A Case Study in Long Term Care

Long-term care and the cost of care can be overwhelming for most. In the past, traditional stand-alone LTC policies were the only way to insure long-term care expenses. These days, there are more ways to obtain this valuable coverage – including LTC riders on Life Insurance policies.

Underwriting long-term care risks can be very different from underwriting for life insurance. LTCi underwriting takes into account medical impairments that impact ability to perform daily living activities. Whereas, life underwriting is more concerned about impairments that affect mortality, or life expectancy. In some cases, your client may be eligible for life insurance at a favorable rate class, but may be rated or declined for long term care.

This recent case study shows how different underwriting mortality vs. morbidity can be and how using life insurance with a rider can be effective over traditional LTCi:

  • 62 year old female
  • Seeking $1 million of UL coverage with a Long Term Care rider
  • Non smoker; normal build
  • Hypothyroidism diagnosed in 1980; well controlled on medication
  • Was seen once by a chiropractor for back pain with improvement
  • Diagnosed with scoliosis
  • Final underwriting decision: Super Preferred for life coverage; Standard for the LTC rider due to scoliosis and back pain history

Non-traditional long-term care insurance and chronic illness riders are the perfect solution for those impairments that would be declined for traditional LTC riders.

These alternative riders are automatically available on eligible permanent products with little to no additional underwriting.

Whatever the case may be, there is a product we can pivot to, to cover long-term care needs. Contact ISN @ 800-338-1892.  We are here to help you sort through the different options and pre-qualify your client for this much-needed coverage.


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Newlyweds Need to Think About Taxes

Spring showers bring summer flowers and weddings typically aren’t far behind. Newlyweds have a lot to think about and taxes might not be on the list. However, there is good reason for a new couple to consider how the nuptials may affect their tax situation.

The IRS has some tips to help in the planning:

Report changes in:

1. Name. When a name changes through marriage, it is important to report that change to the Social Security Administration. The name on a person’s tax return must match what is on file at SSA. If it doesn’t, it could delay any refund. To update information, file Form SS-5, Application for a Social Security Card. It is available on SSA.gov, by calling 800-772-1213 or at a local SSA office.

2. Address. If marriage means a change of address, the IRS and U.S. Postal Service need to know. To do that, send the IRS Form 8822, Change of Address. Notify the postal service to forward mail by going online at USPS.com or at a local post office.

Consider changing withholding
Newly married couples must give their employers a new Form W-4, Employee’s Withholding Allowance Certificate, within 10 days. If both spouses work, they may move into a higher tax bracket or be affected by the Additional Medicare Tax. Use the IRS Withholding Calculator at IRS.gov to help complete a new Form W-4. See Publication 505, Tax Withholding and Estimated Tax, for more information.

Decide on a new filling status
Married people can choose to file their federal income taxes jointly or separately each year. While filing jointly is usually more beneficial, it’s best to figure the tax both ways to find out which works best. Remember, if a couple is married as of Dec. 31, the law says they’re married for the whole year for tax purposes.

Select the right tax form
Choosing the right income tax form can help save money. Newly married taxpayers may find they now have enough deductions to itemize them on their tax returns. Newlyweds can claim itemized deductions on Form 1040, but not on Form 1040A or Form 1040EZ.


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Stretch it Out

One of the primary benefits of an Individual Retirement Account (IRA) is the ability to defer taxes. The longer the deferral the faster the IRA will grow. The idea of “stretching” your IRA is c concept that has been talked about and utilized for many years. The “Stretch” Concept is a wealth transfer technique that may allow the benefits of an IRA to stretch across several generations.

The IRA is the governments way of allowing us to save for retirement. But, the IRS still wants its fair share. As we know, they require us to start taking distributions at age 70 1/2. Because all distributions are taxed and may cause the IRA owner to go into a higher tax bracket, most IRA owners take the least amount out of their IRA when forced to take distributions. This is called the Required Minimum Distribution (RMD).

When we refer to the “Stretch”, we mean only the RMD is taken each year by the account owner and their designated beneficiaries thereby extending the period for maximum deferral. When someone is only taking RMD’s, it is most often a situation when the person has other sources for current income so they do not need the RMD’s for living expenses.

Here is how it works- each situation is different and should reflect variables such as marital status, age of spouse, number of children and financial status. But in general the IRA owner should:

  • Name the spouse as primary beneficiary
  • Name children/ grandchildren as contingent beneficiaries
  • Ultimately divide the account into separate accounts before the IRA reaches the contingent beneficiaries.

If the IRA is divided into separate accounts for each beneficiary by December 31 of the year after the IRA owner’s death, each beneficiary can use his life expectancy to compute the new RMD’s. Using the younger ages of the beneficiaries means smaller distributions and a “stretching” of the asset for a much longer time.

A “stretch” IRA can provide many benefits for a beneficiary. It may provide lifetime income to the beneficiaries. By withdrawing smaller amounts over a longer period of time, there is a great potential to pay lower taxes. In addition, the continued tax dereffed growth of the account can increase the wealth passed to heirs.



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A Nice Change- Positive LTC News

Image result for mutual of omaha logo

From the Desk of Randy Mousel

Together, we share a mutual investment in helping people protect their families, their finances and their futures with long-term care insurance. At Mutual of Omaha, this is something we’ve been doing for over 30 years. While some companies have exited the market, re-priced their products or shifted their focus away from traditional LTCi, we remain committed to this important product line.

As a mutual company, we’re not influenced by outside interests. We make product and pricing decisions independent from others in the marketplace. While we remain committed to always acting in the best interests of our policyholders, our investment in LTCi also extends to you. Thanks to the expertise we’ve gained over the years, we’re able to design LTCi products your customers want and need and price them appropriately, making them easy for you to sell. We’re also here to help you build your LTCi business by providing the service and support you need.

We appreciate the business you place with Mutual of Omaha and we’re grateful to know you share our mutual investment in LTCi. Together, we can help people prepare for a secure future.

Randy Mousel
SVP Brokerage SalesMutual of Omaha
(800) 693-6083
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Estate Tax Repeal?

If the Trump Administration achieves its stated objective of repealing the federal estate tax, U.S. life insurers predict it will have a negative impact on survivorship life insurance sales.

In April, LIMRA asked 24 U.S. insurers how they thought repealing the estate tax would affect life insurance sales. Forty percent of carriers said they believe it would have a “significant negative impact” on their survivorship life insurance sales and 54% think it would have a “minor negative impact” on their single life sales.

While six in 10 surveyed (58%) do not expect U.S. estate tax law to change this year, if it is repealed three-quarters believe it would have a significant negative impact on industry survivorship life insurance sales in the following year.

Current federal estate tax law only applies to estates exceeding $5.49 million per person, with a 40% top tax rate. Since Americans can leave an unlimited amount of assets to their spouses, the threshold for married couples is $10.98 million. According to the Joint Committee on Taxation, roughly 0.2% of Americans, or one out of every 500 people who die, are impacted by the estate tax. This includes family owned businesses and farms.

Survivorship life insurance is intended to pay federal estate taxes and other estate-settlement costs owed after both spouses pass away. It represents approximately 4% of the life insurance market and 10% of premium for companies who offer it annually. LIMRA notes that the carriers participating in the survey represent 64% of the survivorship life insurance market.

Beyond the LIMRA study about how carriers think it would impact future sales, the issue also begs the question of whether families with current life insurance policies who would potentially be subject to the estate tax would question the necessity of those policies moving forward. Would life insurance agents who specialize in working with high net worth clients who need life insurance to address estate tax issues need to rethink their business model, perhaps transitioning to wealth management?

Those who might think about canceling policies would first want to consider the following:

  • Even if the federal estate tax is repealed, individual states may keep their estate tax.

Currently, 14 states and the District of Columbia have an estate tax, and six states have an inheritance tax. Maryland and New Jersey have both. State estate taxes can kick in for estates valued at only $1.5 million or less in several states.

  • If it is repealed, it could very well be back in 10 years.

Republicans would need several Democrats to support estate tax repeal in order to achieve a super majority — 60 votes — and avoid a filibuster, which is unlikely. Republicans can bypass the need for 60 votes and achieve repeal with a simple majority in the Senate by passing it through budget reconciliation. But as current rules dictate that any legislation passed under reconciliation must “sunset” after a decade if it would increase the budget deficit outside of a 10-year window, it is likely that the estate tax would return without further action down the road. That could put families subject to the estate tax who canceled their life insurance in a tight spot, as they may not be able to obtain new coverage – or may have to pay much more for it.

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Throw Back Thursday – A Simple Idea, No Crummey Letters

An Irrevocable Life Insurance Trust (ILIT) provides an estate with funds to help pay estate tax obligations. In most cases, spouses create an ILIT, designate a trustee and name their children as beneficiaries. The advantage of using life insurance to fund the trust is that if properly structured the death benefit can avoid estate taxes and income taxes.

A “Crummey”  ILIT takes its name from a famous tax case involving Reverend Crummey. See Crummey v. Commissioner.  The case set the ground work to make it possible to gift premiums to the trust without having to pay gift taxes. To pay the annual premiums on the policy, you can put in up to $14,000 per person for your family members.  Since you are essentially buying a policy that benefits your family, those premium payments would normally be considered gifts to your beneficiaries.  However, done properly, you pay no gift tax on those payments, and when you die the trust will receive the policy proceeds free of estate tax.

The big catch is administrative.  Technically, the trustee of the trust should send out “Crummey letters” each year informing beneficiaries they can withdraw the gifted amount during a specified window, perhaps 30 days.  Usually, the beneficiary leaves the money in the trust.  But the IRS considers it a tax-free gift only if the person has the right to take it in the short-term.  An annual Crummey letter proves it even if none of the kids follows up on it—as you generally hope they won’t.

The Crummey power idea—giving the beneficiary the right to withdraw money which you hope they will never exercise—can be added to various other trusts too.  However, the place most people fail is in bothering to send out the annual letters, and documenting that they did.  One recent Tax Court case, Estate of Turner v. Commissioner, didn’t spoil the deal over the failure to send letters, but you can’t count on the IRS agreeing with that result.  Get reliable professional help with such trusts, and make sure the duty to send out the annual letters is very clear so it doesn’t fall between the cracks.

So, with the complications of Crummey Letters, wouldn’t it be nice to find a simple way to implement an ILIT without the hassle of Crummey Letters? An ILIT using the Lifetime Gift Exemption may be the answer. Commonly referred to as the Simple ILIT this concept should be explored if any consideration regarding the annual gift exclusion could be an issue (like the kids won’t cooperate or there are not enough kids to fund the ILIT ) – a Simple ILIT with no Crummey Letters may make more sense.

A Simple ILIT uses the Lifetime Gift Exemption rather than the Annual Gift Exclusion.  With the current Lifetime Gift Tax Exemption at $5,250,000 – it makes sense in most cases to use the lifetime exemption to fund the ILIT rather than the annual Crummey Gifts. In the Simple ILIT as gifts are made to the trust – either one lump sum or on-going gifts – the person making the gift uses his lifetime exemption rather than the annual gift exclusion. This keeps it simple and offers some other advantages:

  • Children do not have to know and additional beneficiaries do not have to be sought
  • Because children’s spouses are not needed as beneficiaries, divorce complications are eliminated
  • Since children are not offered a present gift, the concept does not have to be re-sold every year that the gift is made
  • Since annual premiums are not required to take advantage of the annual gifting amounts, larger premiums can be put into the policy

Keep in mind, with this strategy an annual gift tax return (IRS Form 709) must be filed to inform the IRS that part of the lifetime exclusion is being used so gift tax is not triggered. Also, by using this strategy you also use up some of the unified credit exclusion for estate tax purposes so a full analysis must be done. But for many estates that need this type of planning this idea works very well and keeps it SIMPLE.

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Don’t Be Fooled


WARNING: Industry spin masters have been running misdirection plays putting agents, agencies and other IMOs out of position to do what they must to comply on June 9th. Why are they doing this? To control you and your future!

The fact is, the future is bright and does not include a new license. It does, however, require you make smart choices

Department of Labor Secretary Acosta confirmed on Monday that the fiduciary rule will begin phasing in June 9, requiring a higher standard of care for advice given on qualified retirement investments. The full requirements will go into effect on Jan. 1, 2018, barring further regulatory or legislative changes.

What this means for you

Starting June 9, those who give advice on investments in retirement accounts will be held to the Impartial Conduct Standards, which has three requirements:

  • Advice is in the best interest of the customer
  • Compensation is reasonable
  • Statements about investment transactions, compensation and conflicts of interest are not misleading

Between now and the end of the year, the current Prohibited Transaction Exemption (PTE) 84-24 can be used to sell all variable and fixed indexed annuities. While the full requirements of the Best Interest Contract Exemption (BICE) do not go into effect until Jan. 1, 2018, firms can decide between the two exemptions in the near-term.

At ISN we have the form you need to meet the PTE 84-24 Exemption. Most of the carriers we write with also have their own version of the form. Our version is generic and can be used if the carrier you are writing with does not have the form.

Between now and January 1, 2018, barring any regulatory changes, ISN will be working with our partners at IDA and with our other Synergy Partners to provide you the platform you need to be compliant with the new DOL rules. This includes new software for the point of sale, fiduciary back-up and BICE options that will be compliant with the new DOL Regs. Stay tuned for more information.

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