Selling Life Insurance...

[Mr. Bill]

The deductibility of the loan is simply "icing on the cake". No escrow company is going to write a check to to life insurance company to fund a policy. Dougie has written a 2pager on that section. Am I missing something here?

 

[bobson]

The deductibility of the loan is simply "icing on the cake". No escrow company is going to write a check to to life insurance company to fund a policy. Dougie has written a 2pager on that section. Am I missing something here?

I'm not sure where Dougie went to law school but it appears to me it wasn't a very good school.

Also in the dictionary there is a definition of the word "fuzzy math." You'll never guess what book is pictured.

 

[Mr. Bill]

Are we a Roccy fan???

 

[Tx249]

Before falling in love with Missed Fortune, find someone that knows a thing or two about it, especially Title 26, Section 264(a)3.

I haven't read it yet, but if there is something you think I should pay attention to, please fill me in. I try to read six or eight books a year on sales or insurance just for the education content. Anything you can add is appreciated.

 

[Tx249]

Before falling in love with Missed Fortune, find someone that knows a thing or two about it, especially Title 26, Section 264(a)3.

I received the book today, unfortunately it is over 500 pages long and I didn't see anything in the table of contents about Title 26, section 264(a)3. So, I'm guessing you are talking about The US Code Title 26 The Internal Revenue Code.

Maybe you can enlighten me, because I'm guessing by the time I read 500 pages in this book I will have completely forgotten your statement.

Another thought, I would be willing to venture that out of 500 pages of reading there may be several concepts that I personally do not agree with. If I could find maybe six or eight good points in the book that I agree with and can use, it will most likely be worth the time to read.

In fact there are probably a few sections in Title 26 that I don't agree with and that don't apply to me! I also believe the IRS knows that, since we are not strangers.

 

[Guest]

Regarding the tax code:

LOOK OUT FOR THE CODE

There are two tax code sections you must know in order to give advice to clients on this concept. They are Title 26, Sections 163 and 264(a).

Section 163 limits the deduction on Home Equity Debt (HED) at $100,000 of new debt up to the fair market value of the home. Therefore, if a client borrows $150,000 of equity from his/her home, interest on only $100,000 of debt is deductible on a personal tax return. If that's true, then why is the answer no to the previous question where the client only removed $75,000 in equity? Because the client is not allowed to deduct it under Section 264(a)3.

That section states that the interest on HED is not deductible if the borrowed funds are used to "purchase or carry a life insurance, endowment, or annuity contract (other than a single premium contract or a contract treated as a single premium contract) pursuant to a plan of purchase which contemplates the systematic direct or indirect borrowing of part or all of the increases in the cash value of such contract (either from the insurer or otherwise)."

What the above paragraph means is that if a client removes equity from a home (refinance or equity loan) and repositions the money directly into a cash value life insurance policy with contemplation of borrowing (classic Equity Harvesting), the interest on the HED is not deductible. There are some narrow exceptions to 264(a)3 that are not discussed due to space issue here.


Home Acquisition Debt (HAD), on the other hand, is quite different. HAD is deductible up to $1,000,000 of new debt if married and $500,000 if single (also limited by the traditional phase out deductions). Therefore, if a client has a $1,000,000 home with no debt, sells it, takes profits, and buys a new home with $1,000,000 of new debt, the interest on the new home loan is fully deductible.

If Mr. Smith had purchased a new home, removed $75,600 in equity from the sale of his old home and allocated $15,300 of that money each year to a cash building policy, then he could write off the interest on the loan. So then, how much better does Equity Harvesting work if he could write off the interest?

Mr. Smith is in the 25 percent Federal income tax bracket. If he lives in a state with a 5 percent state income tax, his combined tax rate is 30 percent. In the example, I had Smith invest $5,737 a year (the interest expense) into a brokerage account to compare doing nothing to Equity Harvesting. Now, because he can write off the interest in the 30 percent tax bracket, the actual out of pocket cost to borrow the money is $5,737 x 70 percent = $4,015.90.

If he invested $4,105.90 each year in the stock market using the same assumptions as earlier, he could take out $14,319 after tax from his brokerage account from ages 66-90. You'll recall that from his Equity Harvesting life insurance policy, he could remove $23,000 a year after tax each year or $8,681 more per year after tax. This is the power of Equity Harvesting and why it is so easy to sell it to a client if you can write off the interest.


Source: WebCPA - Print - Reaping the Benefits of Equity Harvesting

 

[schealthagent]

I have been reading this thread and am finding it very interesting. Like many new agents i have only sold term to this point - because it is cheap and easy to do an honest comparison for my clients. I am one of those guys that gets hung up on making sure they get the best value. Doing this with wl seems like it would be a lot more confusing because of all the variables.

This weekend a friend who has done very well for himself approached me about life insurance for preserving his estate. I am sure that this will be a lot more complicated than just selling him a term policy. My first reaction was for him to contact his attorney regarding setting up an ILIT. Does anyone have a questionnaire that they would share with the rest of us to help determine what is best? I am guessing that his current net worth is between 7 and 10,000,000. Thank you very much for any help you can give - and no I am not opposed to letting someone else help for a split but I dont know who to trust and I think that with all of the knowledge and experience here I can get him the right plan.

 

[SayBob]

Great info....I'm still checking things out but in my present field when I am digging for info( to qualify) I use the following process

1.Conditions= the current financial state of the person or their business. finding the gaps between where they are and where they want to be.

2.Commonalities- any qualities,goals,vision,characteristics that I or the company(s) I represent share with the client

3.Competition- find out all the options my client is considering

4.Leader- Who they are leaning towards right now if anyone

5. Criteria(p/P/S) how they value or will be making their decision in light of product, price, &support. I explore how they make business decisions.

6.benchmark- the standards by which all companies will be judged- what is important to the client

7.Time frames- find out what their take is in when they want to to buy---This will include dates and any proofs they are looking for.

I have found the more information I can uncover and know the better I can present a solution to meet my clients needs.

I believe this can be used in this industry as well.....

I look forward to tweaking it all the steps above have questions to uncover specific pain points and to find out if I actually have a product that will meet my clients need.