There is truth in the old adage “only two certainties exist in life: death and taxes.” While there may not seem to be a lot of positivity around death and taxes, we here at IAMS believe that certainly creates opportunity for excellent planning. Single Premium Life Insurance (SPL) is one tool that can add peace of mind and financial security to your clients.
Your Team at IAMS understands that SPL, like many life insurance policies, adds peace of mind money will be left to loved ones at death. But because SPL is a versatile solution, it also allows clients to pay the premium with qualified funds; scheduling future required minimum distributions in a predictable and tax-efficient manner.
What is SPL and How Does it Add Security?
SPL is a life insurance policy that allows a one-time, lump-sum premium to be made that purchases a paid-up policy. Owners of SPL policies have great security knowing the policy is permanently inforce and will provide benefit to their loved ones:
- Death Benefit Proceeds may be paid out Income and Estate Tax Free: as long as the policy is properly structured, SPL may be positioned so beneficiaries will receive 100% of the death benefit proceeds free of income and estate tax.
- One Premium Payment for a Lifetime of Coverage: as the name implies, SPL requires only one premium payment for the policy to be permanently inforce.
- Creates Liquidity at an Important Time: With funeral costs ranging anywhere from$ 10,000 – $15,000, the emotional strain of losing a loved one oftentimes is multiplied by the financial strain brought about by these costs. Having a strategy in place that quickly creates liquidity can go a long way towards helping loved ones focus more on what matters and less on the stress of paying for the funeral. SPL is a convenient way to know that one premium payment will create the liquidity at a time valuable to your family.
- Nursing Care Benefits: SPL allows the insured to accelerate the death benefit and use it in a tax free way to help address long term care expenses. If the client is terminally ill, they can access most of the death benefit to spend the monies before death. For clients who were declined for Long Term Care, they can look at SPL as a great alternative.
Qualified Funds as an Eligible Funding Source
Because of the many tax advantages Congress gives to life insurance, policyowners generally cannot fund life insurance with qualified dollars while preserving favorable tax treatment. SPL is no exception to this – the premium payment(s) ultimately will be made with after-tax dollars. However, due to a unique premium funding option, SPL can offer a structured and predictable method of scheduling required minimum distributions your clients will have to take from their IRAs.
- Qualified Funds & SPL Funding – adding predictability to RMDs: IRA owners must take required minimum distributions from their IRAs starting at age 70 1/2. Structuring and predicting these RMDs can be challenging, potentially leading to paying more income taxes. SPL offers a unique solution to this: clients still make a single premium payment using their IRA dollars but the insurance carrier takes the lump sum premium and internally purchases an immediate annuity. The immediate annuity will internally pay the premiums for up to ten years, and each premium payment is classified as an RMD. The advantage of this to the client is significant: instead of reporting one, large IRA withdrawal on their tax return, clients are able to break their RMDs into equal payments. This reduces the client’s tax burden and adds structure to RMDs they must take. Retirees living on a fixed income are looking for predictability in their cash flow. Shifting qualified IRA funds into an SPL is a great way to structure a portion of your client’s RMDs in a predictable schedule.
- SPL Life Insurance is a Non-Correlated Asset: clients are concerned with market volatility. IRAs are often invested in equity holdings that can put those dollars at risk as markets fluctuate. Moving a portion of IRA assets into a traditional life insurance contract can add security to those funds by removing them from the stock market and placing them inside a life insurance contract whose performance is non-correlated (i.e. not tied to) stock market performance. Thus, regardless of what the stock market does, clients who move a portion of their qualified funds into a death benefit know that there will never be a loss in their SPL policy and the death benefit is available to loved ones, no matter what age the client passes.
- Lock in IRA Market Gains in an SPL Policy: IRAs will go through market cycles and clients are often looking for a way capture stock market gains and place them in a fixed-income product. SPL is an excellent candidate for qualified dollars as the client now knows their gains are preserved in an asset that is guaranteed to pay a death benefit to loved ones.
Clients are looking for solutions to the certainties in life: protecting market gains, managing RMDs in retirement and making sure their loved ones will be financially cared for. SPL is an efficient solution that can add security to these issues. Your Team at IAMS is here to answer your questions, provide solutions and align you with the product to meet your client’s needs!
