What four aspects make up earning power?
Your Income
Spouse’s Income
Investment Income
Other Income
What is the SS survivor benefit that your family receives based upon?
You earnings history at the time of your death and is limited to a maximum family benefit.
When can your surviving spouse receive benefits at any age?
If they take care of your child who is receiving SS benefits and is younger than age 16 or disabled.
Besides a spouse, who else can receive your SS survivor benefits? When can they get benefits at any age?
- Your unmarried children who are younger than age 18 (or up to age 19 if they are attending elementary or secondary school full time) also can receive benefits.
- Your children can get benefits at any age if they were disabled before age 22 and remain disabled.
When would a surviving spouse be able to received full benefits?
At full retirement age.
What is the full retirement age?
For people born in 1945-1956 - 66
For people born in 1962 or later it will gradually increase to age 67.
When can reduced widow or widower benefits be received? What if the surviving spouse is disabled?
- As early as age 60.
- Disabled survivors can claim benefits as early as age 50.
What is the blackout period?
The period from which the surviving spouse stops receiving children’s survivor benefits (child(ren)’s age 18) and the time the surviving spouse starts receiving Social Security benefits (age 67).
What is FREEDS?
The cash needs that must be considered when doing life insurance capital needs analysis.
- Final Expenses
- Readjustment Fund - a month or more of survivors income
- Emergency Fund - 6 to 12 months of household operating costs
- Education Fund
- Debt - All loans, mortgage, credit cards, etc.
- Special Needs or Bequest.
At your death, what can life insurance proceeds be used to do? 4
- Pay the cash needs that arise at death
- Maintain your family’s income and standard of living
- Help finance a child’s education
- Make your financial goals for your family a reality.
What benefits can your life insurance cash values provide during your life? 4
- A source of funds for emergencies or financial opportunities.
- Assistance in financing a child’s education
- A supplement to other sources of retirement income
- Tax-deferred asset growth.
What will withdrawals and loans of a life insurance policy’s cash value do?
Reduce the policy’s death benefit and cash value available for use.
What are the three things that need to be analyzed to determine what a survivor will need?
- Identify cash needs that will arise at death
- Analyze income needs and sources at death
- Determine additional capital required to provide for cash and unmet income needs at death.
What are the three steps to implement a life insurance plan?
- Select type and amount of life insurance coverage
- Establish insurability
- Arrange for payment of premiums.
What are the three categories of differences found in cash value life insurance?
- Fixed or Flexible Premiums
- Responsibility for investment decisions
- Benefit guarantees or benefits based on actual investment
Generally, what is the tax consequences of premiums paid on life insurance?
They are not tax deductible (and therefore, if returned in a return of premium term insurance, come back tax free because you were already taxed on that amount)
When does the cash value in life insurance become taxable?
When surrendered. The taxable portion is the difference of the amount surrendered and the the total amount of premiums paid.
When surrendering a life insurance policy and taking a lump sum, what is generally included in the lump sum?
- Cash Value
- Any dividend accumulations
- The cash value of any paid-up additions
- Termination dividend
- Any unrepaid policy loans
- Any tax free withdrawals previously received.
In order to qualify for tax-favored status as life insurance contract, the product must meet 2 tests:
- Cash Value Accumulation Test
- Guideline Premium Test (Cash-value corridor)
What happens if a life insurance product fails to meet either the CVAT or GPT?
It is no longer tax-favored and is taxed as an investment.
What is the CVAT?
- Cash Value Accumulation Test
- Maintains a net single premium relationship between the cash value and death benefit.
What is GPT?
- Guideline Premium Test (cash value corridor)
- Defines limits (Single or Level Premium) on premiums paid based on the death benefit. Payments in excess of these limits are prohibited.-
When do you want to use CVAT?
-When your client doesn’t want any limitations on the amount of premium that can be paid into the policy.
(There are still limits to avoid becoming MEC.)
-Client prefers to maximize policy distributions (death benefits).
When do you want to use GPT?
- When your client is more interested in lifetime cash accumulation.
- Client wants to pay maximum annual premiums for 10 years or longer.
