Plan Proactively. Protect Your Wealth & The Health of Your Business.

Transcription

1 Plan Proactively. Protect Your Wealth & The Health of Your Business. Karen Hofmann, CLU, ChFC, Director, Advanced Markets Group and National Partnership Program, The Prudential Insurance Company of America

2 Greetings Susan Diamond, Vice President of Chapter Chairs and Chief Learning Officer, WPO Special Thanks to

3 Thank You to Our Sponsors

4 Today s Presenter Karen Hofmann, CLU, ChFC, Director, Advanced Markets Group and National Partnership Program, The Prudential Insurance Company of America Karen Hofmann is a Director in the Advanced Markets Group for the Individual Life Division of Prudential. Karen also oversees Prudential s National Partnership Program. In her current position, Karen is responsible for speaking with clients and financial services professionals about ways to effectively accumulate, protect, and distribute wealth. 4

5 Plan Proactively. Protect Your Wealth & The Health of Your Business. Life Insurance Awareness Month PRESENTED BY: Karen P. Hofman, CLU, ChFC Director, Advanced Markets Group and National Partnership Program The Prudential Insurance Company of America Ed. 08/2015 Exp. 11/28/2015

6 The Main Purpose of Life Insurance Life insurance provides a death benefit for those who depend on you financially. 6

7 Think Differently: For You For you: Think differently about life insurance and planning for the future. 7

8 Think Differently: For You What are the odds? 7 in 10 people who are age 65 will face a chronic illness or disability later in life. 1 4 in 5 people who are chronically ill live in a private home. 2 80% of the care they receive is provided by family and friends. 3 1 U.S. Department of Health and Human Services. Who needs care? Accessed March 4, Profile of Older Americans: Administration on Aging (AoA), Administration for Community Living, U.S. Department of Health and Human Services. 3 Pokorski R and Berg BW. Overview of Recent Research on Longevity Risks in Retirement and Some Practice Considerations for Life Insurance Planning. Journal of Financial Service Professionals. September, 2014, Vol. 68, Issue 5, p 88. 8

9 Think Differently: For You By ages 70 to 74, 1 in 3 women have a serious disability, versus 1 in 4 men. 1 Women are more likely than men to need chronic illness protection. 2 1 U.S. Department of Health and Human Services. Who will provide your care? Accessed February 12, Pokorski R and Berg BW. Overview of Recent Research on Longevity Risks in Retirement and Some Practice Considerations for Life Insurance Planning. Journal of Financial Service Professionals. September, 2014, Vol. 68, Issue 5, p 88. 9

10 Think Differently: For You Some options to help pay for prepare for the future.» Savings» Family members» Pre-paid care at a long-term care facility» Medicare/Medicaid (Medi-Cal in California)» Long-term care insurance» Life insurance with an accelerated death benefit rider Medicare will cover medically necessary home health visits by skilled medical workers, e.g. occupational or speech therapists. However, Medicare does not cover custodial care (non-medical) and typically the chronically ill individual must be showing improvement, or demonstrating that the care is rehabilitative. To qualify for Medicaid, an individual must have limited income and few assets. Medicaid eligibility rules are complicated, and different states apply different rules. If an individual qualifies, Medicaid will pay for both skilled and custodial care, but in most cases it is limited to care in a nursing home when beds are available. 10

11 Think Differently: For You Some life insurance policies offer benefits you can use while living. 1 1 Accelerated death benefit payments may be taxable. Consult with your tax advisor before making any decisions. 11

12 Think Differently: For You Consider a chronic illness rider that:» Lets you accelerate the death benefit and use the money when you re alive. 1» Has no restrictions and no waiting period.» Use the money for anything you d like. NOTE: Taking chronic illness benefits will reduce and may eliminate the death benefit. 1 Accelerated death benefit payments may be taxable. Consult with your tax advisor before making any decisions. 12

13 Think Differently: For Your Business For your business:» Think differently about life insurance.» Key Person Arrangement» Buy Sell Arrangement 13

14 Think Differently: Key Person Arrangement Key People:» Business owners.» Top managers.» Corporate controller or accountant.» Future owners.» Highly compensated employees» Successful sales people.» Department directors.» Technical employees with special knowledge.» Researchers and innovators.» Corporate officers. 14

15 Think Differently: Key Person Arrangement Lost Key Person Impact:» Management or operational disruption.» Loss of customers.» Loss of sales.» Loss of revenue.» Impairment of credit.» Weakened employee morale.» Loss of confidence.» Hampered product development or innovation. 15

16 Think Differently: Key Person Arrangement Determine:» The cost to replace the person.» How to finance the replacement. Finance the replacement of a key person with life insurance. 16

17 Think Differently: Key Person Arrangement The death benefit provided by a life insurance policy can help:» Keep the business running smoothly.» Replace lost revenue attributable to the key employee.» Recruit, train, and retain a qualified replacement.» Protect the business credit position and secure loans for expansion. 17

18 Think Differently: Buy-Sell Arrangement Without proper planning, death, disability, or retirement can create chaos for all parties involved. Buy-Sell Arrangement» Help ensure the business continues.» Help eliminate difficulties and uncertainties for heirs and remaining owners. Create in collaboration with your tax, legal, and financial advisors. 18

19 Think Differently: Buy-Sell Arrangement Life Insurance as a Solution:» Helps provide needed funds at death.» Can be a cost-effective way to purchase the business. 1» Cash value life insurance accumulates income taxdeferred and can be accessed through loans and/or withdrawals to fund the down payment of lifetime buyouts. 2 1 For employer-owned life insurance policies issued after August 17, 2006, IRC 101(j) provides that death proceeds will be subject to income tax; however, where specific employee notice and consent requirements are met and certain safe harbor exceptions apply, death proceeds can be received income tax-free. Life insurance proceeds are otherwise generally income tax-free under IRC 101(a). 2 Outstanding loans and withdrawals will reduce policy cash values and the death benefit and may have tax consequences. 19

20 Think Differently: Buy-Sell Arrangement A Buy-Sell Arrangement Benefits a Business By:» Enabling the execution of a smooth transition in the control of ownership.» Preventing unwanted parties from acquiring ownership interest.» Providing an independent mechanism for determining a pricing formula.» Helping to avoid transfers that could have negative impacts. 20

21 Think Differently: Buy-Sell Arrangement A Buy-Sell Arrangement Benefits a Deceased Owner s Estate and Heirs By:» Creating a market for the deceased s owner s interest.» Establishing the value of the interest for federal estate tax purposes.» Providing for increased efficiency in the administration of the owner s estate.» Relieving heirs of the estate from the affairs of the business.» Ensuring the estate receives cash for estate liquidity, survivors income, or other family needs.» Avoiding negotiations over the price and terms when the estate may be in a weak bargaining position. 21

22 Think Differently: Buy-Sell Arrangement A Buy-Sell Arrangement Benefits Surviving Owners By:» Helping to prevent disputes between heirs of the deceased owners.» Avoiding a moral dilemma that could arise from negotiation with the spouse and children of a deceased owner. 22

23 Think Differently: For You. For Your Business. Chronic Illness Rider Key Person Arrangement Buy-Sell Arrangement 23

24 Think Differently: For You. For Your Business. Assess where you are now and where you want to be. Then work with a team that includes your tax, legal, and financial advisors to help ensure that you re on track to meet your personal and business financial goals. 24

25 Important information Life insurance is issued by The Prudential Insurance Company of America, Newark, NJ and its affiliates. All are Prudential Financial companies and each is solely responsible for their own financial condition and contractual obligation. Life insurance policies contain exclusions, limitations, reductions in benefits and terms for keeping them in force. A financial professional can provide you with costs and complete details. Prudential, the Prudential logo and the Rock symbol are service marks of Prudential Financial, Inc. and its related entities Prudential Financial, Inc. and its related entities.

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