President Releases Major Tax Change Proposals

Information provided by:  Thompson Reuters

As outlined in a Fact Sheet released by the White House and a Jan. 17 conference call with reporters by senior administration officials, President Obama has proposed a number of tax increases that would generate revenue of approximately $320 billion over the next decade. He has suggested new and revised tax credits as well as a program to promote retirement savings. Among the President’s tax-related proposals are the following:
. . . an increase in capital gains and dividend tax rates to 28%; for couples, the 28% rate would apply where income is more than $500,000 annually;
. . . a fee of seven basis points on the amount of liabilities of financial institutions with assets greater than $50 billion. The fee on large, highly-leveraged financial institutions would
discourage excessive borrowing;
. . . a new tax credit worth up to $500 for households with two wage earners with combined income of up to $210,000. Families could claim a maximum credit equal to 5% of the first
$10,000 of earnings for the lower-earning spouse in a married couple. The maximum credit would be available to families with incomes up to $120,000, with a partial credit available to
couples with income up to $210,000;
. . . increasing the child tax credit to as much as $3,000 for each child under the age of five.  Families could claim a 50% credit for up to $6,000 of expenses per child under five. The
maximum credit for young children, older children, and elderly or disabled dependents would be available to families with incomes up to $120,000. In addition, enhanced benefits under the credit which are scheduled to expire after 2017 would be made permanent;
. . . making the following changes to the earned income tax credit (EITC) for workers without qualifying children: doubling the amount of the credit, increasing the income level at which the credit phases out, and making it available to workers age 21 and older. In addition, enhanced benefits under the credit which are scheduled to expire after 2017 would be made permanent;
. . . the consolidation of six education-related tax incentives into just two, while improving the American Opportunity Tax Credit (AOTC) to provide students up to $2,500 each year over five years as they work toward a college degree. The refundable portion of the AOTC would be increased to $1,500. Part- time students would be eligible for a $1,250 AOTC (up to $750
refundable). In addition, enhanced benefits under the AOTC credit which are scheduled to expire after 2017 would be made permanent;
. . . requiring employers with more than 10 employees that don’t have a 401(k) retirement plan to automatically enroll full- and part-time employees in an individual retirement account (for which small employers would receive tax credits to cover the costs involved); and

. . . the closing of the so-called “trust fund loophole” by requiring payment of capital gains tax on the increase in value of securities at the time they are inherited; however, for couples, no
tax would be due until the death of the second spouse. In addition, no tax would be due on inherited small, family-owned and operated businesses unless and until the business was
sold, and any closely-held business would have the option to pay tax on gains over 15 years.  Capital gains of up to $200,000 per couple ($100,000 per individual) could be bequeathed free of tax, with this exemption automatically portable between spouses. Couples would have an additional $500,000 exemption for personal residences ($250,000 per individual), with this exemption also automatically portable between spouses. Tangible personal property-other than expensive art and similar collectibles-(e.g. bequests or gifts of clothing, furniture, and small family heirlooms) would be tax-exempt.


Four Reasons to Consider a Trust to Protect Your Assets

Nest EggFrom: Andrew H. Friedman

For many years, trusts have been the province of the wealthy, mysterious vehicles used to escape taxes and preserve assets for future generations. And for couples with joint assets approaching or exceeding $10.68 million — the current gift and estate tax exemption amount — a comprehensive estate plan that incorporates trusts is crucial for minimizing estate taxes.

More recently, however, families with assets well below this threshold are using trusts to help them protect assets from creditors, manage and grow assets for future generations, and ensure that their assets ultimately are distributed in accordance with their wishes to their heirs.

In setting up a trust, an individual appoints a trustee (an individual, a corporate trust company, or both) to act as a surrogate to manage and distribute assets in accordance with his or her wishes when (i) the individual later is not able to do so directly (due to, for instance, death, disability, incapacity, or geographic unavailability) or (ii) the individual wishes to shield the assets from possible later creditors. The individual sets out instructions in a trust document and appoints a trustee to act in his or her absence on his or her behalf. In this way, the trust ensures the ongoing preservation, protection, and control of assets.

Let’s consider some of the situations in which a trust can help someone control, protect, and preserve assets and address philanthropic goals.


Allocating assets among family members. Individuals often are concerned about leaving assets outright before heirs are ready to handle them. A child could dissipate assets too quickly, or lose assets in a later divorce. A spouse might remarry into a blended family. By placing assets in a trust, an individual can ensure that the assets are later distributed among family members in the time and manner intended.

Children: Suppose you have children who are young or irresponsible and might squander assets they receive outright. You can instruct your trustee when to distribute income and principal to each child. Such instructions can be based on age or on a specified accomplishment (e.g., college graduation). In this manner, you can seek to influence your children’s behavior even after your death.

Future generations: Suppose you wish to ensure that your assets remain available for future generations of your family, and that intervening generations do not squander assets to the detriment of generations that follow. For instance, if assets are left to a son, he might later give them to his wife, either voluntarily or in a later divorce, rather than leave them to your grandchildren. A dynasty trust ensures that each generation will receive sufficient income to live but be unable to divert remaining assets from future generations.

Surviving spouse: Suppose you want to preserve your assets for your offspring in the event you predecease your spouse. If you leave your assets to your spouse outright, he or she will have the power to determine their later distribution, perhaps giving them to a prior or later spouse’s offspring. By putting the assets in trust and providing for distributions to your spouse to maintain lifestyle, you can ensure that remaining assets go solely to your children. This planning can be particularly important if you have children from a prior marriage.

Education: An education trust can set aside assets to be used solely for educating or your children or grandchildren.

Special needs child: A special needs trust can be used to provide funds for an incapacitated child after the parent is no longer able to do so.


Provide for professional management. Individuals might be concerned that their heirs’ lack of financial sophistication – or the heirs’ divergent interests and needs — will preclude the effective management of the assets. A trust allows an individual to ensure that assets continue to be managed properly and to grow.

Incapacity: A trust can ensure that your assets are managed properly and your family’s financial needs are met in the event you suddenly become incapacitated. By specifying elements of incapacity in the trust document, your family typically can avoid a lengthy court proceeding. Providing for a smooth transition in the event of incapacity is particularly important for non-financial assets, such as real estate or a family business, where ongoing management is crucial.

Unsophisticated investors: Suppose your surviving spouse and/or your children are not sophisticated investors and will have difficulty managing assets to provide a reasonable return. By placing assets in trust, you can provide broad instructions as to how the assets are to be invested and identify a professional financial advisor to manage them.

Squabbling heirs: Often heirs cannot agree on how to manage a family asset, such as a home or business. By putting the asset in a trust, you can appoint a trustee to manage the asset and distribute income to your heirs per your instructions, helping to preserve family unity.

Shifting fiduciary duty: Naming one of your children to administer assets for all your children could expose the managing child to a suit by the others for breach of fiduciary duty if they do not approve of his or her actions. Naming a professional manager alleviates this concern by shifting the management duties away from a family member.


Preserve assets. Individuals in certain professions or businesses often are concerned that they might lose assets to creditors rather than preserve the assets for family members. Assets held in trust frequently are beyond the reach of creditors, allowing the assets to be preserved for heirs.

Creditor protection: Suppose you are a professional (such as a doctor) who might be sued for alleged mistakes. Or you are concerned that your business operations could expose you to financial risk in the event of an economic downturn. By placing your assets in trust before the actions giving rise to a suit or downturn occur, you can shield the assets from future creditors.

Children: Suppose your child has incurred significant debt, or you are concerned your child may do so in the future. Assets placed in trust for the child’s benefit are kept out of the reach of creditors seeking to collect on debts the child has incurred. A trusteed IRA program is designed to provide the same protection for your qualified assets.

Divorce protection: Placing assets in trust in some circumstances may shield the assets from split upon a later divorce property settlement.


Facilitate philanthropy. Individuals might wish to donate the bulk of their assets to a charity, but still provide needed income for family members and heirs. A charitable trust can accomplish these goals.

• Suppose you want to ensure that a portion of your assets goes to a charity, either during your life or upon your death (or both), while still providing income to you or your dependents. You can achieve this result by putting your assets in a charitable trust. Properly structured, a charitable trust also can provide immediate benefits, such as an income tax deduction for contributions to charity, and tax-free growth for future investment income.


Revocable vs. Irrevocable Trusts

A trust can be either “revocable” or “irrevocable”. An individual placing assets in an irrevocable trust cannot later reclaim the assets or make significant changes to their disposition. Thus, the donor must be comfortable with the arrangement at the time assets are placed in the trust. In contrast, a revocable trust can be changed at any time as long as the individual setting up the trust is alive and healthy. Upon the individual’s death or incapacity, the trust becomes irrevocable.

Which trust makes sense depends on the particular situation. Many individuals prefer the flexibility of the revocable trust. However, an irrevocable trust often is necessary for certain functions, such as estate tax minimization or asset protection. 

In choosing the type of trust, there are other considerations to keep in mind: 

State taxes. For purposes of applying their state inheritance tax, some states have adopted – or have suggested they will adopt — a gift tax exemption amount below the federal exemption of $5.34 million. Thus it is important to consider state tax consequences before undertaking any gift or estate plan. For states with lower exemptions, use of an irrevocable trust can help minimize state taxes.

Tax on trust income. Investment income earned within a revocable trust typically is taxed at the donor’s tax rate. Virtually all investment income earned within most irrevocable trusts, however, is taxed at the highest tax rate. Taking into account all surtaxes, that tax rate currently is 23.8% on dividend income and long-term capital gains and 43.4% on other types of investment income. To achieve both estate tax and income tax efficiencies an irrevocable trust should invest in assets that generate income exempt from tax or taxed at low rates. For this reason, life insurance can be a good investment within an irrevocable trust. When investing trust assets, a professional management strategy that seeks to enhance after-tax return by balancing investment and tax considerations is exceedingly important.

Stepped-up basis. In most cases, when a donor gifts an appreciated asset to an individual or an irrevocable trust during his or her lifetime, the recipient assumes the donor’s basis in that asset. Thus, the recipient will be taxed on any appreciation when the asset is later sold. By way of contrast, most assets transferred at death (including through a revocable trust) receive a “stepped-up” basis, relieving the heir of income tax on existing appreciation upon a later sale. Thus, the benefits of placing assets in an irrevocable trust during life must be balanced against the additional income tax a recipient might pay when the gifted asset is later sold.

Choosing between an irrevocable and revocable trust can be critical depending on the circumstances. For this reason (and others, including tax minimization and effective creditor protection), it is important to consult with a qualified attorney when establishing a trust, gifting assets, or considering any of the techniques described in this paper. Individuals establishing trusts also should retain a qualified professional fiduciary to assist in managing and administering the trust and directing the investment of trust assets.



A comprehensive estate plan, which typically involves the use of trusts, is crucial for couples with joint assets approaching or exceeding $10 million. But trusts also are important for couples or individuals with fewer assets, allowing them to protect assets from creditors, manage and grow the assets effectively, and distribute the assets to heirs or charities in accordance with their wishes when they are no longer able to do so themselves.



Andrew H. Friedman is the Principal of The Washington Update LLC and a former senior partner in a Washington, D.C. law firm. He speaks regularly on legislative and regulatory developments and trends affecting investment, insurance, and retirement products. He may be reached at

Neither the author of this paper, nor any law firm with which the author may be associated, is providing legal or tax advice as to the matters discussed herein. The discussion herein is general in nature and is provided for informational purposes only. There is no guarantee as to its accuracy or completeness. It is not intended as legal or tax advice and individuals may not rely upon it (including for purposes of avoiding tax penalties imposed by the IRS or state and local tax authorities). Individuals should consult their own legal and tax counsel as to matters discussed herein and before entering into any estate planning, trust, investment, retirement, or insurance arrangement.


Copyright Andrew H. Friedman 2014. Reprinted by permission. All rights reserved.

M Financial – A Step Ahead

M Member Firms are entrepreneurial, fiercely independent, and understand that consistently exceeding client expectations is the true measure of success. WealthPoint is a Member Firm of M Financial Group. Recently there was a write-up in Private Wealth Magazine about how M Financial has grown its ultra-affluent life insurance business since the 2008 crash by anticipating demand…

Private Wealth – M Financial: A Step Ahead

Click on the link above to view the full article (PDF)

The Supreme Court Rules on Health Care Reform: What It Means For Investors

The Washington Update from Andy Friedman

The Supreme Court has now upheld the individual mandate, the controversial part of the health care reform law (The Patient Protection and Affordable Care Act) that requires individuals to carry health insurance.  At the same time, the Court struck down the requirement that states expand their Medicaid coverage to include more low-income families. These rulings will have significant implications on the country’s fiscal situation.  Perhaps most important for investors, the Court’s decision virtually assures that the new taxes imposed by the law will take effect on schedule in 2013.

The Law.  By way of background, the Patient Protection and Affordable Care Act has five main elements;

An employer mandate (“pay or play”):  Employers with fifty or more employees must provide health insurance to their employees (“play”) or pay a new tax (“pay”).

An individual mandate:  Every American must have health insurance.  Those individuals who do not receive coverage from their employer or under Medicare or Medicaid must either purchase it or pay a penalty for failing to do so.

Restrictions on health insurers:  Health insurers may no longer reject applicants for coverage or charge higher premiums based on pre-existing health conditions.

Exchanges:  Each state is to set up an “exchange” where people can get information about various insurance policies and compare terms and pricing.

Subsidies:  Families with income under about $88,000 will get subsidies to help them purchase insurance, and (under the law as enacted) families with income below about $30,000 will get it for free under Medicaid.

The Individual Mandate.  Most observers (and even the lawyers undertaking the oral arguments) believed that the issue before the Supreme Court was whether the Commerce Clause of the Constitution gives Congress the power to require that everyone carry health insurance or pay a penalty (the “individual mandate”).  The Commerce Clause typically allows Congress to pass laws that affect items in interstate commerce.  A majority of the Court (the four conservative justices plus Justice Kennedy, who is often a swing vote) held that Congress does not have the power to require the purchase of insurance under the Commerce Clause.  They reasoned that, while Congress has the power to regulate commerce, it does not have the power to regulate a lack of commerce (that is, a decision not to purchase a product).

Chief Justice Roberts then broke with the other conservative justices to uphold the mandate on an entirely different ground.  He concluded that the penalty imposed on people who do not buy insurance is in effect a tax.  The Supreme Court has long held that Congress’ power to tax is virtually plenary, and that Congress can determine who to tax and for what reason.  With that holding, Roberts joined the four liberal justices who concluded that the individual mandate is permissible under the Commerce Clause.  With five justices thus upholding the mandate (albeit for different reasons), the mandate survived.

Roberts’ conclusion that the mandate penalty is a tax is curious, because when it passed the law Congress went out of its way to say the penalty was not a tax.  Congress did so because it did not want to appear to be imposing new taxes, which are unpopular.  Indeed, elsewhere in his opinion Roberts concluded that the penalty was not a tax for purposes of the Anti-Injunction Act, which precludes the Court from hearing a tax case before the tax is actually paid.  Thus in the course of the same opinion Roberts concluded the penalty was a tax for one purpose but was not a tax for another.

Read closely, Roberts’ opinion suggests that he undertook this legal ju-jitsu for a higher purpose.  As chief justice, Roberts is keenly aware of his responsibility for the Supreme Court’s legacy.  He is concerned by the public perception, particularly in the wake of Bush v. Gore, that the Court has devolved into a partisan political divide.  Roberts likely felt that a decision by the five Republican-appointed justices over the four Democratic-appointed justices to overturn a law enacted by a Democratic Congress and President would have eroded support for the Court inalterably.  Thus, even though Roberts might personally have found the law distasteful, he strained to find a plausible reason to save it (“it is not our job to protect the people from the consequences of their political choices”).

By straining to find an alternative ground to uphold the law Roberts gave both sides a victory.  The President gets his signature legislation.  But the conservatives get a narrower scope to the Commerce Clause which they’ve long sought, a precedent that no doubt will serve them well in later Court challenges to other laws.

The Fiscal Implications.  The health care reform law is likely to add significantly to an already swollen federal budget deficit.  Using the government’s own numbers from the time the law was passed (the most conservative numbers), health care reform will cost a trillion dollars over ten years.  Yet, according to the official estimates, the law is “revenue neutral”, meaning it does not add to the deficit.  This conclusion rests on two other provisions in the law.

First, half of the cost of the law (about $500 billion) is recouped through new taxes that begin in 2013, the implementation of which remain undisturbed by the Court’s majority holding:

A 0.9% increase in the Medicare tax on annual family wages above $250,000 ($200,000 for individual taxpayers).

An additional 3.8% tax on taxable investment income received by families with adjusted gross income over $250,000 ($200,000 for individual taxpayers).  This additional tax applies to investment income that is otherwise subject to tax, such as dividends, interest, capital gains, rents, royalties and distributions from annuity contracts.  The tax does not apply to income that is not taxable, such as tax-exempt municipal bond interest and life insurance death proceeds, or to amounts withdrawn from qualified pension plans and IRAs.

The 3.8% tax applies to taxable investment income only to the extent that income, plus all other adjusted gross income, exceeds $250,000 for a family ($200,000 for an individual).  For instance, suppose a family has $200,000 of wage income and $80,000 of dividend income.  Total adjusted gross income of $280,000 exceeds $250,000 by $30,000.  Thus the 3.8% tax would apply to $30,000 of the dividend income.

The remaining $500 billion cost of health care reform is to be made up by reducing Medicare reimbursement rates, lowering the payments received by doctors, hospitals, and drug companies who minister to Medicare patients.  The concern here is that reducing Medicare reimbursement rates will result in a shortage of doctors who will see Medicare patients.  Faced with the prospect of significantly reduced income, fewer college graduates will choose to undertake the financial burdens of medical school.  And more practicing doctors will take the “concierge” route, seeing only wealthy patients who can afford to pay “full price” for care.

This result will put Congress in a difficult position:  either accept de facto rationing of medical services, or contravene the new law and keep Medicare reimbursement rates at current levels.  Experience suggests Congress will do the latter.  Since the health care reform law was passed in 2009, Congress has overridden scheduled Medicare rate cuts four times, and there is every indication it will continue to do so.  If this trend continues, health care reform — far from being revenue neutral — will add $500 billion to the federal budget deficit.

And that estimate uses the government’s own numbers.  In reality, the cost is likely to be much greater because the system can be gamed.  As health care costs increase, many businesses likely will choose not to provide health insurance to employees, opting instead to pay the penalty.  The penalty on employers is only $2000 per year per employee, much cheaper than paying for insurance.  To date businesses typically have provided coverage for competitive reasons, or because employees with poor health histories would otherwise be unable to obtain it.  But these concerns disappear in a difficult job market and under a law that assures universal coverage regardless of health.  Thus, many businesses will save money by paying the penalty in lieu of providing insurance.  (Businesses with fewer than fifty employees don’t even have to pay the penalty.)  Perhaps they will use a portion of the savings to give employees additional bonuses to keep everyone happy.

If employers do not provide insurance, individuals will have to purchase it on their own.  But many healthy individuals may choose not to do so, opting to pay the penalty (or, as Justice Roberts would say, the tax).  For most families, the penalty will not exceed $2085 a year ($625 for single adults), a lower cost than paying for insurance.  Indeed, Roberts himself noted that “for most Americans the amount due will be far less than the price of insurance, and, by statute, it can never be more.”

Instead, individuals may wait until they are sick to purchase coverage, a right they are assured under the law.  Insurers cannot long survive a system where only sick people buy insurance.  Either they will have to raise premiums enormously, or more likely they eventually will exit the business.  In that event, sick people will have to obtain coverage elsewhere.  Presumably the federal government — the payer of last resort — will need to step in to provide it.

Of course, the status quo (pre-health care reform) is not acceptable either.  The United States has an aging population.  People without insurance go to the emergency room for a runny nose, a cost everyone bears.  Thus, if the health care reform law is to serve as the answer, then Congress must raise the penalties on employers and individuals high enough so they buy insurance, and find $500 billion in savings elsewhere in the federal budget.

Medicaid Expansion.  Another aspect of the Supreme Court decision may further increase the federal government’s cost of implementing the health care reform law.  As noted above, the law seeks to extend Medicaid coverage (free insurance) to all families earning less than about $30,000 a year (133% of the federal poverty level).  Currently only certain families with earnings under the poverty level (about $23,000 for a family of four) are eligible for Medicaid.  Thus the law would significantly expand Medicaid coverage to families above the poverty line, as well as to additional families below the poverty line.  The federal government will finance the full cost of this Medicaid expansion through 2016.  Beginning in 2017, the states are to fund a small part, topping out in 2020 at 10% of the total cost.

The law permits the federal government to withhold all Medicaid contributions — including those for existing programs — from states that decline to participate in this expansion of Medicaid coverage.  (Currently the federal government reimburses states for approximately 57% of Medicaid costs.)  The Court (in a 7-2 vote) rejected this part of the law, holding that the potential loss of full Medicaid funding was a penalty so great as to constitute federal coercion of state action impermissible under the Constitution.  According to the Court, the federal government may withhold from a non-participating state the federal government’s contribution to the Medicaid expansion (90% of the cost of the expansion), but it may not withhold funds previously granted to fund the existing Medicaid program.

The Court’s decision leaves the Medicaid expansion in limbo, as each state may now decide what it wants to do.  Many states are likely to expand Medicaid coverage anyway, given that the federal government will bear the brunt of the increased cost.  But some states may refuse to do so.  In that case, some low-income families may be entitled to federal subsidies to purchase insurance.  But others may simply be left without coverage.  Because such a gap in coverage would appear to be untenable, the federal government may end up funding a larger portion of the Medicaid expansion than anticipated, at least for residents of recalcitrant states.

Higher Taxes.  In upholding the bulk of the health care reform law, the Court’s decision assures that the law’s surtaxes on compensation and investment income will take effect as scheduled next year.  Thus, we now know with virtual certainty that income taxes next year will increase, regardless of whether Congress permits some or all of the Bush tax cuts to expire. My white paper, Investing in a Rising Tax Environment, provides strategies that investors can consider now to help blunt the effects of these higher taxes.

The Washington Update

Steve Jobs & Living Trusts

Privacy? This is a very important question for families that have wealth, a family owned business, or even families that have unique family dynamics. This article is not especially technical, but really reinforces the importance of proper estate planning:

Is my life insurance performing as planned? Will my policy die before I do? Does it still meet my needs?

The life insurance industry has almost certainly changed since you bought your last policy.  New products have been developed and prices are falling, yet many policies are still underperforming.  WealthPoint provides an objective, fiduciary quality assessment of your life insurance portfolio.  We will help you determine if your insurance still meets your specific planning needs and whether your products are still competitively priced. This thorough process produces a clear and objective assessment of your insurance and recommendations for future action.

Keep, Pass On, Sell???

Some family business experts say that a family business should never be passed down to the hands of the children.  They argue that the children are never as motivated or successful as the founder.  However, in the UK at least, 76 percent of private firms are family owned and provide many examples of success and profit after a succession.

Accompanying simply the fears owners may have for the future of their business when they pass down the company are also a set psychological and cultural torments to make it more difficult – fear of death, dealing with old age and retirement, reluctance to let go of power, and family taboos of who to pass the company down to, favoring one child, etc.

Succession plans are most successful if mutual respect and responsibility has been developed between owner and successor and a partnership and commitment is already present. Owners looking to pass down to their children should particularly take responsibility in the following areas:

  • Ensuring beforehand their children have received a broad, well-based education
  • That they are nurtured and have developed adequate self-esteem
  • That they learn about financial management, risk management, crisis management and leadership development
  • That they have outside work experience before entering the family business
  • They have the leadership qualities required to “run the show”
  • And, once they have entered the business, they have an in-house training program that is relevant and prepares them for the responsibilities to come

It is not enough to simply pay lip service to above, or simply assume children are getting what they need.  To ensure the future of the business and your child as a successor, attention to the success of the child himself is an important step, or series of steps, to take.  They will never be you, rather, help them develop into the best they can be by giving them the tools, platform and most of all – your time and energy.

What You Don’t Know CAN Hurt You!!!

Everything you ever thought about life insurance agents and their compensation is probably true. The industry is full of agents who take maximum compensation on policies they sell. Very few even discuss compensation amount and structure as a policy design feature.  In fact, it is considered “taboo” in the industry to disclose this information.  In most cases, agents CAN reduce compensation to improve contract efficiency.  If you are aware, you can be an advocate for your client when they’re purchasing or restructuring insurance.

Below are a few facts to consider:

  • Agent compensation is the largest expense charged to a policy during the first ten years.
  • Agent compensation has a direct effect on cash values and long term policy performance.
  • Agent compensation is often directly correlated with the length and severity of surrender charges.
  • Agent compensation has a direct effect on required annual premiums.

 Call or email us today to recieve our one page illustration showing the following:

  • The proposal by our competitor (maximum compensation)
  • WealthPoint’s proposal matching the premium of our competitor (higher cash values)
  • WealthPoint’s proposal matching the death benefit (lower premiums)

 This one page summary discloses the truth about agent compensation and its impact on cash values, surrender charges and premium outlay. The difference is staggering.  Please note, we have used the exact same carrier, client and product assumptions. IDENTICAL!  It illustrates the difference between the compensation in our competitor’s proposal and WealthPoint’s.  Furthermore, it shows how proprietary pricing, made available through WealthPoint’s affiliation with M Financial, is advantageous to our clients.  WealthPoint routinely reduces agent compensation when being referred by a professional advisor.  Whether you or your client are purchasing new insurance or have existing insurance that is in need of a Policy Review, “dialing down” compensation can save them thousands of dollars.

Is the “Premium” worth the “Premium”???

Life insurers have fared well relative to banks in the recent economic meltdown and recession. Further, life insurers have fared well even when compared to historical average failure or impairment rates.  We find a lot of clients looking to the highest quality carriers for their life insurance solutions which would seem very prudent, but…is the premium price worth the perceived risk avoidance? Is a Northwestern Mutual or New York Life really that much better than a John Hancock or Pacific Life? The fact is they are all great companies.  Let’s look at the relatively low historical failure rates for life insurers.

History of Life Insurer Impairments

A.M. Best has historically tracked U.S. Life & Health (L&H) insurer impairment rates.  From 1976 until 2008 the averaged impairment rate was 0.88%.  In 2008, the impairment rate was 0.46%, below the average for the period.  Even during the period when impairment rates peaked (1989 until 1991) in which nearly one-third of all impairments for the study time period occurred, the rate reached a high of only 3.1% (in 1991). (Please note that the data includes both life and health insurers.) 

What you need to realize is that the overwhelming majority of life insurers that fail are small companies with $20 million or less in capital and surplus.  The average annual failure rate for those companies is 2.28%, 76 times greater than the failure rate for companies with capital and surplus in excess of $500 million (0.03%).  M Financial’s Carrier Partners each have capital and surplus in excess of $500 million.

So, is it worth the excess premium to purchase product from the absolute highest rated carriers to achieve a 0.03% perceived reduction in the underlying companies risk of financial failure???  Only you can answer that question.  The purpose of this information is to give you a clear picture of the statistics behind the decision so you can both buy competitively priced products and sleep at night.  Do your homework and look at both financial strength and performance.  If a company is among the top in the industry and has a competitively priced product, it will more than likely be a good decision.