Sunday, December 23, 2012

Term Conversion Video

What is a term conversion? Check out this informative video

Tuesday, July 24, 2012

Charitable Gift Annuity

A charitable gift annuity is a contract between a donor (the annuitant) and an organization. A charitable annuity is set up for two reasons: one, to provide a retirement income for the donor and two, to provide a charitable gift to the organization after the death of the donor. The organization can be a number of charitable causes. They are commonly used to donate to universities, churches and even organizations such as the Red Cross.

 A charitable gift annuity will usually guarantee a retirement income stream for a certain period of time (or lifetime) based on the amount of assets that are deposited into the annuity. The issuing organization of the annuity usually uses standards set forth by the American Council on Gift Annuities to write their annuity policies; and insure that the charitable gift annuities are being set up properly from an actuarial standpoint. This helps protect both the organization and the donor.

The deposit into a charitable gift annuity can be cash, securities, land or other forms of assets with real value. The charity will remain in control of the assets indefinitely. Charitable gift annuities are regulated by the individual states and the issuing charity must prove to that state that the gift annuities that it is issuing are meeting that states guidelines for actuarial standards. (Again, ACGA helps guide these charities in this area.) Lastly, the charities must keep a close ongoing valuation of its asset's value to insure that it is paying out the correct amount based on actual value of the assets not the "book value". If you have any more questions on Charitable Gift Annuities, especially in North Carolina feel free to contact us for a free phone, email or face to face consultation.

Tuesday, July 10, 2012

What is a 1035 Exchange?

What is a 1035 exchange?

Disclaimer: This post will describe what a 1035 exchange is as we have learned it in the field by performing hundreds of exchanges. Tax laws constantly change, this will give you a general idea of what a 1035 exchange is and that is all it is designed to do. Please check with your company or tax professional to confirm any of this information.

A 1035 exchange as it is known in the insurance industry is IRS tax code that allows for money to be moved from like life insurance policies to to other like life insurance policies or from like life insurance policies to like annuities under tax code number 1035. By like policies I am referring to the fact that the life policies that participate in the exchange must be similar. For example, you cannot move money from a survivor or second to die life policy to a single life policy or vice versa. (Same goes for single life annuities and joint annuities.) You cannot exchange money from an annuity to a life insurance policy. You can however move money under this code from a life to annuity policy, and you can also exchange value from annuity to annuity. Also, the Pension Protection Act , which was revised January of 2010 allows for exchange from current annuities and life policies to new annuities and life policies with long term care payout benefits.
A 1035 exchange is useful to avoid a taxable event in surrendering or exchanging insurance contracts. If you have growth in your life insurance or annuity policy, meaning more money than your "basis" or what you have paid in, then the growth of that policy is considered a taxable distribution if taken via surrender or withdrawal. This tax can be avoided if a 1035 exchange is properly executed.

Ok, I hope that is clear and I tried to put it in layman's term as best I could. Below,  I will post verbatim the tax code from the IRS. If you have any questions contact me and I will be glad to answer any questions.

    Sec. 1035. Certain exchanges of insurance policies
    (a) General rules
      No gain or loss shall be recognized on the exchange of -
        (1) a contract of life insurance for another contract of life
      insurance or for an endowment or annuity contract or for a 
      qualified long-term care insurance contract;
        (2) a contract of endowment insurance (A) for another contract
      of endowment insurance which provides for regular payments
      beginning at a date not later than the date payments would have
      begun under the contract exchanged, or (B) for an annuity
      contract, or (C) for a qualified long-term care insurance contract;
        (3) an annuity contract for an annuity contract or for a
      qualified long-term care insurance contract; or
        (4) a qualified long-term care insurance contract for a 
      qualified long-term care insurance contract.
    (b) Definitions
      For the purpose of this section -
      (1) Endowment contract
        A contract of endowment insurance is a contract with an
      insurance company which depends in part on the life expectancy of
      the insured, but which may be payable in full in a single payment
      during his life.
      (2) Annuity contract
        An annuity contract is a contract to which paragraph (1)
      applies but which may be payable during the life of the annuitant
      only in installments. For purposes of the preceding sentence, a 
      contract shall not fail to be treated as an annuity contract 
      solely because a qualified long-term care insurance contract 
      is a part of or a rider on such contract.
      (3) Life insurance contract
        A contract of life insurance is a contract to which paragraph
      (1) applies but which is not ordinarily payable in full during
      the life of the insured. For purposes of the preceding sentence, 
      a contract shall not fail to be treated as a life insurance 
      contract solely because a qualified long-term care insurance 
      contract is a part of or a rider on such contract.
    (c) Exchanges involving foreign persons
      To the extent provided in regulations, subsection (a) shall not
    apply to any exchange having the effect of transferring property to
    any person other than a United States person.
    (d) Cross references
          (1) For rules relating to recognition of gain or loss where
        an exchange is not solely in kind, see subsections (b) and (c)
        of section 1031.
          (2) For rules relating to the basis of property acquired in
        an exchange described in subsection (a), see subsection (d) of
        section 1031.

Thursday, July 5, 2012

Medicare & Medicaid

I talk to many people every week about long term care and where it fits into Medicare and Medicaid. These terms can be confusing. Both are government programs and they sound a lot alike. It was probably not the best idea to name them so similarly, but what is done is done. I will help try and shed some light on the roles of each program in a quick and easy post.

Medicare was started in 1965 by the Federal Government to help US citizens or permanent residents over the age of 65 pay for the medical costs. Medicare is funded entirely by the Federal Government. If you or your spouse have been paying into Medicare for 10 years or more then you are eligible for Medicare at age 65. The idea of Medicare, a social insurance, is to spread the risk of medical costs across a society that is paying in. Medicare does not cover long term medical care needs, it is designed to cover restorative care or care that heals only. Long term care is care that helps you maintain your every day needs or activities of daily living. We have six activities of daily living: eating, dressing, bathing, toileting, continence (other bathroom needs like shaving and nail clipping) and transfer (movement). Medicare is not designed to cover these costs.

Medicaid is also a social program that helps those US citizens and residents cover their medical needs. However, Medicaid is a means tested social program. This basically signifies that your income and assets need to be at certain levels (usually current poverty line or below) to qualify for the aid. Medicaid can cover children of low income parents and the disabled as well. Medicaid is jointly funded by the Federal and State Governments and managed by the individual states. Medicaid is designed to be social protection and covers more health care services than Medicare. Medicaid will cover long term care needs in the facilities and with providers that they have approved.

So next time you get a little confused on the difference between Medicare and Medicaid and its role with long term care, come back to this post, I hope it helps clear up the confusion. If you have any further questions regarding Medicare and Medicaid feel free to contact me . (Especially, if you have any questions on Medicaid in NC, my resident state.)

Wednesday, June 27, 2012

Gift Tax - How Much is the Estate Tax?

(The information in this post is for educational purposes only. Legislation around this area is constantly changing. The examples used are hypothetical and very basic for ease of understanding.)

Many people constantly want to know How Much is the Estate Tax? At the time of writing this post the gift tax is allowable to be passed on from one generation to another is $5,000,000 per person or $10,000,000 per couple. (Here the gift tax is also known as the estate tax. For our purposes, the amount that a person may give to their heirs without a taxable consequence.) It is also important to note that the top gift tax rate is as low as it has ever been since 1931! The amount that you pass along valued above this $5 million (person) or $10 million (couple) is taxed at 35% if you pass away in 2012. If congress does not take any action by the end of 2012, the gift tax is set to reset back to $1 million per person or $2 million per couple and the top gift tax rate will jump up to 55%! 

So, long story short, 2012 is a great time to tackle your estate and gift planning needs. (With our country's $1.2 trillion dollar deficit, maybe the best time we will see in a very long time anyway.) This is the year you will be able to gift more and pay less now and at the time your estate passes on. This is also a great time to consider the power of life insurance in your gift planning needs. Especially the power of  Guaranteed Universal Life Insurance. (GUL) Let' s assume that you have 2 children and as part of your estate plan you wish to gift them $100,000 each.  You can put the $100,000 into a brokerage account in their name and hope for the best or dump it into a single premium GUL and have a tax free death benefit of $332,350 dollars PER CHILD GUARANTEED for your lifetime assuming you were a 60 year old non-smoking male with standard health! So the $200,000 that you plan to leave can immediately be worth almost $700,000 and payable in a lump sum tax free death benefit. There are no capital gains taxes due at any time on growth. 

Another important use for life insurance in your estate planning and gift tax needs is to have enough life insurance to cover the top gift tax rate. Lets assume that the estate tax reverts back to the 55% Federal tax rate on all estates valued over $1 million  dollars per person. For easy math sake, lets  use our life insurance figures above. You are a single person and your total estate is valued at $1.6 million dollars. (Real estate holdings, cash, retirement accounts, titled assets, jewelry, etc.) Remember, you able to pass along $1 million tax free under the gift tax rates and $600,000 of your estate would be taxed. At a 55% tax rate scheduled for 2013 and beyond that would be equal to $600,000 @ 55% or $330,000, due in Federal estate tax after your death. Keep in mind, this doesn't include your State's taxes! A good use for life insurance is to offset the taxes due by re-positioning $100,000 into a life insurance policy and having the $332,350 death benefit available in a tax free lump sum to pay the taxes. (In this example, the policy holder could also pay an ongoing annual premium of  $6,282 for life, again assuming 60 yr old non-smoking male standard health). If this man had no life insurance in place, then $300,000 would be due in just Federal taxes after his death. This would leave his family with 2 options: #1 sell assets quickly at current market value or below, #2 use more liquid cash and/or retirement accounts to settle the bill. 

These are just a few basic ideas of  the power of leveraging life insurance for your estate planning needs. Please see our website or contact us. We are able to help you and answer your questions no matter what State you live in. 

Monday, June 25, 2012

What is Travel Insurance?

What is Travel Insurance? Travel insurance can cover you from financial loss while abroad. This financial loss can include anything form trip cancellation to medical expenses, disability or even global life insurance coverage. At Aarow Financial Group, we have partnered with International Medical Group (IMG), to offer first class Travel Insurance. IMG is known for its comprehensive travel insurance products and service. They are the industry leader. No matter where you live in the United States, you can purchase International Travel Insurance, and no matter where you travel IMG offers some form of coverage for your travel insurance needs. Please see below for the IMG suite of products and purchase with confidence.

Welcome to IMG®'s section of Coverage without Boundaries®! We know that the reasons to travel abroad are many and varied – that’s why our products are too.  Our full-service approach to providing international medical insurance products includes servicing vacationers, those working or living abroad for short or extended periods, people traveling frequently between countries, and those who maintain multiple countries of residence. To meet all of these needs, we have developed a comprehensive range of major medical, life, dental and disability products that can be tailored to meet your needs.
For your convenience and to assist you in determining which plan is right for you, simply use the scroll function to view each of the products or click on one of the specific product categories below to help narrow your search. You may also obtain more detailed plan information by clicking on the “Review Coverage” link associated with each product. Once you have determined which plan best fits your needs, click on the “Quote/Buy Insurance” link and you can complete the simple and easy-to-follow application.
Individual  |  Group  |  Student  |  Trip Cancellation  |  Specialty
All coverages, benefits and premium amounts listed are in U.S. dollars.

Coverage for individuals & families worldwide

Patriot Travel Medical Insurance®
Individual & family plan
Patriot Travel Medical InsuranceThe two Patriot® travel plans offer a complete package of international benefits available 24 hours a day. Patriot International®provides coverage for U.S citizens traveling outside the U.S with coverage for brief returns to the U.S, while Patriot America®provides coverage for non-U.S citizens traveling outside their home country. Both plans are available for minimum of days up to a maximum of two years.

Global Medical Insurance®
Individual & family plan
Global Medical InsuranceGlobal Medical Insurance (GMI) is a revolutionary program that offers long-term flexible worldwide coverage to meet your individual or family needs, backed by the world-class services you expect. 

GMI allows you to custom build a plan that is specifically tailored for you. It offers the flexibility to select from an assortment of four unique benefit plan options - each with specialized coverages. To accommodate your financial means, you can customize your length and area of coverage as well as select from multiple deductibles and modes of payment. Its flexible underwriting options also provide IMG the ability consider coverage that may have been declined by other carriers. 

To maximize the outcome of your medical care, our on-site clinical staff is ready to assist you at a moment’s notice. You have the freedom to choose any provider for your services, or you can quickly and easily access providers in the extensive PPO network and the International Provider AccessSM (IPA). You also have direct access to our Medical Concierge, an unequalled service that provides you with personalized assistance in locating the best provider for your specific needs, while saving you on out-of-pocket and medical expenses.

Patriot Platinum Travel Medical InsuranceSM
Individual & family plan
Patriot Platinum Travel Medical Insurance
Patriot PlatinumSM provides first-class protection for the discerning international traveler who wants to obtain the maximum coverage available in a short-term travel medical product on the market today.
Patriot Platinum builds upon the Patriot Travel plan by providing up to $8,000,000 of coverage with enhanced benefits and services and our Global Concierge & Assistance ServicesSM.
There are two plans available: Patriot Platinum InternationalSM provides coverage for U.S. citizens traveling outside the U.S. and Patriot Platinum AmericaSM provides coverage for non-U.S. citizens traveling outside their home country. Coverage can be obtained from a minimum of five days up to three years.

Patriot Green Travel Medical InsuranceSM
Individual & family plan
  Patriot Green Travel Medical Insurance
Patriot Green Travel Medical InsuranceSM is designed for the environmentally conscious traveler and provides up to $2,000,000 of medical coverage and services.  This plan provides the same comprehensive benefits as the Patriot Travel plan, but also includes eco-friendly benefits including providing for the purchase of carbon offsets, pays an additional $5,000 AD&D benefit to an environmentally conscious organization, and it is paperless.
Patriot Green InternationalSM provides coverage for U.S. citizens traveling outside the U.S. and Patriot Green AmericaSMprovides coverage for non-U.S. citizens traveling outside their home country. Coverage can be obtained from a minimum of five days up to two years.

Patriot Executive®
Individual executive and family plan
Patriot Executive Travel Medical Insurance
Patriot Executive is designed for the executive that takes multiple trips throughout the year outside his or her home country. The plan provides coverage up to 45 days in length for each trip. It offers the ease and convenience of purchasing a single annual plan at an affordable premium.
Patriot Executive International provides coverage for U.S. executives traveling outside the U.S. and Patriot Executive America provides coverage for non-U.S. executives traveling outside their home country.
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Group coverage for employees around the world or short-term coverage for travelers outside their home country

Employer sponsored group plan
Global Employers Option Group Medical Insurance
GEO Group is one of the most comprehensive group hospital, surgical, medical and life insurance programs in the world. This program is designed for employers with employees who are either U.S. or Canadian citizens who reside abroad, or foreign nationals around the world. GEO Group assists employers to carve out their international employees to provide U.S.-style benefits and worldwide coverage. This program includes medical, dental, life and indemnity benefits for employees and their families.

Patriot Group Travel Medical Insurance®
Group plan
Patriot Group Travel Medical Insurance
Patriot Group Travel Medical Insurance provides coverage for groups of five or more U.S. citizens and/or foreign nationals who need temporary medical insurance while traveling for business or pleasure anywhere outside their home country. It offers a 10% discount from Patriot Travel Medical Insurance and has one easy-to-use enrollment form.
There are two Patriot Group Travel plans that provide up to $2,000,000 of medical coverage with a choice of deductibles and policy maximums. Patriot International Group provides coverage for U.S. citizens traveling outside the U.S. and Patriot America Group provides coverage for non-U.S. citizens traveling outside their home country. In addition to medical benefits, the plans include coverage for medical evacuation and repatriation.
Coverage can be obtained from a minimum of five days up to a maximum of two years.
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Scholars, faculty and student coverage while traveling, working or studying outside their home country

Patriot Exchange ProgramSM
Individual and family plan
Patriot Exchange Program
Patriot Exchange is designed for students studying abroad or participants of cultural exchange programs. Two plan options are available. The Basic Short-Term Travel Plan is an economical plan while the Standard Short-Term Travel Plan is designed to meet the U.S. J1 visa travel insurance requirements.
Its flexible plan design also provides three areas of coverage: U.S. citizens worldwide except in the U.S., Non-U.S. citizens worldwide except in their home country and Europe to Europe.
Plans are available in monthly increments and if a minimum of three months is purchased, coverage may be renewed (without break in coverage) for a total of four years.

Patriot Group Exchange ProgramSM
Group plan
Patriot Group Exchange Program
Patriot Group Exchange offers the same great benefits, options and renewability as the Patriot Exchange Program, and in addition to the Basic and Standard Short-Term plans, a Long-Term plan is available.
The plan is available to groups of two or more students or participants of cultural exchange programs, offers a 10% discount from Patriot Exchange Program and has one easy-to-use enrollment form.

Student Health AdvantageSM
Group and individual plan
Student Health Advantage Insurance
Student Health Advantage is designed for individuals or groups of two or more students or scholars participating in a sponsored study abroad program, and desire an annually renewable comprehensive medical plan. This plan meets student visa requirements, includes benefits for maternity after 10 months, mental health, organized sports and international emergency care. It also provides coverage for pre-existing conditions after 12 months of coverage.
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Individual & family coverage for trip cancellation and interruption, travel delay, medical expenses and baggage

Patriot T.R.I.P.®
Travel protection for trips up to 30 days
Patriot T.R.I.P. Travel Insurance
Patriot T.R.I.P. helps protect travelers who are unable to travel or are interrupted during their covered trip due to circumstances such as a sudden and unexpected illness or injury, death in the family, jury duty, job layoff, terrorism or the bankruptcy of the tour operator, cruise line or airline. Benefits also include coverage in the event of travel and baggage delay, lost baggage, emergency medical expenses, emergency medical evacuation and much more.

Patriot T.R.I.P.® Elite
First class travel protection
Patriot T.R.I.P. Elite Travel Insurance
To provide superior protection for a picture perfect vacation, there is Patriot T.R.I.P. Elite, a premier travel insurance program. Patriot T.R.I.P. Elite offers a high level of benefits to travelers who need more coverage than provided by the Patriot T.R.I.P. program. The program has increased benefit amounts for emergency medical, emergency medical evacuation, travel delay, baggage, trip interruption and has a benefit for violent attacks.

Patriot T.R.I.P.® Student
Student travel insurance program
Patriot T.R.I.P. Student Travel Insurance
Patriot T.R.I.P. Student is a "budget conscious" travel insurance program designed to provide important benefits to students for many of those unforeseen circumstances that may force the cancellation or interruption of a covered trip. This program also includes coverage for trip cancellation or interruption travel and baggage delay, lost or stolen baggage, emergency medical expenses and emergency medical evacuation.
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Specialty coverage - plans for evacuation only, adventure sports or medical coverage for sea captains and crew

Sky RescueSM
Emergency medical evacuation
Sky Rescue Emergency Medical Evacuation Insurance
Sky Rescue is designed for those travelers who need to fill the gaps in the international medical insurance. It provides coverage for such benefits as emergency medical evacuation, repatriation, reunion and emergency assistance services that are not covered under most domestic or national plans.
Coverage is available for individuals under the age of 65 traveling outside their home country. It can be purchased in three, six or 12 months increments and can be rewritten for succeeding or subsequent periods.

Patriot AdventureSM
Adventure athletics and adventure insurance
Patriot Adventure Travel Medical Insurance
Patriot Adventure is designed for the adventurous international traveler who intends to participate in the thrill of adventure sports and realizes that their current medical plan does not cover certain hazardous sports and activities.
From skydiving to whitewater rafting, Patriot Adventure provides up to $50,000 of coverage and is available to those under the age of 50.

CrewSelect InternationalSM
Worldwide coverage for professional marine crew
CrewSelect Medical Insurance
International Medical Group®, Inc. (IMG®) offers CrewSelect International, a comprehensive and portable international medical insurance plan designed specifically for professional marine crew. CrewSelect International can help eliminate the obstacles of time, currency, and language when you are seeking medical treatment and need assistance and administration of your global health care benefits.

International Marine Medical InsuranceSM
Worldwide group coverage for professional marine crew
International Marine Medical Insurance
International medical insurance for marine crew requires provisions not met by many companies. International Marine Medical Insurance (IMMI) was designed specifically to provide comprehensive medical insurance to marine crew by offering continuous coverage worldwide. IMMI provides $1,000,000 of coverage per certificate period with a full range of benefits. Group members will be covered worldwide, including their country of citizenship, 24 hours a day.

Global Crew Medical Insurance®
Worldwide coverage for professional marine captains & crew members
  Global Crew Medical Insurance
Global Crew Medical Insurance(GCMI) is a comprehensive and portable international medical insurance plan designed specifically for professional marine crew. GCMI can help eliminate the obstacles of time, currency, and language when you are seeking medical treatment and need assistance and administration of your global health care benefits. The plan provides $5,000,000 of lifetime coverage with a full range of benefits and offers two options: worldwide coverage and worldwide coverage excluding the U.S. and Canada. Both options provide coverage 24 hours a day, and you have the freedom to choose any doctor or hospital for treatment.

Wednesday, June 20, 2012

How Should I Structure the Beneficiary on Life Insurance?

This is often a question that I am asked when writing a life insurance policy, and it is a good question. The answer depends on your situation. If you are using the insurance as coverage for business needs then you should probably specify the type of business coverage (key man or buy sell) and make the business owner and beneficiary. If you have a life insurance trust or any trust that will receive the death benefit from the life policy, then that trust should probably own the policy and be the beneficiary. However, the average person would usually want to make members of their immediate family the beneficiary on their life insurance policy and this is what I will address below. If you have any questions on business or trust structure for your life insurance in North Carolina, you can contact us here. I will be happy to give you a free consultation and we have a licensed North Carolina Attorney in our practice. 

Now, if you have purchased a life insurance policy to protect your family and are looking to just make your family members beneficiaries, here are a few things to consider. 

1. A life insurance policy in its simplest form is a contract between the policy owner, the insured (if different), the beneficiaries and the insurance company. Life insurance proceeds are designed to avoid the probate (court) process after death and go direct to the beneficiaries tax free. A beneficiary can be changed at any time with a simple form from the issuing company at the policy owner's discretion. The policy holder is allowed to name as many beneficiaries as math will allow, however more and more companies are requiring beneficiaries be designated in whole percentage points of at least 1%. So if a policy owner wanted to name 100 people as beneficiary at 1% each, they could so, as long as they could prove "insurable interest" with all the beneficiaries. (family needs, business needs, charity, etc.)

2. You should always name both a primary and contingent beneficiary. This will insure that if something were to happen to say you and your primary beneficiary at the same time that there would be a back up plan for who gets the proceeds of the policy. The main issue you would want to try and avoid is the proceeds being put into the estate of the insured. This scenario can lock up the money for long periods of time, eat into the money in attorney fees and does not insure that the money will be distributed according to the wishes of the insured. (Basically, the probate court would decide on the distribution and in North Carolina we are a "per stirpes" state or "per bloodline", meaning the state decides based on your closest surviving family who would get the money and that might not always be what the insured wants.)

3. Uniform Simultaneous Death Act of 1940 - If both insured and primary beneficiary die at the same the time the act allows the court to decide who lived longer. If no other proof exists proving otherwise, the court can deem that the insured lived longer and death proceeds can go to the contingent beneficiary if one exists, if there isn't a contingent the death proceeds go to the estate of the insured.

4. Common Disaster Provision - a provision in a life insurance contract , usually put in by the policy owner, that states how long a primary beneficiary must survive past the insured in order to receive the death proceeds. This is usually 10-30 days, but may go out as long as 60 or 90 days, depending on the clause. This clause is designed to protect the death benefit in the case that there was an event that causes multiple deaths of parties to the contract within a short period of time. This clause helps determine if the primary or contingent beneficiary is to receive the payout. 

5. Naming minor children might not be the best idea. Again, in NC and most other states, if a child beneficiary is under the age of 18 in NC (16 in some states, as much as 21 in some states), then the money can be put into a state directed trust and someone "per stirpes" named trustee. (again per bloodline) This trustee would then have access to this money to care for the children. (Again, this may not be in line with the wishes of the insured or children, and there is no guarantee how the money is spent on the children's care.) It is best to name an older person that you trust outside of your spouse as contingent beneficiary. It is also a great idea to have a Will that designates guardianship of your children in the event that you and your spouse both pass while the children are minors. If you live in NC and would like a free consultation on a North Carolina Will, contact us, and we can set up a time for you to have a free consultation with our Attorney.