.  Mention my name when you talk to one of our Referral Resources as they have promised to take special care of my readers.

seperator image

More Recent Articles:

Blog #24: Maybe The Best Lead Generation Idea Ever

Blog #23: Give Yourself Some Wiggle Room

Blog #22: My Daughter Will Be Running My Business

Blog #21: Equity Rescue Made Easy

Blog #20: Could Your Case Be Going Down The Drain?

 

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

 

Blog #24: Maybe The Best Lead Generation Idea Ever

(Presentations were created using the InsMark Business Valuator.)

Getting Started with InsMark Training Video

Bob Ritter's Blog #24-maybe-the-best-lead-generation-idea-ever-InsMark-Business-Valuator-powered-by-BizEquity image

Lion all mine image
Zero-Split-Case-Premium-Financing-click-here-to-receive-more-information
spacer image

In over 50 years in the life insurance and financial services industry, I have never seen a prospecting idea as good as this one. If you are an old hand at business insurance, brace yourself, you’re about to get a lot busier. Even if you’ve never done a single business case, this concept will get you into the market.

Imagine that you could go back to all of your existing clients that own a business. Then, tell them that about 75% of all U.S. businesses don’t know what they’re worth. Then, explain that not knowing this valuation can cause catastrophic mistakes in risk management and planning.

It’s understandable so few know because a traditional, reliable, business valuation appraisal typically costs from $8,000 to $15,000.

Now, tell them that you have partnered with a new company that will enable them to obtain a business valuation that is reliably more accurate than the expensive, traditional version.

It will change the way that a business owner can assess the company’s value for under $400 (maybe even paid by you). The valuation determined is good for buy-sell purposes, key person evaluation, executive benefits for retention of critical personnel, exit planning, retirement planning, and overall wealth management. The information you will uncover for sales opportunities is endless.

Here are the benefits to you:

  1. Tie your existing business clients more closely to you;
  2. Capture new business clients;
  3. Identify insurance and investment shortfalls (where you are the likely provider);
  4. Give your business clients a way to offer this same free valuation (normally $8,000 to $15,000 or more) to other business owners in their social circle.
  5. Establish serious credibility with CPAs and attorneys, many of whom will likely want to use this service through you.

The only warning is that this idea/service is going to move fast. You want to be the first to approach existing and new business owners and their advisers with this idea.

Go to the InsMark Business Valuator powered by BizEquity website to view a sample report or enter data for a sample case or sign up.

seperator image

InsMark’s Referral Resources

If you would like assistance with any InsMark illustration, contact any of the Referral Resources listed below.  All are InsMark Agency Platinum Power Producers®, and they are highly skilled at running InsMark software and can help you using your choice of insurance company.  Mention my name when you talk to one of our Referral Resources as they have promised to take special care of my readers.

seperator image

More Recent Articles:

Blog #23: Give Yourself Some Wiggle Room

Blog #22: My Daughter Will Be Running My Business

Blog #21: Equity Rescue Made Easy

Blog #20: Could Your Case Be Going Down The Drain?

Blog #19: How to Solve the Toughest Part of Your Business

 

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