Life insurance is a key financial asset that serves a wide variety of purposes, providing financial support to heirs and charitable organizations, indemnification against the loss of a key person of a business, funding of a business continuation plan, and as a benefit for executives and employees. Additionally, life insurance offers a unique combination of liquidity, leverage, and flexibility, with the ability to fund future obligations.
All life insurance policies fall into one of two general categories:
Term life insurance—temporary, providing protection for a set period.
- Renewable Term: the term policy’s annual premium increases with the insured’s age.
- Level Term: the term policy’s annual premium remains the same throughout the level term period.
Cash value life insurance—can provide permanent protection and involves an internal savings component.
Term life insurance pays a specified face amount (i.e., death benefit) if the insured dies during the policy term. The policy term is usually specified as a number of years, such as 10 or 20, or to a specified age, such as age 65. If the insured outlives the specified period, the term life insurance contract expires, usually with no residual value. Term insurance has no cash value.
Cash value life insurance, also referred to as permanent coverage, differs from term because the premiums paid are sufficient to cover the death claims and expenses of the insurer and build a cash value, or savings fund, within the contract. Cash value accumulation in a life insurance policy may produce more favorable long-term results, helping to achieve a wide range of financial objectives including cash accumulation, supplementing retirement income, or funding mortgage or loan repayments.
The applications of life insurance extend far beyond providing a death benefit to heirs. Life insurance can be used to fund estate taxes, minimize income taxes, diversify asset portfolios, cover liabilities/debt (e.g., home mortgage) in the event of an untimely death, and facilitate the transfer of a closely-held business and/or support the continuity of a business upon the death of a key employee. Life insurance is also commonly used for retirement planning, asset protection, and efficiently transferring wealth to children, grandchildren, and charitable organizations.
In addition, as employers continually look for ways to recruit, retain, reward, and assist key employees in supplementing their retirement savings on a selective basis, Nonqualified Deferred Compensation (NQDC) programs have become increasingly important. Life insurance can be a flexible, efficient, and economical means for an employer to informally fund a deferred compensation plan, providing the ability to accumulate cash value on a tax-deferred basis.
Individual Disability Income and Long-Term Care Insurance
Income and asset protection are important components of a sound retirement strategy. Planning for disability and long-term care needs is critical to a successful financial plan, ensuring protection of income and assets for family members in the long term.
An injury or chronic illness can have a significant financial impact on individuals and families. The inability to work can cause significant strain in meeting financial obligations or maintaining lifestyles, greatly diminishing savings and derailing funds for retirement. Post-retirement, the impact of a long-term disability or chronic illness can be dramatic and significantly alter the lives of those caring for the disabled person. Disability income and long-term care insurance help lessen the impact of these life-altering events.
Disability income insurance provides income replacement, protecting future earnings. A disability can occur at any time, the probability of which increases with age. A disabling event often coincides with peak earning years, when individuals are funding their retirement goals. Social programs provide modest benefits and can be difficult to obtain. Many people who rely on their occupation to cover their living expenses choose to protect their future earnings with disability income insurance. Coverage can be obtained individually or employers can provide or sponsor programs that provide individual policies in addition to existing group long-term disability benefits. Employer-sponsored individual disability programs allow an executive to obtain more coverage with limited underwriting and at discounted premiums.
Long-Term Care (LTC) insurance provides income for the cost of care, protecting accumulated wealth. LTC encompasses a wide range of supportive and health services that are required when an individual suffers from a long-term disability or chronic illness, or an accident renders them physically or cognitively unable to care for themselves for an extended period. Medical insurance covers hospitalization, not assistance with activities of daily living such as getting dressed, eating, or bathing. Other social programs require assets to be exhausted before providing assistance or only provide nursing home care for a limited period after a hospitalization, not care at home where most prefer. Assistance for services helping with activities of daily living can be very costly. Many people choose to protect themselves against this risk by purchasing long-term care insurance to provide a dedicated stream of income in the event care is needed. This allows the individual to maintain their independence and their family members to supervise where and by whom care is provided, rather than provide care themselves or make decisions on how to pay for care.
An annuity refers to a contract between an owner and an insurance company, where the owner deposits money into an insurance contract, and the insurance company, in return, provides an income stream. An annuity contract may be fixed or variable, immediate or deferred. Factors to consider when selecting the contract type include market risk tolerance, timeframe for when income is needed, guarantees offered within the contract, contract fees, provisions that hedge for inflation risk, contract liquidity, and the claims-paying ability of the issuing insurance company.
While annuities come in many varieties, they share these common benefits:
- Tax-deferred accumulation of assets for retirement
- Retirement income stream that may be guaranteed for life
Interest rates, income payouts, and guarantees are backed by the claims-paying ability of the issuing insurance company. In addition, variable investment options are subject to the volatility of market risk.
Annuity contracts play a crucial role in retirement planning through tax-deferred investing and retirement income solutions. Product types vary greatly in features and structure and can meet a variety of financial needs.
- Taxed Deferred Growth
- Insurance Against Outliving your Income in Retirement
- Market Participation with a Guaranteed Return
- Divorce Settlements (alimony, child support)
- Estate Settlements
- Funding life insurance premiums (“Annuity Straddle”)
- Create Your Own Pension
- Tax Free Retirement (Roth IRA Opportunity)
- Charitable Gift Annuities
Corporate BenefitsGroup Life
Life insurance is a powerful and flexible financial instrument with many useful applications for companies of all sizes. For business owners, it can help facilitate business continuity, protecting the company against the loss of a key person, providing liquidity to fund a succession plan, and ensuring the company can thrive well into the future. Used as an employee benefit, life insurance can help employers recruit, retain, and reward employees and executives.
Group life insurance is used as a benefit for the employees of a company. In this type of plan, each eligible employee is covered under a master contract at premium rates that are based on group demographics. Group life insurance plans are often paid by the employer. Some plans may have a contributory element where each insured pays for some of the premium and has the option to purchase more coverage. Group life insurance usually terminates when the employee leaves the company. However, some plans allow employees to convert coverage to an individual life insurance policy upon termination.
For many employees, group life insurance provided by their employer can be a valuable benefit in the event of a pre-mature death. This coverage provides access to life insurance, often without medical underwriting, and is a benefit many may not otherwise have.
Group Long-Term Disability
The ability to earn an income is the most important asset during an employee’s career. A disabling event without an income protection plan can adversely affect their financial goals and retirement plans. A disability will keep three out of every ten employees between the ages of 35 and 65 out of work for three months or longer.1 In a group of 20 executives with an average age of 45, there is a 97% chance that prior to reaching 65, at least one person in the group will be disabled for at least one year.2 Disability can strike anyone, at any age.
Group long-term disability (LTD) provides income protection sufficient for most employees. For executives and other professionals with high incomes, LTD plays a key role as a foundation for their income protection strategy. This benefit replaces a portion of their income allowing them to continue meeting their daily expenses and maintain a standard of living in the absence of a paycheck. For employers, LTD can be a valuable recruiting and retention tool, providing employees with tools and resources that can help them return to work as their situation improves.
1 1987 Commissioner’s Group Disability Table, Society of Actuaries
2 1985 Commissioner’s Individual Disability Table A, Society of Actuaries
401(k) plans can be a powerful tool in promoting financial independence during retirement years. As a type of employer-sponsored retirement savings plan offered to employees of public or private for-profit companies, a 401(k)-qualified plan may offer a number of benefits to both employer and employees with their beneficiaries. A well-designed plan can help attract and retain talented staff, and provide employees the opportunity to accumulate a retirement nest egg. It can also provide tax benefits to both employer and plan participants: employers are typically allowed to receive a tax deduction for plan contributions, while employees may be able to defer paying taxes on a portion of their compensation until retirement.
Affluent clients often belong to families comprised of several generations: individuals with differing values, preferences, objectives, and geographic locations. They may have a number of tax entities, investment accounts, service institutions, and professional advisory relationships. When these variables act independently of one another and pursue separate objectives, it can result in a fragmented, and unnecessarily risky, financial picture.
These complex relationships require effective management and a well-organized process: wealth management that seeks well-defined, strategic objectives, and tracks success with quality and performance measures.
A sophisticated investment portfolio solution that leverages advanced academic research, portfolio structuring methodologies, product applications, tax sensitivity, and institutional pricing linked to your financial goals by an investment advisor provides a customized solution to help meet specific financial goals.
International Insurance Solutions
Global citizens build their wealth across multiple borders by establishing international connections through businesses, families, properties, and investments. While international borders no longer confine global citizens of the world today, they do require sophisticated financial planning and exceptional product solutions.
International insurance solutions can include products supported across different market segments, such as:
U.S. Domestic Products—Foreign national clients with U.S. Nexus may be eligible for U.S. domestic insurance products, available through carriers with global citizen programs designed to accommodate the needs of global clients with direct ties to the U.S.
International Corporate Benefits—For global companies with cross-border executives, international corporate benefits allow employers to deliver quality benefits to employees across worldwide operations, aligning the benefits of domestic employees with the benefits of employees located in another country.
Bermuda-Based Products—For individuals who are not citizens or residents of the U.S. or Bermuda, or residents of Canada, Bermuda-based products offer U.S. dollar-denominated insurance solutions with greater flexibility and higher capacity than those products often available within the insured’s country of residence.
Offshore Private Placement Products—Offshore private placement products represent unique insurance solutions for U.S. citizens and foreign national citizens who are affluent global clients seeking the benefits of traditional life insurance, accompanied by institutional pricing, design flexibility and nontraditional investment options on a tax-favored basis.
U.S. and offshore insurance products can provide unique planning solutions for the challenges confronting global clients with and without U.S. ties, helping them achieve their complex, long-term financial goals by growing, transferring, and preserving their financial legacies.