Life Insurance Strategies

Life can change in a minute.
The right life insurance strategies, from Mintco Financial, can help prepare you for the unexpected.

Mintco Financial Advisors construct advanced life insurance strategies that leverage, grow, and transfer wealth, while providing the access and control needed to complement your personal and business investment and finance capital requirements.

Life Insurance Strategies have proven over time to be highly effective to minimize taxation and enhance estate and legacy for heirs.

Life insurance is a unique product. There are a few key pieces of legislation that make insurance planning so effective.

  • Firstly, the death benefit of qualifying insurance product is paid out tax-free. Almost all life insurance policies sold today are qualifying plans, and therefore the death benefits are tax free. You also have the choice to design your plan with a locked-in and stable death benefit or with a growing benefit, increasing over time.
  • Secondly, money that is invested inside a life insurance policy is allowed to grow and compound over time in a tax sheltered fund (up to a certain defined maximum based on the plan you buy). This allows invested wealth to grow and compound through your entire life without the government gouging it down with ongoing taxation.
  • Thirdly, the tax laws around borrowed funds, or leveraging, provides tax free income to the borrower. This allows life insurance policy holders to invest extra money into their policies over time, have the advantage of a tax sheltered investment plan, and borrow money from their insurance policy tax free.

All these unique legal features of life insurance and money leveraging allows you to invest substantial funds into a policy, reducing taxation both now and in the future to your estate, and possibly even have access to tax free income in the form of loans.

Life Insurance Strategies:

The personal Insured Annuity concept is a financial planning strategy that starts with the liquidation of your interest-bearing investments, such as GICs, bonds and bank savings accounts. The resulting funds are used to purchase a prescribed life annuity contract and an exempt life insurance policy. The annuity generates a payment that covers the life insurance premiums and the tax on the annuity. The remaining amount is used to supplement your income. When you pass away, the life insurance proceeds pay for a gift to his or her heirs or favorite charity.

Insured Annuity: Also known as a Back-to-Back Annuity, this strategy enhances after tax cash flow today while preserving your investment capital for your heirs.

The Insured Annuity begins with the purchase of a prescribed life annuity using non-registered funds (preferable the least tax efficient investments generating interest income, like GICs). Then a payout annuity provides a level, guaranteed income for the remainder of your life.

Income is calculated by averaging the interest that would be earned over the rest of your life, combined with a level amount of capital both of which are returned to you each year. Tax is payable only on the part of the income that is interest – the net cash flow provided by the annuity is greater than other guaranteed interest investments. Upon death, the annuity payments end.

What about my estate/heirs if I die soon after getting my annuity?

The other component of an Insured Annuity is a life insurance policy. The death benefit is equal to the initial annuity deposit. The insurance premiums are paid from the tax savings and increased cash flow provided by the annuity. The proceeds are paid out on death directly to your named beneficiaries, tax-free and exempt from probate, legal and executor fees.

Insured Retirement Program Concept (IRP)

The Insured Retirement Program is a financial planning strategy that will address your dual needs for insurance and supplementary retirement income. With this financial planning strategy, deposits are made into a permanent life insurance policy. In the future, the policy is assigned to your bank as collateral for a loan. The loan is used as a retirement income supplement. When you pass away the insurance proceeds are used to pay off the outstanding loan balance and the excess proceeds are paid to the named beneficiary, tax-free.

You transfer liquid invested assets or income into universal life insurance for tax-free growth. You get tax-free income later by assigning the cash rich policy to a bank as collateral for tax-free loans. The loans are repaid with the tax-free death benefit.

This is a leveraging strategy, where you can own life insurance, use it as an investment plan to accumulate wealth, and borrow funds from the policy tax free in retirement.

One of the biggest hurdles your retirement plan must overcome is taxation. The Insured Retirement Plan utilizes the features of a tax exempt universal life insurance policy to allow you to build up a cash reserve on a tax sheltered basis and enjoy a tax preferred income stream from the plan.

Buy/Sell Agreement:

this strategy protects your business interest through funding an agreement to buy out partners or major shareholders in the event of death or long-term disability.

Irrevocable Life Insurance Trusts*

These are special trusts that can help clients exclude life insurance proceeds from their estates. A life insurance trust involves a tax reduction strategy. Generally the trust arises at the death of the grantor and is composed of insurance proceeds. Since the insurance trust owns your insurance policies for you- you don’t personally own the insurance, it will not be included in your estate and your estate taxes are reduced.

For example if you are married and have an estate of $2 million- $400,000 of which is life insurance. By creating a living trust or will, you can protect much of the estate from estate taxes. However the estate tax on the $400,000 insurance is $156,000! If you had created an insurance trust, the $400,000 in insurance would not be in your estate and you would save your family $156,000 in estate taxes.

Buy-Sell Agreements for Small Business Owners *

As more Americans become entrepreneurs, they’ve discovered that wise business planning is essential to their success today and their financial security tomorrow. Buy-Sell agreements are generally for owners of closely held corporations who want to protect their assets. The surviving owners agree to purchase the interest of a withdrawing or deceased owner. The buy sell agreement provides for an orderly disposition of an interest in a business and is beneficial in setting the value for estate tax purposes.

Charitable Remainder Trusts *

Charitable Remainder Trusts (also called CRT’s) are for people who have highly appreciated assets that they want to donate to a charity or organization they admire. At the same time they can secure a current tax break, preserve or gain a source of income, and provide their beneficiaries with a tax-free inheritance in the future.

How it works: You transfer an substantially appreciated asset into an irrevocable trust. This removes it from your estate so, when you die, no estate taxes will be due on it. The trustee can then sell the asset at full market value, without paying a capital gains tax. The trustee can then reinvest the proceeds in other income-producing assets. During the remainder of your life the trust pays you the income. At your death, the remaining trust assets go to the charity you have chosen- hence the name charitable remainder trust.

Part of your estate planning process may be taking charitable giving into consideration. What you might not know is that life insurance can play an integral role in charitable giving. A charitable gift tax credit has the ability to offset taxes payable at passing. This strategy gives the policy owner the option to leave a donation to his or her charity of choice, reducing or possibility eliminating the taxable amount on their final tax return.

Life insurance can be the most effective tax and estate planning tool to fund the tax liability. Life insurance can provide you with tax-free cash exactly when it is needed to pay future tax obligations. It ensures that your heirs don’t lose their inherited assets because of a large tax bill. Your heirs get the property you intended them to receive and you get the peace of mind that comes from knowing this will happen.

The buy term, invest the difference concept compares the benefits of permanent life insurance to the combined benefits of term insurance and a taxable investment. The comparison shows liquidity values and net estate values under each alternative. And it’s available for both personal and corporate situations.

For families that need life insurance protection along with a potential solution to education funding, Signature IUL may be a great fit.

Life Insurance VS. 529 Plan

Life Insurance VS. 529 Plan

* Some contents sourced and copyrighted by 2000

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