Life Insurance

The valuable role that life insurance plays in providing a death benefit is easily recognized.
What is often overlooked or not understood are the many “living benefits” of life insurance-especially whole life insurance and Index Universal Life Insurances (IUL).
Life insurance creates an immediate estate by paying a death benefit whenever the insured dies.
The cash value feature of permanent insurance and the owner's right to borrow from the cash value make these policies an important source of funds to meet living needs.
Avant Insurance Agency , is committed to help understand the more common uses of life insurance in meeting individual needs as well as business needs, not only at the death of the policy owner, but also during the owner's life


Indexed Universal Life (IUL) policies offer several advantages over Whole Life policies. These advantages include:

 

  •  Transparency in policy performance: IUL policies disclose policy performance frequently and are subject to market conditions. Whole Life policies, on the other hand, guarantee a particular rate regardless of the market trend.
  •   Flexible premium payments: Unlike Whole Life policies that have to be paid within a stipulated time, IUL policies allow you to stop or decrease premium payments towards the policy.
  • Potential for higher earnings: IUL policies earn interest based on the upward movement in the stock market index, while Whole Life policies offer only a fixed interest rate.
  • Easy access to cash value: Accessing your cash value in an IUL policy is easy and tax-free up to the basis paid into the policy, while Whole Life policies have surrender charges to withdraw cash value.
  • More control over the policy: With an IUL policy, the policyholder can actively monitor the policy growth, adjust premiums, and make other alterations that align with their financial goals. Whole Life policies have an inflexible structure with limited customization.

 

DETERMINING THE PROPER INSURANCE AMOUNTS

1.Human Life Value Approach

Calculates the amount of money a person is expected to earn over his lifetime to determine the face amount of life insurance needed, thereby placing a dollar value on the life of an individual.

2. Needs Approach

A method of life insurance planning which identify Buy-Sell Funding for Sole Proprietors.

 There is a two-step business continuation plan to keep the business running after the proprietor’s death, whereby the employee takes over management of the business:

• Buy-Sell Plan: an attorney drafts a buy-sell plan stating the employee’s agreement to purchase the proprietor’s estate and sell the business at a price that has been agreed-upon beforehand.

• Insurance Policy: the employee purchases a life insurance policy on the life of the proprietor. The employee is the policy owner, beneficiary, and pays the premiums. Upon the proprietor’s death, the funds from the policy are used to buy the business. Buy-Sell Funding for Partnerships

There are two types of buy-sell agreements for partnerships: cross-purchase plans and entity plans.

Cross-purchase plans: In a cross-purchase plan, each partner buys, pays the premiums, and is the beneficiary of a life insurance policy on each of the other partners. The amount of the policy is equivalent to each partner’s share of the business. When one partner dies, each of the other partners receives the death benefit from the life insurance on the deceased partner, which is then used to buy the deceased partner’s ownership of the business.

Entity plans: the partnership itself agrees to buy the deceased partner’s share of the business. Entity plans are best for businesses with several partners. In this case, the business purchases, pays the premiums and is the beneficiary of life insurance on each partner. Buy-Sell Funding for Close Corporations Unlike a partnership, a close corporation (i.e. an incorporated family business) is legally separate from its owners. It exists after one or more owners dies. A close corporation may purchase either buy-sell plans: cross-purchase or entity.

The difference is that an entity plan is termed a stock redemption plan for close corporations. Close Corporation Cross-Purchase Plan Similar to partnership cross-purchase plans, a close corporation cross-purchase plan requires surviving stockholders purchase the deceased stockholder’s interest in the company, and the deceased stockholder’s estate sell the interest to the surviving stockholders. The corporation is not part of the buy-sell plan. Each stockholder owns, pays the premiums and is the beneficiary of life insurance on each of the other stockholders in an amount equal to his share of the corporation’s purchase price.

 Close Corporation Stock Redemption Plan Similar to the partnership entity plan, the corporation purchases, is the owner, pays the premiums and is the beneficiary of life insurance policies on each stockholder. The amount of life insurance is equal to each stockholder’s share of the corporation’s purchase price. When a stockholder dies, the corporation purchases, or redeems, the deceased stockholder’s share. 


Highly Compensated Employees

An HCE is any employee who meets either an ownership test or a compensation test at any time during the plan year in question or in the immediately preceding plan year.

  • Ownership test: An employee is an HCE based on ownership if he or she owns more than 5% of the company sponsoring the plan at any time during the current plan year or during the previous year.
  • Compensation Test: All compensation from a single employer (including all members of a controlled group) must be aggregated for purposes of this limit. For the 2022 plan year, an employee who earns more than $130,000 in 2021 is an HCE. For the 2023 plan year, an employee who earns more than $135,000 in 2022 is an HCE.

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