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Tag: Life Insurance

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.

Why your top Sales Executives deserve a raise

DHill Financial, Sales Executive, Insurance, Key Man, Trust, Split DollarLike any business that continues to succeed and flourish, it starts with a great idea, but that great idea goes nowhere without the ability to sell the idea to others.

Businesses recognize the key role their top sales professionals play in the overall success of the company, and elite sales professionals are often among the highest compensated employees at a company.

But is that enough, and even more important, how can you protect those assets?

Here are three questions to ask yourself to determine if changes are in order:

1. What is the Sales Executives worth to the company?

Taking the emotion out of the answer; if you were to transfer the risk of losing the sales professional to an insurance company, how much insurance would the company be willing to offer?

Do you know how much protection a company would be willing to provide in the event of a disability which took a sales executive out of production or an unexpected death?  Having properly assessed the economic value to the business will allow an organization to continue to succeed and flourish even during unpredictable events.

Key-Man protection can replace these economic losses to the business.  Insurance companies will typically offer up to 10 times salary for Key-Man protection. Take the sales professional who brings in $20 million of business to a company and is earning $300,000 a year; the employer may be limited to a key man policy that replaces $3 million (or 15%) of that revenue should something happen to the sales professional.

2. Does the Sales Executive feel valued and appreciated?

Many top sales professionals have lucrative sales incentive plans to help drive the type of sales behavior desired by upper management. Many of the same traits which make sales people successful in business also make them tougher to manage as employees; focus, drive, ego all play some role.

Employees like to feel valued, and especially those employees who use ego effectively to help reinforce the drive to succeed.  What message does it send to your top sales professional when you identify they are an important enough asset of the company to warrant additional attention… and protection?

Adding key man protection on the life of the Sales Executive in the event of a disability or a death sends a message that they are a key part of the success of the organization.  While firms work to avoid over-dependence, they also run the risk of not demonstrating how much the Sales Executive means to the company.

BEWARE, if you decide to buy Key Man on your top people, but not for your top people, that also sends a message.

3. Does the incentive package entice the Sales Executive to stay with the firm?

With fluctuating income, Sales Executives often find it hard to budget, plan, and execute sound financial plans. Employers can protect the value of their business, show the Sales Executive they are valued, and create an incentive plan to keep them happy through a split-dollar life insurance arrangement.

An employer can purchase a cash value life insurance policy for the sales executive where the employer retains some interest for Key Man purposes, helps the Sales Executive to defer some of their income, and provides them an incentive to stay with the firm.  Plans can be tailored around reaching Key Performance Indicators with a goal to have the Sales Executive reach a milestone to own the policy outright.

Contributions made by the employer to the plan on behalf of the Sales Executive are typically tax deductible making this an attractive tool to use as part of an overall compensation package.  This approach aligns the interest of the employer and the sales executive, creates an environment for long-term growth, and paves a strong path towards financial success.

 

David Hillelsohn, President DHill Financial, LLC an independent insurance professional.  David can be reached at 571.215.0361 with questions.  This is not meant to be tax advice, please consult a tax professional.

Life Insurance Considerations for Lenders

Trends in the Insurance Industry: Considerations for Lenders

Life Insurance Consideration for Commercial Lenders

For someone entrenched in the business valuation experience, there is nothing more satisfying then someone who spends time prioritizing what is needed to finance a successful project. Taking time to properly assess the value of a project not only reduces the cost to the borrower, but it can positively impact some of the ancillary expenses related to the project.

One of those ancillary expenses we often see associated with larger transactions is the purchase of life insurance which can be used to protect the interests of the lender and all parties connected to the borrower and other key members of the transaction.

Life insurance as a requirement of a loan agreement, however, can be an impediment to closing more business, and thus commercial lenders should keep these important tips in mind when broaching the subject of life insurance with existing and potential clients.

Life Insurance Tips for Commercial Lenders

Read the complete article in New England Banking here .

DHill Financial, LLC is an independent insurance agency focused exclusively in protection solutions for businesses and the people they support.  The core mission is to provide current and relevant insurance counseling in an environment which fosters comfort and confidence for all parties.  Licensed for life insurance and health solutions around the country, the agencies success is built on listening to the needs of our clients, and then reviewing the available options in the market with unbiased analysis.  It is our independent thinking and our unwavering commitment to only offer insurance solutions when appropriate that our client’s sense immediately.  Trust, Knowledge, Caring… Come feel the difference.  www.dhillfinancial.com

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