Your Financial Life May Reach a Challenging Dilemma

Increase the death proceeds to your beneficiaries while spreading the tax impact on your qualified or tax-deferred holdings. Enjoy the security of access to funds in the event of a chronic illness. Earn index-linked returns while protecting your values from declining markets.

Sooner or later, your financial life may reach a challenging dilemma: to position your assets for a smooth transition to your beneficiaries, or to maintain access in case of certain health conditions during your lifetime.

WealthPay Life not only helps with either scenario, but provides the opportunity for a larger gift passed on to your beneficiaries.

Life insurance serves to protect your family from financial hardship in the event of your untimely death. More than simply death protection, WealthPay Life provides protection on a variety of levels.

  • You protect your family with a death benefit greater than your premium payment.
  • You may have access to the death benefit amount if the insured is diagnosed with a terminal or chronic illness.
  • You may achieve policy-value growth through index credits linked to the growth of a market index –with downside protection when the index values fall.

WealthPay Life, from EquiTrust Life Insurance Company, offers a combination of two products to create what may be an ideal solution to your current circumstances. It combines an index-linked whole-life insurance policy and an annuity (a “single premium immediate annuity,” or SPIA). Upon purchase of both policies (for applicant ages 60 to 80), your lump-sum premium is directed to the SPIA, which immediately begins directing periodic payments to the life policy. From there, we do the rest – and you enjoy peace of mind.

Why periodic payments to the life policy instead of a single-premium payment?

This strategy is designed for individuals with either qualified retirement assets or non-qualified, low-tax-basis annuities – the proceeds from which they likely won’t need for living expenses during their lifetime; and for people seeking a simple, tax-efficient means to pass a larger death benefit from these assets to their heirs. If this describes your circumstance, and you were to liquidate your assets for purposes of purchasing a single premium life product, the liquidation would likely result in substantial taxation. Or, if the taxed proceeds are used to purchase an investment that can be passed on to the heirs upon your death, the proceeds may be taxed again, by inheritance taxes.

When you purchase a SPIA, you incur the taxation when the income is “paid out” – in this case, to the life policy in the form of premium payments. So, you can spread out the taxation over several years. And the policy’s death benefit may go to your heirs income-tax free!

What are the time-period choices for spreading payments from the SPIA to the life policy?

WealthPay Life allows premium payments from the SPIA to the life policy to be spread over 3, 5 or 10 years. The life policy is paid-up after all scheduled premiums are paid. A longer payment schedule allows you to spread your tax liability most effectively, but with a tradeoff of a reduced death benefit. Your age and underwriting classification will determine the payment-period options available to you. Regardless of the payment schedule you choose, you have the knowledge that if you were to die during the payment period and before the policy is paid up, your beneficiaries will receive the full death benefit and any remaining SPIA payments.

Your circumstances will determine if spreading out premium payments is more beneficial than a single premium option. While your agent can assist you in this evaluation, you should also seek assistance from your tax or legal advisor before purchasing WealthPay Life.

How does it work?

Consider this hypothetical example. Sharon, age 60 and retired, wishes to leave her son, Scott, a portion of her estate upon death. She previously named Scott as beneficiary to her 401(k) plan, valued at $100,000.  Sharon does not need these funds for purposes of daily living, and would like both to increase the value of the gift to Scott and spread the income-tax liability he will likely incur upon receipt of the proceeds.

Sharon opts to transfer her 401(k) funds to a WealthPay Life policy and elects the 10-year payment option. This allows Sharon to reduce the immediate tax impact of moving the 401(k) funds by spreading the tax liability over the 10-year premium-payment period.

Upon her death, the WealthPay Life policy will provide a guaranteed death benefit of $191,236 to Scott. Because life insurance death benefits pass generally income-tax free to beneficiaries, Scott’s benefit will not be diminished by income tax.

Compare the benefit to Scott between leaving the

$100,000 value in the 401(k), and transferring it to a WealthPay Life policy.

What if you encounter an illness?

Your life policy gives you access to a portion of the Death Benefit if you (the “insured”) are diagnosed with a chronic or terminal illness. This benefit is called the “Accelerated Death Benefit,” because death benefits are “accelerated” to help meet health-related expenses during your lifetime. During the payment period, the Accelerated Benefits are limited to a percentage of the death benefit, subject to the payment period selected and the type of illness incurred. After completion of the payment period up to 100% of the death benefit may be accelerated. Accelerated Benefits may be received federal income-tax free.

What if you need access to your money?

Only money not needed to meet current and foreseeable living expenses should be placed in WealthPay Life. However, if you need cash, you may take either a loan on your policy, or a withdrawal that may be penalty-free in certain instances. Some WealthPay Life policies will be classified as a Modified Endowment Contract (MEC). Only policies with a 10-year premium-payment schedule will not be classified as a MEC. Generally, any amount received under a life insurance policy on an insured that is determined to be terminally ill or chronically ill is considered to be an amount paid by reason of death. A Terminal Illness benefit will generally be received income-tax free, and a Chronic Illness benefit may be taxable. You should contact a qualified tax advisor regarding taxability of Accelerated Death Benefits.

Can your policy value and death benefit grow?

Depending on the index credits earned in your policy’s accounts, your cash value and death benefits may increase to levels higher than the guaranteed amounts. You may allocate to a fixed interest-rate account as well as several accounts offering index-linked returns based on the performance of either the Standard & Poor’s 500 Index® or the Goldman Sachs Dynamo Strategy Index.® When the index goes up, you earn “index credits”... and when it goes down, your account value is not impacted. In other words, you benefit from the “ups” and are protected from the “downs.”

Each policy anniversary, “index credits” are determined on the index accounts and applied to your policy’s current accumulation value. You may also transfer account values among accounts on policy anniversaries. At the end of 10 years, surrender charges no longer apply, yet you continue to earn interest and index credits on an income-tax-deferred basis.

Sources:

EquiTrust Life Insurance Company

http://myretirementsaving.com

 

Note: This information is not intended to be a detailed description of the effect of taxes on Social Security benefits. Deferred annuities contain certain restrictions and/or IRS penalties related to premature distributions. Please consult with your tax advisor to determine the actual impact on your specific situation.

All written content is for information purposes only. Opinions expressed herein are solely those of MyRetirmentSaving.com / DFS Marketing, Inc. and our editorial staff. Material presented is believed to be from reliable sources; however, we make no representations as to its accuracy or completeness. All information and ideas should be discussed in detail with your individual financial professional prior to implementation. Insurance products and services are offered through  MyRetirementSaving.com / DFS Marketing, Inc. and Julian Dougharty (TX License #1703718) and are not affiliated with or endorsed by the Social Security Administration or any other government agency. This content is for informational purposes only and should not be used to make any financial decisions. Exclusive rights to this material belongs to MyRetirementSaving.com / DFS Marketing, Inc. Unauthorized use of the material is prohibited.

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