DHill Financial

Trusted Insurance Adviser since 1990

Category: Insurance

3 Steps to Turn a Great Year into a Succession Plan

Succession Planning with Cash and Life Insurance

Companies that quickly adapt to a changing landscape are continuing to see growth. The current business environment, where technical expertise continues to be an asset, requires the marriage of technology and the strategic use of capital to sustain long term growth success.

Advisers for many business owners continue to stress that the best time to sell a business is when business is good.  After a good year, our tendency is to pay out the success to ourselves and our key people which is well deserved, but if the goal is to build a business to sell we need a strategy to build wealth within the business.

Here are three -steps to consider if you want to leverage a good year into the succession plan you are really dreaming about:

  1. Pay a Bonus – As the founder of Mustang Sally’s Brewing Sean Hunt once told me, “cash is king”. Sean was a corporate attorney in mergers and acquisitions before opening the brewery in Chantilly, VA, and he saw how important it was to take care of key people. Deferred benefits (e.g., defined benefits plans, options, restricted stock) are terrific long-term incentives for key employees.  When a company’s financial performance justifies and enables it and a thoughtful bonus structure is established, though, few things are more effective at demonstrating to key employees that the company values their continued contributions to its success than cash.
  2. Build Reserves – Business Attorney Gosia Bochenek of Cochran Allan wrote in her December 2018 newsletter about the elimination of the Alternative Minimum Tax on Corporate Owned Life Insurance and how life insurance is the preferred model to fund a buy-sell agreement to assure business continuity by providing remaining owners with cash to purchase a deceased owner’s interest.  Buyout upon death  can be funded with both term life insurance and cash value life insurance, but cash value life insurance can also be part of a buy-out at retirement.  While term life insurance can fund the buy-sell (or key man for sole owner), cash value life insurance allows the company to build cash reserves which can be used to fund part of the buy-out for the owner(s).  Life Insurance cash value looks great as an asset on the balance sheet, you have created momentum towards a business succession, and if something happens before you can sell the company, you know your beneficiaries will be taken care with funding for your buy-sell agreement.
  3. Golden-Handcuff Key People – cash once given doesn’t have the same impact in keeping people on board as cash promised. While phantom stock and synthetic stock may play a role in tying key people to the goals of the company, Dan Doran of Quantive valuation shared that most often the way to get cashed out of these vehicles is by selling the company (and understanding your company valuation).  Term Life Insurance is often used to cover the loss of income or expenses that can result when a key person in the business dies.

Using cash value life insurance would allow a company to build cash to retain the key person.  A common approach in which control is required, the company purchases the policy and owns it for 5 years while the life insurance policy builds cash, they assign the allowable death benefit to the key person during that time, then bonus the policy to the key person after 5 years, and if the key person remains for a few more years, the policy is paid in full for life.

If the desire is to provide cash to assist the company or a key-person in funding the succession plan, now you can see a path to allow that to happen.  It all starts with a valuation to understand what you need, and from there you can better understand where cash, stock, and cash value life insurance can work together to allow your dream to become reality.

David Hillelsohn founded DHill Financial, LLC works with businesses and individuals to prioritize meeting responsibilities and using that as their foundation from which to build.  David is an independent insurance broker licensed in the majority states around the country, and he can be reached at 703.435.6028 or by email at david@dhillfinancial.com.  This article is not meant to be tax advice, please consult a tax professional for details.

Health Insurance Tips for 2019

Health Insurance

Health Insurance Tips for 2019

  1. Rates are stabilizing – For the first time in a long time; rates for some plans have started to come down for 2019. The rate reductions have been less than 5%, but that still bucks a trend of annual increases to health insurance pricing, and with inflation factored in, this becomes even more significant.  The change in favorable pricing has been seen in plans with moderate to lower deductibles with slightly higher maximum out-of-pocket limits.  This suggests a positive trend with access to benefits, and some form of cost sharing from the subscriber.
  2. Check for network variations – verification that preferred medical providers are covered is a primary goal when shopping for health insurance, but with the expansion of networks from many carriers, you may find savings by selecting a local or specialized network – and the savings may be more than just short term savings. Many carriers have developed Enhanced Provider Networks of doctors, clinics, and hospitals that follow are prescribed form of service delivery, and they incent services from participating providers with lower co-pays.  If you don’t have preferred doctors, then selecting a local network vs national network may provide you with instant savings!
  3. Employers have more options – there were many changes in 2018 to allow greater access to health insurance. Here are just a few of the highlights:
    1. Sole-Practioners can now consider group health insurance without a W-2; some carriers will require a solely owned LLC/Corporation, others will allow a Schedule C as proof of business activity
    2. 1099 employees can now be considered for employer sponsored health insurance; certain limitations may apply
    3. Participation Requirements and Contributory Requirements are waived for employer sponsored health insurance during Open Enrollment (November 15 through December 15)

Take the stress out of shopping for health insurance, and talk to someone local who you can trust.  Plan options are REGIONAL and can vary zip code to zip code which is why you want to talk to a LOCAL agent.

We want to be your guide as you evaluate the health insurance plans available to you for 2019!

Let’s set a course together for healthy living.  Current plans allow preventative services with no co-pay, have no pre-existing condition limitations, and no coverage limits for benefits!

Call for a quote today or email for a cost estimate … our counselors are standing by at (703) 435-6028!

3 Financial Planner Approaches Regarding Permanent Life Insurance

Achieving Financial Security with Cash Value Life Insurance

I partner with a number of financial planners, and the planners with whom I have the best connection, typically have a balanced approach regarding insurance.

Here are what three financial planners have shared about their experience with permanent life insurance.

Which approach is the best fit for you?!?

Financial Planner 1: owns a permanent life insurance policy from their first job in financial planning. They maintain the policy and talk about non-qualified retirement savings vehicles like permanent life insurance with new clients as part of a diversified portfolio.

Financial Planner 2: owns a fully funded (maximum tax benefit) permanent life insurance policy; they borrowed against the cash value to buy their first private company, repaid the loan, then years later borrowed against the cash value again to buy a vacation home. Today they recommend mostly term life insurance to clients.

Financial Planner 3: doesn’t recommend a traditional, permanent life insurance policy to clients; however the planner is pleased when they see a new client has an existing permanent life policy sold previously by another adviser. If the policy has done what it was intended, it built cash value; they want to exchange this existing policy for a new paid up permanent life insurance policy with long term care benefits.

The new policy will have a higher cost of insurance since the client is older, and the policy no longer meets the potential client objective of creating additional non-taxable retirement income.  The new plan would, however, include long term care benefits, and the tax-free life insurance exchange could allow an efficient way to gain access to a highly appreciated asset.

Still, the benefit was in having properly funded a permanent life insurance policy in the building years – ages 35 to 50.

All three of these financial planners hope you have a permanent life insurance plan in your portfolio; the question is whether you’re talking to a life insurance agent who can help design the right plan with you.

 

 

David Hillelsohn founded DHill Financial, LLC with the mission of enhancing the cohesion among families and businesses by prioritizing meeting obligations and taking steps to ensure people know you care.  David is an independent insurance agent licensed in the majority states around the country, and he can be reached at 703.435.6028 or by email at david@dhillfinancial.com.  This article is not meant to be tax advice, please consult a tax professional for details.

4 Benefits Blunders by 1 National Payroll Co.

4 Benefit Blunders by 1 National Payroll CoMost business owners started their businesses to address market needs, serve the community, possibly to create generational wealth.  I haven’t met one business owner yet who told me they started the business because they like compliance and administration.

It’s more common that they might view these areas as a barrier to entry, or at least to company growth.  Companies know that in order to grow, they’re going to need good people which only amplifies the administrative responsibilities of the business.

So, it’s no wonder that when companies start adding people, that they look for efficiencies and expanded sophistication in payroll and benefits.  Having a strong payroll system to support process and compliance is critical as a company grows, and payroll companies have deep expertise in this area.

A dedicated and visible health insurance broker can enhance the employee value proposition by making sure the employees feel connected to their benefits.  On site meetings, one to one consultations, and visibility during open enrollment help employees to feel valued.

While marketing experts stress specialization, there has been a move for payroll companies to offer insurance benefits as an additional service.  Here are four blunders I’ve witnessed from one national payroll vendor from the least egregious to just unacceptable.

  1. Mismatched Benefit Plans – the benefit plans should match the financial needs and culture goals of the company, the type of employee they are targeting, and the experience they want to provide the employee. If you want a Platinum health insurance plan, make sure you pay 100% of the premium for the employee and rich vision and dental benefits.  The vision and dental does not add much cost, but keeps the program consistent in terms of quality.  Gold and Silver plans also have a place for employees responsible for dependent costs.
  2. COBRA / Continuation of Benefit – Departed employees who wish to continue coverage pay the premium to the employer, and the employer submits the premium to the insurance carrier. When using a payroll company, the premium may get paid to the payroll company.  In one case, a terminated employee found a new job with benefits, the payroll company didn’t collect premium from the employee once new coverage was secured but continued to bill and pay the premium on behalf of the employer.  When the employer submits premium directly to the insurance carrier, they can see if the money has been collected.
  3. Failure to Terminate Coverage – Not terminating employees in a timely fashion can create administrative and compliance problems and the responsibility remains with the employer. Having direct access to an online system either at the insurance carrier level, or preferably through a Third Party Administrator who handles insurance benefit administration, ensures there is a process in place with checks and balances.
  4. Letting Coverage Lapse – If the employer is not sending in the premium payments, how do they know if coverage goes unpaid? While it seems unlikely that this would occur, this happened with a new client as of January 1 who found that one of the plans had lapsed for non-payment some time the previous year.

In fact, all four of these issues came up with the same client last year, a key reason they needed to make a change.  So why change to an insurance broker for benefits management instead of a payroll company?

This business owner wanted a vendor partner who is attentive to their business, cares about their people, understands their value proposition, and find ways to work towards that mission.  If you don’t feel like your benefits broker understands your mission, consider making a change and see how powerful it could be if they did.

David Hillelsohn founded DHill Financial, LLC with the mission of enhancing the cohesion among families and businesses by prioritizing meeting obligations and taking steps to ensure people know you care.  His vision is for people to want to do for others thereby doing for themselves.  David is an independent agent licensed in the majority states around the country, and he can be reached at 703.435.6028 or by email at david@dhillfinancial.com.

3 Tax Act Changes Impacting Corporate Owned Life Insurance… for the Better

Corporate Owned Life Insurance Tax Act 2018

While taxpayers continue to evaluate the impact of the new Tax Act on their pocketbook, one thing has become clear; the tax bill supports the life insurance industry.  Cash value accumulation remained a tax-deferred growth vehicle, loans against cash value continue tax-free within policy limits, and income tax free death benefits reserved for the individual market now has similar advantages in the corporate market.

Here are 3 tax law changes impacting the corporate owned life insurance market which every business should know:

  1. Reduction in the Corporate Tax Rate: The reduction of the corporate tax rate to 21% for C-Corporations fundamentally changes the approach to purchasing life insurance for owners and for businesses looking to reward key employees. With the potentially higher personal tax brackets, there is a distinct advantage to having life insurance policies owned by the corporation.  One advantage is using the lower tax bracket to purchase the policy; the second advantage is realized when the employer pays out a retirement income to the key employee.  As example, if the agreement is to pay the key employee $50,000/year for 10 years at retirement age, the after tax to the employee at the 37% rate would be $31,500 and it would take $39,873 of cash value from a corporate owned life insurance policy to generate that amount at the 21% tax rate.
  2. Elimination of Corporate Alternative Minimum Tax: A permanent change in the tax code, this eliminates the additional tax levied to corporations owning life insurance on key employees and owners/shareholders. Previously, any death benefit proceeds above cost basis would have been included in the corporate AMT which could lower the net proceeds from life insurance to the company of up to 20%.  This allows the employer to fulfill their retirement income obligations to the key employee, and retain the policy as an asset on the balance sheet with no corresponding liability.  Corporate owned life insurance can also be of value to a business as collateral when seeking additional financing.
  3. Tax Savings for 2018: Life insurance is an attractive vehicle for cash accumulation within a corporation as the cash values remain accessible for liquidity to the business and the funds can avoid the additional tax associated with retained earnings when structured properly to meet normal business needs (like key person coverage). Using the 2018 tax savings to purchase corporate owned life insurance allows the business to build cash reserves as working capital, a rainy day fund, or for succession planning to assist with ownership transfer.  Companies which spend time preparing for ownership transition are typically the most successful at making the change, and having assets available to assist with the buy-out makes the company attractive to the next generation of ownership.

Life Insurance can be an effective tool for cash accumulation and wealth transfer, and the new tax law changes make corporate owned life insurance even more attractive.  Corporate owned life insurance requires notice and consent from the insured and annual tax reporting; make sure to work with an experienced insurance professional who can design a plan that’s right for your organization.

David Hillelsohn founded DHill Financial, LLC with the mission of enhancing the cohesion among families and businesses by prioritizing meeting obligations and taking steps to ensure people know you care.  His vision is for people to want to do for others thereby doing for themselves.  David is an independent agent licensed in the majority states around the country, and he can be reached at 703.435.6028 or by email at david@dhillfinancial.com.  This article is not meant to be tax advice, please consult a tax professional for details.

4 Reasons PEOs are Killing Health Insurance

DHill Financial, PEO, Health Insurance, Local Broker

Anthem Blue Cross Blue Shield  announced their departure from the individual health insurance marketplace in most major county areas in Virginia at the start of 2018.  Concern is growing about the state of the health insurance marketplace, and what the changes mean for affordable healthcare to consumers across the nation.

Increasing health insurance premiums and rising plan co-pays are just part of the issue. More and more people will find local and regional insurance agents reluctant to provide needed guidance and service to families looking for individual health insurance.

Anthem has maintained their plan to stay in the small group employer marketplace.  However, Anthem and other regional insurance providers face competitive pressures from a new type of buying consortium, some of which provide small employers access to carriers and benefits historically restricted to larger employers (500 employees and above).

These consortium’s, called Professional Employer Organizations (PEOs) are often payroll service companies who have developed ways to provide additional services to the small employer clients.  Through the PEO platform, small employers (down to just a few employees) can also access HR consulting and business consulting, providing non regulated services and in core areas of need for small business owners.

The insurance products offered through a PEO range from workers compensation to more complex commercial needs, health insurance, 401(k), and other core employee benefits.  These products, however, require additional licensing by the provider instances of companies selling health insurance to clients without the proper licensing have already been reported.  This has resulted in failure to meet compliance standards as part of their service offering.

However, there are PEO firms in the marketplace like BBSI, who partner with licensed local health insurance brokers as a way to leverage not only their relationships, but also their understanding of the local healthcare marketplace.  Thus they can provide a more tailored, compliant, and effective solution to better meet the specific needs of individual small businesses.

Here are 4 reasons I believe that some PEOs are not helpful for the survival of the health insurance industry.

  1. Larger employers are more similar to one another than small employers – when buying insurance on a group basis, one of the first items the insurance company will request is the SIC code or Standard Industrial Classification. This is requested because the insurance companies can predict with reasonable certainty how different industries will perform from a risk and experience standpoint.  That predictability is lost with the blended group, and thus businesses in certain industries with better claims experience are going to be financially supporting other industries with higher claims rates.
  2. Smaller employers need dedicated attention – looking at the federal health insurance exchange, there is a reason that experienced insurance agents are still needed to assist participants with enrolling in the plans.  A licensed agent who knows the local networks and trends in the marketplace, along with legal requirements, can properly match the types of plans available to the specific needs of the employer. In a competitive staffing marketplace, health insurance and employee benefits need to be tailored to the employer’s goal for offering the benefit.  The right benefits package can enhance the culture they want to nurture within their organization.
  3. Owners/Employers value local relationships – when is the last time the health representative from your PEO sent you a client referral, or found innovative ways to remind you that your business is a priority? Employers often depend on a local network to help build their business.  Once established, the business has the opportunity to invest in the relationships knowing there is a long-term value in the trust and knowledge built over time.  Health insurance brokers offer the same value to clients, providing an opportunity for business owners to build a long-term relationship with someone who keeps tabs on what is going on in their business. Better yet, the best insurance brokers look for ways to help grow their business on a local level, and offer a single point of contact if issues arise reducing the overall cost of business.
  4. The PEO model is a poor business match for long term success – business owners want to build a practice that is stable and predictable with little employee turnover thereby reducing costs over time. Many of the national payroll/PEO firms offering health insurance hire talent just out of college with little industry experience, and no track record of problem resolution – a key need for small employers who will encounter turbulence in their business. Further, the structure does not lend itself to long-term relationships  if the sales representative on whom the employer decided to make the initial purchase (of services) moves on to the next opportunity.

As a business owner, you want your business to be recognized as the gold standard.  If you don’t feel like you’re number one with your health insurance broker, or PEO, perhaps it is time to evaluate other options that can provide better, more tailored services to you and your employees.

David Hillelsohn is an insurance broker who prioritizes building long term relationships with clients that is built upon trust, knowledge, and compassion.  David is the president of DHill Financial, LLC which specializes in health insurance and life insurance and he can be reached at 703/435-6028 or david@dhillfinancial.com. Contact David with questions.

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