Insurance Industry Leaders Discuss Trends And The Effects Of Hurricane Katrina
Posted by admin on November 14th, 2008 filed in Insurance | Comment now »
Hurricane Katrina has affected the insurance industry dramatically. At a recent conference, several industry leaders discussed trends in the market, recruitment of new agents, the devastating effects of Katrina, and the insurance industry’s duties to policyholders in the aftermath of the hurricane. The long and short term effects of Katrina was the focus of the panel, led by CEOs of major insurers, which determined that the insurance industry must stand behind policyholders, especially those affected by Hurricane Katrina. There was agreement between most major insurance companies that the suspension of billing and cancellations was the top priority, along with paying claims promptly and fairly to those in devastated regions.
The various insurance associations, both state and national, have created a fund to help industry colleagues affected by Katrina recover from the losses they have suffered. The fund will also benefit the families of agents and brokers directly affected by the hurricane. Hurricane Katrina has devastated not only human life and property, but also the economic stability of the coastal region. Major insurance companies have suffered devastating losses as well as a result of Hurricane Katrina. The insurance industry estimates that 15 to 25 billion dollars in losses could be the price of insured losses due to the hurricane.
Mike Bell is the webmaster of http://www.InsuranceOptionsGuide.com, a resource for life and health insurance answers.
Tags: Health Insurance, life insuranceLife Insurance Why There’s No Need to be a Desperate Housewife
Posted by admin on October 21st, 2008 filed in Insurance | Comment now »
Life insurance looks set to make a comeback in the UK, after a period of neglect by consumers who were simply occupied with affording a home. The stabilising of the UK house market has made many consumers take a broader view to their personal finances.
LifeSearch (a life insurance broker), in the September issue of Money Observer, highlighted a few common mistakes people make when buying life insurance:
* Believing life insurance is relevant to everyone
Life insurance is only relevant to people who have financial dependents. If you have no financial dependents, it might be more appropriate to consider income protection or critical illness insurance.
* Paying too much for life insurance
According to Money Observer, research for Sainsbury’s Bank Life Insurance revealed that many people take life insurance policies from their mortgage providers and as a result could be paying too much.
* Opting to buy joint life insurance policies instead of single life insurance policies
The advice to married couples is to avoid taking out joint life insurance policies which pay out when the first spouse dies over the term of the policy, but not on the second. Single policies could provide additional cover by paying just an extra
Tags: critical illness protection, family income benefit, income protection, life assurance, life insuranceConverting Tax-Deferred Retirement Plans to Life Insurance to Save Income Tax and Estate Tax
Posted by admin on October 17th, 2008 filed in Insurance | Comment now »Assume that an older, wealthy widow(er)or divorced individual has a substantial amount in tax-deferred retirement plans such as defined contribution pension plans, 401k plans, 403b plans, and traditional IRAs. The widow(er) wants to leave the retirement plans to his or her children.
The problem is that when the children inherit the tax-deferred retirement plans and take distributions from them, the distributions are fully taxable to the children. The retirement plans are income in respect of a decedent (known as IRD), which is taxable. In addition, the balances in the retirement plans are fully included in the decedent’s gross estate for estate tax purposes.
If the individual were married rather than being a widow(er)or a divorced individual, usually the individual would want to leave the money in the retirement plans to his or her spouse. In that case, the surviving spouse could transfer the money into his or her own IRA and treat the account as his or her own. The surviving spouse would avoid income tax on the money in the decedent’s tax-deferred retirement plans. The bequest would also qualify for the unlimited marital deduction for estate tax purposes.
Is there any way to achieve the parent’s goal of having enough money to pay living expenses and yet leave a good inheritance to the children? The answer is yes if the older, wealthy parent is insurable for life insurance purposes.
Here is how the solution would work. The parent obtains a life insurance policy large enough to replace the balances in all the tax-deferred retirement plans. However, the parent is not the owner of the life insurance. The parent forms an irrevocable life insurance trust that has a “Crummey Powers” clause, and the irrevocable life insurance trust owns the life insurance policy. This technique will keep the value of the life insurance out of the decedent’s gross estate.
A “Crummey Powers” clause gets its name from a court case. It has to do with whether a gift is subject to gift tax. Gifts that are less than the annual exclusion amount are exempt from gift tax as long as the gift is a present interest in property. A “Crummey Powers” clause allows the beneficiary of a life insurance trust the right to withdraw gifts made to the trust that the donor intends to pay for life insurance premiums. As long as the beneficiary has the right to withdraw the donation under the “Crummey Powers” clause, it is a gift of a present interest in property.
Assume that the beneficiary does not exercise the right to withdraw the donation. The irrevocable life insurance trust will use the donation by the parent to pay the premiums on the life insurance.
Where does the parent obtain the money to donate the money to the trust to pay the life insurance premiums? The parent converts the balances in the retirement plans into a life annuity. Therefore, the parent receives payments for life and uses part of them to pay the insurance premiums through the trust. At the parent’s death, the annuity is worth zero. Therefore, the children do not have any income in respect of a decedent. Nothing from the annuity is included in the gross estate.
The life insurance company pays the children the proceeds of the life insurance policy. The proceeds of life insurance on account of the death of the insured are not subject to income tax. They are not subject to estate tax because the decedent did not own the policy.
This plan allows the parent to have an income stream during life from the annuity. The annuity payments would be fully taxable unless the individual has any basis in the annuity. The individual will need to use other income tax planning techniques to reduce the income tax resulting from the annuity payments.
This strategy converts amounts that would be subject to income tax and estate tax to amounts that are not subject to income tax or estate tax in the hands of the children. This strategy requires the services of a tax advisor, an attorney, and a life insurance agent. They all must be competent and exercise great care in implementing the strategy. However, if done correctly, this strategy can result in substantial tax savings. It also gives the parent more peace of mind knowing that the children will not have to pay taxes on the life insurance.
Alan D. Campbell is a CPA in Arkansas and Florida and is self-employed primarily as an author of tax publications. He earned a Ph.D. in accounting with an emphasis in taxation from the University of North Texas. He is also admitted to practice before the United States Tax Court. He has published numerous articles on tax topics in professional journals. He is the co-author of the book Tax Strategies for the Self-Employed and the revision editor of CCH Financial and Estate Planning Guide, 15th edition. For more tax savings strategies, please see his blog: http://taxsavingsstrategies.blogspot.com
Tags: Annuity, Crummey Powers, IRA, Irrevocable Life Insurance Trust, life insurance, Retirement Plans