Dollars and Sense
Table of Contents
#1 The Reality	6
Tough Economic Times	6
Inflation and Retirement	7
Inflation Definitions	7
What exactly is inflation?	8
Measuring Inflation Calculating Annual Inflation Rates	9 10
Causes of Inflation	10
Consequences of Inflation	13
Unanticipated Inflation	14
Do the Math	16
Insufficient Planning	17
Longevity	18
Retiring Too Soon	20
Retirement Funding	22
Rising Medical Costs	23
Long-Term Care Insurance Policies	26
Selecting the Appropriate Insurance Policy	28
Preserving Retirement Plans	29
Debt   Debt affects Insurance Rates	30 32
Saving for the Future	33
An Aging Nation	36
Employing the Right People	38
Compounding Power	40
Retirement Income	40
Social Security Benefits / Age of Collection	41
Supplementing What We Have Saved	42
Women Live Poorly in Retirement	42
Primary Insurance Amounts (PIA)	43
Benefit Based on PIA and Age	44
Average Indexed Monthly Earnings	44
Chart	46
Summary / Monthly Benefit Amounts	47
Old Computing Methods	47
Average Indexed Monthly Earnings	48
Indexing Yearly Income	48
Computation	48
Employer Pension Benefits	49
Tax Deferred Retirement Benefits	50
Individual Savings	50
Managing Income in Retirement	50
Pre-Retirement Income	51
Retirement Shortfalls	51
Getting a Return on Savings	54
Receiving Income from Investment Vehicles	56
Taxation Withdrawals Prior to Age 59½	56 57
The Age-55 Penalty Exception	57
The Five-Year Rule for 72(t) Payments	58
#2 Retirement Considerations	59
Medicare Supplemental Insurance	59
Long-Term Care Insurance	61
Forward Planning	62
Become Involved / Safety and Security	63
An Emergency Fund	64
Durable Power of Attorney / Estate Planning Tools	65
Necessary Steps	66
Good Decision Making Requires Knowledge	69
Deferred Compensation Plans and Divorce	70
Types of Retirement Assets	70
457 Deferred Compensation Plan	72
#3 Individual Retirement Accounts	73
IRAs are legal due to the IRCs	73
IRA Choices	73
Tax Free Retirement	75
Differences Between Roth and Traditional IRA	76
Roth Advantages	76
Roth Disadvantages	78
Double Taxation	79
Roth IRA Eligibility / Conversion Limits	80
Advantages of the Traditional IRA	80
Traditional IRA disadvantages	81
Transfer Versus Rollovers	82
IRA Loans	82
Coverdell Educational Savings Account	83
IRA Funding Limitations Exist/IRA Investments	84
Fund Distributions	85
Bankruptcy	86
Creditor Protection	86
#4 Life Insurance	87
Policy Provisions / Defining the Contract	88
Policy Application	89
Policy Ownership	90
Preventing Money Laundering Activities	90
Terrorism Produces Insurer Risk	91
Legal Requirements Adopted	92
Broker-Dealer Requirements	94
AML Program Requirements	95
Know Your Customer (KYC)	98
Compliance	98
Suspicious Activity Reports Filing Requirements	98
A Change in Thinking	99
A Global Problem	100
Covered Products	102
Nine Identified Money Laundering (ML) Methods	104
Money Laundering Indicators Not Unique to                       Insurance Products	106
Policyholder Characteristics and Behaviors	107
Known Criminal, Associate, or Relative	109
Erratic or Abnormal Use of Policies	109
High Premiums Compared to Verifiable Income	109
Lack of Concern for Charges or Costs	110
Undue Interest in Payout Options	110
Change of Beneficiary	110
Insurance on Assets Inconsistent with Income	111
Early or Suspicious Claims	111
Product Characteristics and Maintenance	113
Customer Due Diligence (CDD)	114
Policy Features and Provisions	117
Premiums	117
Policy Options	117
Nonforfeiture Options	117
Dividend Options	118
Settlement Options	119
State Required Provisions	120
Incontestability	121
Misstatements in the Application	121
Deferment Clause	122
Non-forfeiture / Loan Values	122
Grace Periods and Reinstatement	123
Allowed Policy Provisions	124
Suicide / Aviation / War	124
General Provisions	125
Deduction of Indebtedness and Premium Refund	125
Change of Beneficiary	125
Assignment	126
Beneficiary Designations	126
Policy Payments	128
Cash Values	128
Dividends / Proceeds	129
Special Clauses	130
Contract Use	132
Group Insurance Principles	132
Eligible Groups	132
Single Employer Groups	132
Multiple Employer Trusts (METS)	133
Unions, Associations, and Other Groups	133
Creditor-Debtor Groups	133
Underwriting Advantages	134
Keeping Current with Business Needs	135
The Informed Consumer	136
Providing a Quote	136
The Contract Participants	138
The Insurer	138
The Insured	138
Insurance Contract	139
Underwriting and Rating	139
Finance	140
A Public Interest	140
Key Person Insurance	141
Buy-and-Sell Agreements	142
The Key Person Principle	143
Insurable Interest for Life Insurance	143
Disability Insurance on Key Employees and Owners	145
The Small Company’s Exposure	147
Loss of the Small Business Owner	147
Planning Ahead for Death or Disability	151
Insuring Entities	151
Private and Government Insurance	151
Private Insurers	152
Life Insurance	153
Property and Liability Insurance	153
Government Insurance	154
Voluntary Government Insurance	154
Compulsory Government Insurance	154
Mutual Companies	155
Assessment Mutuals	155
Non-assessable Mutuals	157
Conversions	158
Reciprocal or Inter-Insurer Associations	158
Stock and Mutual Underwriting	160
Factory Mutuals	160
Superior Agents and Brokers	162
#5 Insurance Trusts	165
Creating the Trust	165
Types of Trusts	167
Trust Establishment	169
Trust Situs (Location)	170
Duties and Obligations of a Trustee	170
The Life Insurance Trust	171
Life Insurance Trusts and Federal Estate Taxes	172
Disadvantages of Life Insurance Trusts	174
Providing Financial Structure	175
Avoiding Estate Taxation	176
The Annual Exclusion	177
The Final Payoff	177
Charitable Trusts	178
Charitable Remainder Trusts	178
Advantages	180
Disadvantages	180
Bypass Trusts	181
Crummey Trusts	182
Inheritance Tax versus Estate Tax	183
Trust Longevity	184
Taxes / Trust Fees	184
Trusts and Wills	185
#6 Annuities	187
Annuity Choices	187
Joint and Survivorship Annuities	187
Guaranteed and Life-Time-Certain Annuities	188
Level Annuities	188
Capital-Back Guaranteed Annuities	188
Escalating Annuities	189
Inflation-Linked Annuities	189
Enhanced Annuities	189
Annuity History	189
Annuity Terminology	193
Annuity Basics	197
Choosing Between Fixed and Variable Annuities	198
Choosing Between Lifetime and Term Annuities	199
Company Financial Strength	201
Annuity Extras	201
Principal Protection	201
Cost of Living Protection	201
The Ups and Downs of Annuities	202
Tax Efficiency	202
Supplementing Other Retirement Income	202
Reasons to Buy an Annuity	203
Reasons to Avoid Buying Annuities	203
Making the Right Annuity Choice	204
Many Annuity Choices	205
Annuities for Retirement	207
Everyone is Living Longer These Days	207
Putting Off Retirement	208
Fixed Rate Annuities	210
How Fixed Period Annuities Work	210
Variable Annuities	211
Annual Expenses	212
Funding Variable Annuities	213
Variable Annuity Fees	213
Variable Annuity Death Benefit	214
Surrender Fees	214
Early Withdrawal Penalty	214
Taxation	214
Equity Indexed Annuities	214
#7 Employer Sponsored Pension Plans	216
Private Pension Plans	216
Flat amount, flat percentage formulas	219
Changing Plan Designs	220
May want to re-bid when ….	222
Flexible Spending Accounts	224
Benefit Plans for Retirement	225
Defined Benefit Plans	225
Defined Contribution Plans	226
401(k) Plans	226
“Topic 424 – 401(k) Plans”	229
“Topic 412 – Lump-Sum Distributions”	230
“Topic 413 – Rollovers from Retirement Plans”	231
Funding	232
401(k) Plan Contributions	234
401(k) Tax consequences	239
Fund Withdrawals	240
Minimum Distributions Required	241
Highly Compensated Employees (HCE)	242
401(k) Plans for Small Businesses	242
Initial Actions	243
(1) Adopt a written plan	243
(2) Arrange a trust fund for the plan’s assets	244
(3) Develop a recordkeeping system	244
(4) Provide plan information to eligible employees	244
Participation	245
Contributions	245
Traditional 401(k) Plan	245
Safe Harbor 401(k) Plan	246
SIMPLE 401(k) Plan	246
Vesting	246
Nondiscrimination	247
Investing 401(k) Monies	247
Fiduciary Responsibilities	247
Basic Responsibilities	248
Limiting Fiduciary Liability	248
Hiring a Service Provider	249
Prohibited Transactions and Exemptions	250
Bonding	250
Disclosing Plan Information to Participants	250
Summary Plan Description (SPD)	250
Summary of Material Modification (SMM)	251
Individual Benefit Statement (IBS)	251
Summary Annual Report (SAR)	251
Blackout Period Notice	251
Reporting to Government Agencies	251
Form 5500 series	251
Form 1099-R	252
Distributing Plan Benefits	252
Terminating a 401(k) Plan	252
Compliance	252
Simplified Employee Pension Plans (SEP)	253
Rules Governing SEPs	255
SEP Advantages	256
SEP Terms	256
Establishing the Plan: Step 1 & 2	257
Establishing the Plan: Step 3	258
Operating the SEP Plan	258
SEP Contributions	258
Employee Communications	259
Reporting To The Government	259
Distributions	259
Monitoring The Trustee	260
Terminating The Plan	260
Correcting Errors	260
Owners Benefit Less than Non-owner Employees	260
Divorce and Retirement Accounts	261
Retirement Plans at Work	261
QDRO	261
IRAs and SEPs	263
Women are Receiving More These Days	264
Keep Premarital Assets Separate	264
Protect Your Inheritance	264
After the Divorce	264
Dividing Other Investments	265
Good News for Attorneys	266
#8 Sensible Ethics	267
What Ethical Agents Know	267
Insurance Perceptions	268
Establishing Goals	269
Why be Ethical?	272
Following the Law	273
Ethics in the Workplace	274
Definition of Ethics	274
The Same by Any Name	275
Putting the Past into the Future	277
Companies Set Guidelines	281
Promoting Ethical Behavior	287
Egoism	290
Is it possible to teach ethical behavior to others?	291
What is the scope of ethics?	291
What does it take to be a moral person?	292
What quality of work do you want to perform?	293
What do I want my legacy to be?	293
The Leaders of the Pack	294
What are our responsibilities to other moral persons?	296
Objectivist Ethics	298
Holding our Ethic Code	299
Sympathy versus Empathy	304
Looking the Part	305
Courtesy	306
Mores	306
Education/Continuing Education	311
Getting Education in a Timely Manner	312
Laying Out Policy Benefits and Limitations	314
Policy Replacement	316
Why would an agent replace their own business?	317
When the Agent Allows Misconceptions	318
When the Premiums Seem too High to the Client	319
Obtaining Proper Application Signatures	319
Keeping in Touch after the Sale	319
Selling the “Fast Buck” Item	320
Commingling Funds	321
The Professional	321
Preparing for Tomorrow	322
Fixed and Variable Income	322
Financial Management	323
Due Diligence	324
Technical Approach or Common-Sense Approach?	326
Selecting Insurers to Represent	333
If It’s Legal . . .	334
Last page	336
United Insurance Educators, Inc.
Eatonville, WA
(253) 846-1155