Enhancing Reinsurance Company Wealth

Why should I consider purchasing a Universal Life Insurance policy through my reinsurance company?

In addition to the protection Life Insurance provides in the event of Death, here are a few Key Strategies to consider.

FUNDING A BUY-SELL

This ensures funds will be available in the event a death occurs to a shareholder. The death benefits are many times tax free distributions. In this scenario, the reinsurance company purchases policies for each shareholder naming the reinsurance company as the beneficiary. When the shareholder dies, the reinsurance company receives the proceeds and uses them to purchase the deceased business shares from the deceased estate.

FUNDING KEY PERSON PROTECTION

Key Person Insurance is the Life Insurance protection the reinsurance company buys on the life of the owner, shareholder or other Key executive critical to the business. In the event of the death of a Key Person, the reinsurance company receives the proceeds to protect it’s business interests after the loss. These funds come in as tax free to the reinsurance company and may be used to help acquire replacement talent.

SECURING A PERSONAL LOAN FROM THE REINSURANCE COMPANY

Key Person Insurance is again utilized with the Reinsurance company buying the policy on behalf of the borrower/shareholder. In the event of the Key Person/borrowers death, the Reinsurance company receives the death benefit and uses this to retire all or most of the loan balance.

UTILIZING A SPLIT DOLLAR BENEFIT ENDORSEMENT - This is another way to enhance the Key Person Protection.

Policy Benefits are divided in a pre-determined way, and defined in a Split Dollar Agreement prepared and executed through your reinsurance management company. The split definitions are specified in this agreement and terminate at a specific future date such as retirement and/or death. For the shareholder a split dollar endorsement provides life insurance protection for survivors at a much lower current out-of-pocket cost than purchasing the same policy as an individual. The shareholder names their personal beneficiary and upon death the Agreement provides the return of premiums paid, plus investment gain to the reinsurance company with the remaining balance going to the beneficiary. In the event of retirement, the reinsurance company receives the same return of premiums paid, plus investment gain from the Cash Value of the policy and the shareholder receives the remaining balance in Life insurance protection or Cash Surrender Value.

Due Note, the reinsurance company pays the premium and the shareholder pays an annual tax on the economic benefit of a 1 year term premium for the same amount of coverage. Take for an example, a 45 year old male with a $1,000,000 Death benefit whose reinsurance company had purchased the policy with 5 annual payments of $31,643. In the event of his death in the first year the following occurs: The $1M death benefit is reduced by the $31,643 premium payment plus investment return which is returned to the reinsurance company. The beneficiary receives the remaining $968,357 less investment return. The income tax due for for the policy year is $0.74 per $1,000 = $968,357 x 0.74 = $716.58 and assume a 40% tax rate the Shareholder net cost for this benefit was $429.95. So the shareholders estate receives $968,357 (less investment return) at a personal cost of $429.95!

The information provided here is intended for illustration purposes only and is not an offer, solicitation or binding agreement. The demonstrated values shown are representative but not guaranteed. The assumptions on which they are based are subject to change as actual results may be more or less favorable than those shown. This is not intended to be used and cannot be used by anyone as legal or tax advice. We always advise you to seek opinions of your preferred tax and legal professionals.

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