Financial Protection with Insurance, Part 1

Table of Contents

Chapter 1: Creating Retirement Protection

1

Covid-19 Creates Difficult Economic Times

1

Inflation Affects Retirement Vehicles

2

Inflation Affects Every Financial Vehicle on Earth

3

Utilizing Insurance Products for Growth

4

Insufficient Planning Haunts Retirees

5

Insurance and Longevity

6

Retiring with Insufficient Retirement Funding

8

Creating Income During Retirement

10

  Rising COVID Medical Costs & the Effects on Insurance

11

  COVID-19 Appears in 2020 Creating Additional Costs

11

  High Medical Costs in Normal Times

13

Long-Term Care Insurance Policies

18

Selecting the Appropriate Insurance Policy

20

Preserving Retirement Plans

21

Debt Can Affect the Purchase of Insurance

23

Debt Affects Insurance Rates

25

Saving for the Future

26

An Aging Nation Impacts Insurance & Governments

29

Buying the Right Insurance Products

33

Compounding Power is Important

35

Retirement Income

35

Social Security Benefits/Age of Collection

36

Supplementing Income with Annuities & Personal Savings

37

Women Live Poorer in Retirement than Men

37

Primary Insurance Amount (PIA)

39

  PIA Definition

39

  PIA Formula Bend Points

39

  Benefit Based on PIA and Age

39

  Average Indexed Monthly Earnings

39

Summary

40

  Monthly Benefit Amounts

40

Old Computing Methods

41

  Average Indexed Monthly Earnings

41

  Indexing Yearly Income

41

  Computation

41

Supplementing Employer Pension Benefits

42

Tax Deferred Retirement Benefits

43

Individual Savings

43

Managing Income in Retirement

44

Pre-Retirement Income

44

Retirement Shortfalls

45

Getting a Return on Savings

47

Receiving Income from Investment Vehicles

49

Taxation on IRA’s, Annuities and More

49

Withdrawals Prior to Age 59 ½

50

  The Age 55 Penalty Exception

50

  The Five-Year Rule for 72(t) Payments

51

 

 

Chapter 2: Why does the SECURE Act Apply to Insurance Producers?

52

SECURE Act of 2019

54

Public Law 116-124

54

H.R. 1994 AN ACT

56

  SEC 1 Short Title, Etc.

56

Title I: Expanding Retirement Savings

57

  SEC 101 Multiple Employer Plans

57

  SEC 102 Increase In 10% Cap

65

  SEC 103 Rules Relating to Election

65

  SEC 104 Increase in Credit Limitation

67

  SEC 105 Small Employer Auto Enroll Credit

67

  SEC 45T Auto-Enroll Option

67

  SEC 106 Taxable Non-Tuition Fellowship

68

  SEC 107 Repeal of Maximum Age for IRA

68

  SEC 108 Qualified Employer Plans                                                             

69

  SEC 109 Portability of Lifetime Income Options

69

  SEC 110 Treatment of Custodial Accounts

72

  SEC 111 Clarification of Retirement Income

73

  SEC 112 Qualified Cash or Deferred

73

  SEC 113 Penalty-Free Withdrawals

75

  SEC 114 Increase in Age for Distributions

77

    Editor’s Note

77

  SEC 115 Special Rules for Minimum Funding Standards

78

  SEC 116 Treating Excluded Difficulty of Care Payment

82

Title II: Administrative Improvements

84

  SEC 201 Filing Due Date for Year

84

  SEC 202 Combined Annual Report

84

  SEC 203 Disclosure Regarding Lifetime Income

85

  SEC 204 Fiduciary Safe Harbor

87

  SEC 205 Modification of Rules

90

  SEC 206 Modification of PBGC Premiums

97

Title III: Other Benefits

98

   SEC 301 Benefits for some 1st Responders

98

   SEC 302 Expansion of Section 529 Plans

98

Title IV: Revenue Provisions

99

   SEC 401 Modification of Distribution Rules

99

   SEC 402 Increase in Penalty for Failure to File

103

   SEC 403 Increase in Penalties for Failure to File Retirement Plan Returns

103

   SEC 404 Increase Information Sharing

104

Title V: Tax Relief for Certain Children

105

   SEC 501 Modification of Rules

105

      Editor’s Note

105

 

 

Chapter 3: Life Insurance

107

Policy Provisions

108

Defining the Contract

108

Policy Application

109

Policy Ownership

110

Preventing Money Laundering Activities

110

Terrorism Produces Insurer Risk

110

    Financial Action Task Force (FATF)

111

Legal Requirements Adopted

112

    The USA Patriot Act

112

Broker-Dealer Requirements

114

AML Program Requirements

115

Know Your Customer (KYC)

118

Compliance

118

Suspicious Activity Reports Filing Requirements

118

A Change in Thinking

119

A Global Problem

120

Covered Products

122

Nine Identified Money Laundering (ML) Methods

123

 1. Single Premium Life Insurance Contracts

123

 2. Early Policy Redemption

124

 3. Claim Fraud

124

 4. Cash Premium Payments

124

 5. “Free Look” Periods

124

    Example

125

 6. Collusion

125

 7. Third-Party Premium Payments

125

 8. Risks Involved in International Transactions

125

 9. Fraudulent Customers

126

Money Laundering Indicators Not Unique to Insurance Products

126

   1. Large One-Off Cash Transactions

126

   2. Use of False Addresses

126

   3. Overseas Business from Higher Risk Area

127

  Policyholder Characteristics and Behaviors

127

  A Known Criminal or Criminal Associate or Relative

129

  Erratic or Abnormal Use of Policies

129

  High Premiums Compared to Verifiable Income

129

  Lack of Concern for Charges or Costs

130

  Undue Interest in Payout Options

130

  Change of Beneficiary

130

  Insurance on Assets Inconsistent with Income

130

  Early of Suspicions Claims

131

Product Characteristics and Maintenance

132

   1. Policy Payments from Third Parties

133

   2. Multiple Sources of Funds to Pay Premiums

133

   3. Significant Premium Top-Ups to a Policy

133

   4. Overpayment of Premium

133

   5. Using an Insurer like a Bank

133

   6. Early Redemption

134

   7. Unusually High Commission Charges

134

Customer Due Diligence (CDD)

134

Policy Features and Provisions

136

Premiums

137

Policy Options

137

  Nonforfeiture Options

137

  Dividend Options

138

  Settlement Options

138

State Required Provisions

140

  Incontestability

141

  Misstatements in the Application

141

  Deferment Clause

142

  Nonforfeiture

142

  Loan Values

142

  Grace Periods and Reinstatement

143

Allowed Policy Provisions

144

   Suicide

144

   Aviation

144

   War

144

General Provisions

145

   Deduction of Indebtedness

145

   Change of Beneficiary

145

   Assignment

146

Beneficiary Designation

146

Policy Payments

148

  Cash Values

148

  Dividends

149

  Proceeds

149

  Special Clauses

150

Contract Use

152

Group Insurance Principles

152

Eligible Groups

152

   Single-Employer Groups

152

   Multiple Employer Trusts (METS)

152

   Unions, Association, and Other Groups

153

 Creditor-Debtor Groups

153

 Underwriting Advantages

154

 Keeping Current with Business Needs

155

The Informed Consumer

156

Providing a Quote

156

The Contract Participants

158

  The Insurer

158

  The Insured

158

  Insurance Contract

159

  Underwriting and Rating

159

  Finance

160

A Public Interest

160

Key Person Insurance

161

Buy-and-Sell Agreements

162

The Key Person Principle

163

  Insurable Interest for Life Insurance

163

    Example

164

  Disability Insurance on Key Employees

165

    Example

165

The Small Company’s Exposure

167

  Loss of the Small Business Owner

167

Planning Ahead for Death or Disability

171

Insuring Entities

171

Private and Government Insurance

171

Private Insurers

171

  Life Insurance

172

  Property and Liability Insurance

173

Government Insurance

173

  Voluntary Government Insurance

173

  Compulsory Government Insurance

174

Mutual Companies

174

  Assessment Mutuals

175

  Non-assessable Mutuals

177

  Conversions

177

Reciprocal or Inter-Insurer Associations

178

Stock and Mutual Underwriting

179

Factory Mutuals

180

Superior Agents and Brokers

181

 

 

 

United Insurance Educators, Inc.

PO BOX 1030

Eatonville, WA 98328