How Does A Split-Dollar Life Insurance Plan Work?

Life insurance is an incredibly important investment. Ultimately, you are ensuring that you leave behind security and stability for your beneficiaries and not a financial burden. Having a run of the mill life insurance policy might not always be enough. Getting the right type of coverage and using an appropriate life insurance strategy will guarantee that what you are leaving behind is as instrumental as possible.

Split-dollar life insurance is one strategy you can use to confirm your life insurance policy avoids additional tax burdens that will undercut how much your family will receive when the policy is paid out. However, not everyone is the right fit for such coverage. So, what is split-dollar life insurance and who will benefit most?

What is split-dollar life insurance?

Split-dollar life insurance is a strategy for life insurance plans, not an insurance plan itself. The goal of this strategy, which can be utilized with survivorship or whole life insurance policies, is to split the costs and benefits.

Essentially, a split-dollar life insurance policy will enable the relevant parties to have the costs of the premiums paid into the policy and split between more than one party. Similarly, these policies will allow provisions that name multiple beneficiaries and assign specific cash values to be paid out to each of them.

Who can split-dollar life insurance benefit?

Most commonly, split-dollar life insurance is a strategy employed when companies or corporations are involved. For example, split-dollar life insurance plans may be used to split costs and benefits between employer and employee, between owners of a company, and between shareholders and corporations.

Split-dollar life insurance may be utilized between individuals as well. Premiums and benefits may be shared between family members or under the guidance of a third-party Irrevocable Life Insurance Trust (ILIT). It’s advantageous for large estates to separate their life insurance from the estate itself. An ILIT alleviates any burdensome estate taxes once the two are divided. On their terms, policyholders may still determine who the beneficiaries are and assign a trustee to oversee the ILIT.

Setting up split-dollar life insurance

A written agreement may be created that will determine the exact terms of how premium costs will be split, as well as where the cash value and death benefits will be paid. For example, an agreement between an employer and employee will include terms of what the employee needs to accomplish to continue earning the benefit, what would need to happen for the clause to be terminated, if the employee underperforms, is let go by the company, or willingly leaves.

A split-dollar life insurance plan allows you to utilize a cost-sharing plan, retain the insurance rate that was in effect when the plan was first purchased and helps to alleviate any taxes for more affluent estates.

Schechner Lifson Corporation can determine if split-dollar life insurance is for you. Contact us today to see how we can make sense of the world of insurance, providing you with the best coverage possible.

What Is An Executive Carve-Out Plan And Does My Business Need It?

As companies grow and prosper, executives who manage the evolution and operations of an organization become incredibly important assets. Companies may go the extra mile to offer supplemental executive benefits to these individuals, in exchange for the immense value and security they add to the work environment.

If your company has some of these one-of-a-kind executives, an executive carve-out plan may be just what you need. Executive carve-out plans are non-qualified plans for highly-compensated individuals, allocating compensation on top of what would already be available to them through the company’s group term life insurance.

What do we know?

When individuals are offered standard group term life insurance by their employer, up to $50,000 of those benefits are untaxed by the government. Benefits of more than $50,000 are considered imputed income and the company pays taxes on the coverage. However, if an executive carve-out plan is initiated, the executive would retain that first $50,000 of group life insurance, in which the employer would take out an individual life insurance policy for additional coverage beyond the first $50,000. This additional policy is only offered to these key individuals; that is, the coverage is carved out.

Why would a company do this?

First, the ability to avoid the additional taxes on imputed income above $50,000 of coverage helps to save on taxes and administration costs for the employer. Meanwhile, the high-value employee receives additional benefits in the form of this insurance coverage that will grow in value over time. When the employees receive this type of executive carve-out plan, they are getting a valuable piece of compensation that they might not be offered elsewhere. With this degree of recognition, these irreplaceable employees are less likely to leave, saving the employer money by retaining these instrumental individuals.

Determining whether an executive carve-out plan makes financial sense for employees at your company depends heavily on your unique circumstances.

Schechner Lifson Corporation can help organizations weigh the costs and benefits of putting an executive carve-out plan in place. Contact us today to see how we can make sense of the world of insurance, providing you with the best and most affordable coverage possible!

4 Reasons Why Estate Planning Is Crucial

While nothing in life may be certain outside of death and taxes, both of these contingencies can be prepared for with proper estate planning. Ensuring you have a tried, tested, and true estate plan is critical if you want to leave your family and loved ones in a secure state.

So, what do you need to know when you start planning your estate?

Defining Estate Planning

One thing is certain, your estate will be passed on to your next of kin whether you plan for it or not. The process of estate planning is arranged ahead of time, ensuring that the passing of assets is done with precision, every beneficiary gets what is intended, and Uncle Sam takes a minimal cut from the estate.

Benefits of Estate Planning

There are no shortages of benefits when planning ahead and getting started on your estate strategy. Of course, no one can predict when it’s their time, so align yourself with the better to be safe than sorry mantra.

Engaging in proper estate planning will offer the following advantages:

• Reduce the tax burden for those on the receiving end of your assets. Proper usage of trusts or other estate-planning techniques can maximize the amount that gets passed on to beneficiaries – without being hit by federal or state taxes.
• Costly and time-consuming probate processes are lessened in the court system.
• Given the sensitive nature of the time and situation, families are able to grieve and focus on taking care of one another’s emotional needs.
• Protect beneficiaries from their subjective judgment, by allowing your estate-planning to include dictation of what certain assets may be used for.

Getting Started with Estate Planning

Many estate planning attorneys are out there to help you get started in this vital process. Financial advisors are also critical to the estate planning process, as they know the ins and outs of the most effective and affordable way to manage your assets.

When it comes to estate planning – Schechner Lifson Corporation can assist you. Contact us today to see how we can make sense of the world of insurance, providing you with the best and most affordable coverage possible!

Debunking 5 Common Disability Income Insurance Myths

As with all types of insurance, disability income insurance is the type of protection you hope you never need to use. Disability income insurance is defined as the coverage that would pay periodic benefits, should you ever become injured or ill and were no longer able to work and earn a wage. So, for anyone who’s the primary income-earner in a household, disability income insurance would be critical to ensure that an unforeseen accident does not leave you and your family without a plan.

Let’s tackle five of the most common misconceptions when it comes to disability income insurance:

1. My standard workplace insurance is enough in the event of an accident

This myth perhaps arises from the understanding of worker’s compensation. Workplaces that offer worker’s compensation replace a percentage or all of an employee’s lost salary in the event of an accident at the workplace. Such plans are common in work environments with heavy duty equipment usage, where the risks of danger and severe injury are high. In these events, you can apply for worker’s compensation through your company.

There are a few reasons not to rely on this standard coverage. First, it is not a given that your workplace offers worker’s compensation. So, before assuming you’d be covered, it is imperative that you double check your coverage options. Secondly, even if you do have an employer who offers worker’s compensation, you still will want to consider a separate disability income insurance. Worker’s compensation is only offered to cover job-related injuries, and nine out of every ten long-term disability claims are for events that happen outside the workplace.

2. The likelihood of needing disability income insurance is very low

An attitude suggesting that you won’t become disabled by an injury or illness at some point in your life doesn’t add up with the statistics.

Part of the reason for this myth is that people only really consider disability events to be those that would leave them permanently disabled. Disability income insurance is also critical for minor to moderate injury events as well. An accident could leave you in severe pain for a year while undergoing physical therapy, or a simple broken bone could render you unable to complete your job until it’s healed. In these events, disability income insurance can step in to assist while your body heals. Data shows that around one in every four young Americans will encounter a disability event of one manner or another in their life.

3. I’m young and healthy, I’ll wait until I’m older to get disability income insurance

A study following long-term disability recipients found that four out of ten individuals were under the age of 50. Young workers are just as prone to accidents, and because they have had less time to save up or prepare financially, coverage is even more critical.

4. My employer offers group disability insurance, so I don’t need to think about individual disability income insurance

As with many insurance plans, it’s terrific when employers offer a baseline policy for coverage, but upon closer examination, you may discover that you require more coverage for your needs. Most group disability insurance plans will cover up to a given percentage of your salary, and you might look at that percentage and decide that it isn’t enough to sustain your family in the event of an accident – particularly if you are the only income earner in the family.

Group disability insurance will not follow you if you leave that job, so if you take time off or are in between jobs, you won’t be covered. These are all essential reasons to consider an individual disability income insurance plan.

5. What about Social Security—won’t that cover me?

Similar to group disability insurance, Social Security coverage will only replace a percentage of your lost income. The government is stringent in determining who gets a social security payout, as they are reserved for those who have the highest need for assistance. Individuals whose disability makes it impossible for them to work in their current job or any other type of occupation are eligible for these Social Security payouts.

Want to find out more?

Schechner Lifson Corporation can offer you help in addressing your disability income insurance concerns. With experienced and caring agents, we can make sure you get the right coverage, at a price that may just be more affordable than you think. Contact us today!

Looking for more information about other insurance myths? Check out our articles on Home Insurance Myths and The Red Car Myth.