Depending on your situation the simple answer is… quite possibly.  In fact, single-premium universal life insurance, SPUL, may be one of the most overlooked, misunderstood life insurance products available today and rarely recommended by traditional life insurance agents. However, expert Tax-Free Retirement Specialists use this product frequently with their clients

Single Premium Universal Life is an immediate issue, universal life policy, which combines a death benefit with a savings account. It’s an easy and efficient way for consumers to purchase coverage and transfer wealth to the heirs — TAX-FREE.  Purchased with one single premium payment, this product is designed for people who value added security, flexibility, and cash value with lifetime coverage.

How do you fund a single premium life insurance policy?

One area where a significant amount of SPUL policies are being used is to consolidate stray life insurance policies with lots of cash value where the owner has no plans for the cash value.  By simply using the funds from those policies as a lump sum into a new single premium universal life insurance policy the new policy is usually larger than the sum of the smaller policies and is now paid in full.

Why use a Single Premium Life Insurance Policy?

The SPUL insurance policy can help clients meet a variety of financial objectives.

• Single-premium life policies require only minimal underwriting and are a good choice for the elderly or those with some health issues.
• Ownership of a life policy by the beneficiary or a trust can “remove” the asset from the estate for estate tax purposes.
• Advanced estate and legacy planning.
• Insuring a key employee or a business continuation plan.
• Policy loans from the cash value TAX-FREE
• Some SPUL’s will accept additional premiums if you believe you might want to deposit additional money later to increase your benefit.
• Provides a simple and efficient way to purchase coverage and transfer wealth tax-free. 
• Immediate issue policy purchased with a single payment. 
• Provides a policy with a death benefit much higher than the payment itself.

Single premium life insurance cash value increases much faster than a policy with monthly or annual premiums because it is funded with the entire lifetime premium at the issue of the policy.  Just like other insurance policies, upon the death of the insured the proceeds of the policy go to the beneficiaries free of federal income or estate taxes.

Can it be used as an alternative to an annuity?

The big advantage of SPUL is that it passes the death benefit to your heirs tax-free (although there may be estate taxes to consider).  In many cases, those benefits also will pass quicker to heirs outside of probate, a real plus for larger estates.

Because the annuity’s $150,000 growth was tax deferred the beneficiary will have to pay tax on $150,000.  Life insurance is always transferred tax-free with zero taxes due to the federal government.

Additional Benefits to the SPUL owner

Since an SPUL premium is paid in full at policy issue the policy is planned to last the owner’s entire life time.  The cost of the insurance of the policy will be paid from the cash value and any interest gain.  The only way that the policy will not last the entire lifetime is if the owner were to take out a tax-free loan from the policy for their use and not pay the loan back.  As long as the loan is repaid back into the policy, the insurance policy will continue to last the owner’s entire lifetime.

SPUL’s are the least understood life insurance product by traditional life insurance agents today.  By talking with an expert Tax-Free Retirement Specialist they can discuss your specific goals you are seeking to accomplish and assist you in determining if this is a the best product choice for you.  Click here to find a local Tax-Free Retirement Specialist in your area.

What is Life Insurance?

Life Insurance Calculator?

We recently came across a great blog on the subject from one of our sister sites that we had to share.  The article came from Annuity Think Tank and the title was “FIUL Power Phrases for Your Certain 2013 Sales Success“.  Check out the full article below.

Fixed Indexed Universal Life (FIUL) has been one of the fastest growing products in 2012 and shows no signs of letting up in 2013 as savers and investors increasingly look at Life Insurance as a separate asset class in a zero rate world and where tax rates are cratering at their last gasp of all -time lows as well.

Here are some power phrases to get prospects pumped and primed to think about seeing fixed indexed life as an alternative to an overbought bond market and most of all a solution to wealth transfer or basic protection to ensure the lives and legacies of loved ones. This is where the discussion should start.

At retirement would you rather have a lifetime income stream that you can control that may be tax free or an uncertain income stream that you can’t control and is fully taxable?

If you could control potential 25% losses for the next 25 years (the median tax rate for a middle class American at age 60 for 25 years-source IRS) how much of your safe funds could you use to avert this large loss of your family’s legacy?

In the future do you think with the looming fiscal cliff that taxes will go up or down? If up, would you rather pay taxes now, later or never in protecting your loved ones and if funded properly provide a lifetime tax advantaged income for life.

If you could buy a AA rated insured tax free bond which are hard to find these days that pays 4% tax free interest which is even harder to find (price would vary by age and a municipal bond is a security product whereas a FIUL is a Life product) and pay 60 cents on the dollar and get back one dollar tax free rather than having to pay capital gains taxes like the bond, how many of these bonds would you buy $100,000 or $200,000.

Unless, rates change, like VUL and its predecessor UL, millions of these FIUL policies will suffer a similar fate and implode. Do not leave the funding of this great alternative to luck. Many FIUL advisers cross-sell both FIUL and FIA. The acronym F-I-A is a great way to remember how to offer Fixed Indexed Universal Life or its cousin, VUL and UL properly to ensure maximum performance.

Fund it right –Not at target-relying on those 8% net illustrations based on pie-in the sky market performance is like the luck of getting a paper cut opening a get well card. Don’t get into an illustration battle.

Illustrate it right- Most FIUL illustrations carry the 1990’s historical numbers which was the second greatest bull market in history and since it occurred at the beginning of illustration provides a positive sequence of returns and unrealistic outcome. Use Monte Carlo or back testing software to demonstrate random returns which are more realistic. I see the results of a 30 year bull market for bonds being used showing a drop in rates from 14% Treasuries to 1.70%. Witnessing another bond market rally like the last 30 years is about a likely as surviving a cordless bungee jump fall.

Allocate it right-Even though an FIUL is just a wrap around an FIA and crediting methods are designed to produce similar returns, the difference between the NASDAQ and S&P 500 over the years can be in the tens of thousands of dollars in cash value and income over time. Use blended indices including hard assets like Gold to provide optimal return with less risk.

Life Insurance illustrations are like marriage, you learn to pay-either attention or dearly. Through paying attention to these power phrases and suitability points, FIUL can be a potent and powerful tool for lifetime legacies of lifetime income and protection.

Life Insurance Education

Life Insurance Education

Some of the main alternative ways to use Life Insurance include bequeathing assets, wealth replacement, pension replacement, and income for college.  But there are numerous more that we will cover in a future blog.

We have all heard heartbreaking stories of families that had to give up land, farms, and second homes upon the passing of their parents because they couldn’t afford the tax liability that came with it.  Or perhaps one of the beneficiaries couldn’t afford it and forced the full sale of the beloved family property.  Regardless of the situation, it could have been avoided with life insurance.  Life insurance can serve as a way to “bequeath” money to your beneficiaries to ensure that your legacy and your beloved property can remain intact.

Similarly, another life insurance strategy is putting life insurance into a trust (which gives you the ability to specify how the payout is used) to make sure your spouse and/or beneficiaries whole on wealth replacement.  This is another way that prevents your spouse or beneficiaries from having to sell assets, stocks, etc just to make ends meet.  Let’s assume you have 3 beneficiaries of which all have different jobs and background.  Two of the three have great jobs, can afford the estate taxes that they are going to be faced with, and truly want to keep the nice land, homes, etc that they will be inheriting.  On the other hand, the 3rd beneficiary is in debt, has maxed out credit cards, and has no aspiration to keep those family properties.  With life insurance inside of an estate, you could spell out exactly how the death benefit should be allocated to avoid having your land and legacy be sold and lost due to one careless beneficiary.

The financial collapse of 2008 was devastating to millions of Americans.  One of the most common retirement issues that we hear is from boomer retirees is that they are just trying to make sure that they pass away with no money left in the bank.  Meaning that their biggest fear is outliving their money and now they would rather last right up until the day the money is all gone versus passing along a large inheritance.  Life insurance can work miracles in this instance by giving the retirees beneficiaries an inheritance and also (depending on the type of life insurance they purchase) can potentially provide some cash flow in the way of a tax-free loan against the life insurance while they are still alive.

Stay tuned for more life insurance alternatives.  Don’t forget to check out the “Truth About Life Insurance” series.

The opportunity to gift $5 million without gift or GST tax is still slated to come to a close on December 31, 2012. As of January 1, 2013, the gift tax exclusion will revert to $1 million and the gift and estate rate will revert to 55% unless Congress takes action in the lame-duck session. Many of your clients may have taken a “wait-and-see” approach to making significant gifts.

Many assets that are the subject of gifts to family members do not trade in a market such as marketable securities. Examples of assets that are often the subject of gifts include undivided interests in real estate and membership units in family limited partnerships or LLCs. For procrastinators, the time to make gifts involving hard-to-value assets, or assets involving valuation discounts, may have run out.Why?

The Valuation Problem

When a donor considers making a gift of any asset other than cash or marketable securities, an independent appraisal is necessary if the value is to have any chance of withstanding the scrutiny of an IRS audit. Gifts that employ discounts must be highlighted to the IRS by checking the box on Schedule A to the Federal Gift Tax Return – Form 709. This increases the risk of audit for such gifts.

Donors understandably want to be able to make gifts without a risk of a gift tax. To limit a donor’s exposure to unexpected gift tax resulting from an audit, tax and legal advisors typically rely on the use of “defined value clauses.”

A defined value clause generally provides that if the IRS successfully challenges the valuation claimed by the donor, the amount gifted is reduced to fit within the annual exclusion or exemption amount and the excess amount is usually transferred to a charity. Of course, there is the risk that the IRS and courts will not respect such a clause. However, in recent years defined value formula clauses have been upheld in many cases.

Even with the recent successes with defined value clauses, gifts of hard-to-value assets must be appraised before the transfer. Some of your clients may discover that their opportunity to take advantage of the $5 million exemption to transfer hard-to-value assets has passed because there is not enough time for an appraiser to conduct the necessary analysis.

If you have clients with hard-to-value assets who want to take advantage of the $5 million exemption, but find themselves in the situation where there is not enough time to conduct the appraisal, following is an option worth considering.

The Procrastinator’s Solution

Individuals who have waited too long to make gifts of hard-to-value assets should consider gifting cash or marketable securities of the maximum exemption amount to an intentionally defective grantor trust with substitution powers before the end of 2012. Such gifts have several benefits. First, the donor locks into what may be a once-in-a-lifetime opportunity to gift $5 million without gift tax. Second, a formal appraisal is not necessary. Finally, the valuation discount box on Form 709 does not need to be checked, thus reducing the risk of audit.

While the gift of cash or marketable securities does not result in the transfer of the hard-to-value asset as desired, this can be accomplished in the future using the power of substitution. The power of substitution requires that the property to be substituted must have a value equivalent to the property withdrawn. Hard-to-value or discounted assets can be substituted under this power with independent appraisal support.

You might be asking yourself . . . what does this have to do with life insurance? Intentionally defective grantor trusts are often used to acquire life insurance. The earnings from the marketable securities or hard-to-value asset may be used as premium payments for a life insurance policy on the donor’s life.

Life Insurance Education

One piece of the fiscal cliff’s puzzle that we don’t seem to hear about as much is the estate tax cliff.  Most likely because this one in particular really only does affect the wealthy.  However, LIMRA recently estimated that over 12% of US households (which is over 14 million households) could become subject to estate taxes and extra liability if this new law goes into effect.  To give you an idea of the amount of households that are currently affected today, the number only stands at 2% (about 2.4 million households).  That is a huge jump!

To give you an overview, today (2012) the exclusion amount (the amount of the estate not subject to estate tax) is at $5.12 million and the top marginal tax rate is at 35% after that.  The 2013 exclusion amount goes all the way down to $1 million and then increases the marginal tax rate all the way up to 55%!

It also doesn’t take a rocket scientist to realize that these kind of estate tax changes could cause huge spikes in life insurance.  For many years, estate planners have used life insurance with the 2% of the super wealthy to create tax-free lump sums to help alleviate the estate tax issues.  Now that this could potentially affect 5 times as many people, expect to see and hear a whole lot more about life insurance in the near future.

Life Insurance Education