Bulletproof Your Lifestyle: Insurance Strategies for Legal Professionals Your partners in profit and efficiency

 Insure Things You Can’t Afford to Lose  Some things are insured because an outside source (lender) requires it. For example, mortgage lenders require you insure your house.

Types of Insurance to be discussed today  Life Insurance  Disability Insurance  Health Insurance

Life Insurance  How much do I need?  What is the right type?  What determines cost?  What is the best type?

How much do I need?  “Math” component  Emotion component

Math Component

Emotion Component  Math tells you minimum needed  Rest is a personal decision

Types of Life Insurance  Term  Yearly Renewable Term  Level Term  Decreasing Term  Permanent  Whole Life  Universal Life  Variable Life  Equity Indexed Life

Yearly Renewable Term  Premiums increase annually as you age  Death benefit remains level  Must review at least every 3 years to keep cost effective

Level Term  Premiums level for guarantee period  Guarantee periods 5, 10, 15, 20, 25 years  Death benefit remains level  Cost effective for longer term situations

Decreasing Term  Premium is level for term (20 to 30) years  Death benefit declines as you age  Typically used for debt  “Dinosaur”  Not very cost effective

Whole Life  Premium is fixed for life of policy  Can be structured to be “paid up”  Cash value develops to keep premium level until death  Designed to be in force until death

Universal Life  Flexible Premium Adjustable Life  Minimum, Target, Maximum Premium  Develops cash value like whole life but with premium flexibility

Variable Life  Fixed premium like whole life  Develops cash value  Cash value can be directed by owner into sub-accounts  Greater return potential  Greater risk  Direct market exposure

Equity Indexed Life  Fixed premium  Develops cash value  Crediting rate on cash value is determined by indirect exposure to market

Combinations  Universal Variable Life  Universal Equity Indexed Life

What Determines Cost  Type of Insurance  Underwriting  Super Preferred  Preferred  Standard  Rated  Sex  Smoking  Family History  Height/Weight  Personal Medical History  Blood Profile  HOS

What is the Best Type?  Facts determine this  Good and bad versions of every type  Tool belt  Use right tool

 If the death benefit is needed for a specific period of time  Especially at younger ages  Term

 If the death benefit is needed until death occurs, whenever that may be  Some form of permanent  Individual facts determine which type of permanent and how designed

Examples  Working professional couple, young children, still building personal wealth  Term  Policy to fund ILIT for Estate Settlement  Permanent  Significant age difference in couple  Either  Depends on facts

Designing Permanent Insurance Premium Cash Value Death Benefit Build Cash Value (i.e. Deferred Comp Maximum Minimum Maximum Permanent Death Benefit (i.e. ILIT)

Why Design to Build Cash?  All policies have a fixed cost component  If you want to build cash value efficiently, you must “overfund” the policy within IRS guidelines  80% of S&P 500 that have deferred comp plans informally fund them with overfunded permanent life insurance.  Creditor Protection, Tax Shelter, Self Completing

Disability Insurance  Short Term (STD)  Pays up to 90 days  Long Term (LTD)  Pays after 90 days  Pays income if you are sick or injured and can’t work

Group or Individual  Group  Lower initial cost  Guarantee issue  Short premium guarantee  More limits on contractual provisions

Group or Individual  Individual  Higher initial cost  Medically underwritten  Long term premium guarantee  More liberal contractual provisions

Components of Disability Insurance  Elimination Period (EP)  This is your “deductible”. How many days before benefits accrue.  Benefit Period (BP)  How long are benefits paid; 5 years, Age 65, Lifetime.  Monthly Benefit  Dollar amount of total monthly benefit. Generally 60-70% of gross.

Components of Disability Insurance  Own Occupation Period/Definition  Should protect occupation for benefit period. Should be fairly short and simple, i.e. “Unable to do the main duties of your own occupation…”  Residual or Partial  Provides a supplement to earned income being generated while working part time.

Components of Disability Insurance  Cost of Living Adjustments (COLA)  Be wary, very expensive rider, rarely is a factor in most claims. Only applied while on claim.  Indexed Benefits/Update Benefits  Adjusts monthly benefit amount each year automatically to account for inflation.  Guaranteed Increase Option  Guarantees right to increase monthly benefit in the future based solely on financial qualification regardless of current health.

For Most Clients  Combination of Group and Individual is most cost effective  Structure premium payments so benefits are tax free  Combo approach can cover a greater % of income

Disability Overhead Expense  Primarily for professionals  Pays overhead expenses while they are disabled  Premiums are deductible  Benefits are taxable but used to pay deductible expenses  Keep practice operating for return or sale  Structure with short EP (30 days) and short BP (12 to 18 months)

Health Insurance  Group  Individual

Group Health  Can be guarantee issue  Can be written as low as 2 or 3 people on plan

Individual Health Insurance  Underwriting more challenging  Focus on keeping premium as low as possible  Young and healthy larger deductible

HSA’s  High Deductible  Coupled with tax favored account that you own and control

Applications of Insurance Products  Life Insurance  Income to family  Income to business (key person)  Stock redemption/Buy out  Estate liquidity  Deferred comp/SERPs

Disability Insurance  Income to self/family  Cover overhead expenses

Case Study  Orthopedic Surgeon paying over $12,000 per year for $5,000,000 of level term  Underwriting classification, standard Table B, due to congenital heart issue.  Condition is NOT life threatening  Construct case with treating physician’s support

Case Study Outcome  Reclassified to Preferred Rates  Premium reduced to a little over $5000 per year  Challenge underwriting class until certain it is the best offer

Case Study Maximizing Disability Coverage Monthly Pre Disability Income $20,000 In order to maximize coverage, individual MUST be in place before Group At very high incomes, may have to add specialty line (Lloyds of London) to cover income $10,000 Group LTD $10,000 Individual LTD

Thank You Larry W. Dykes, CLU, ChFC, AAMS SkyView Partners 1050 E. 86 th Street, # 55-C Indianapolis, IN