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Capital G Private Wealth Conference 2013. Creative Uses of Traditional Life Insurance Products Larry R. Gibson, CFA Vice President. Agenda. Risk retirees face Introduction to our company Basic Products Life Insurance Trust Creative applications of traditional products - PowerPoint PPT Presentation
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Creative Uses of Traditional
Life InsuranceProducts
Larry R. Gibson, CFAVice President
Capital G Private Wealth Conference
2013
Risk retirees face Introduction to our company
Basic Products
Life Insurance Trust
Creative applications of traditional products
Questions and Answers
Agenda
2
BRITISH VIRGIN ISLANDSColonial Insurance (BVI)
Group Medical General Insurance
Life InsurancePensions
CAYMAN ISLANDSBritish Caymanian Insurance
Company LtdGeneral Insurance Provider
British Caymanian Insurance Agencies Ltd
Group and Individual Medical InsuranceGroup Pensions Provider
Life Insurance (Individual & Group)
THE BAHAMASAtlantic Medical Insurance
Group Medical Insurance ProviderSecurity & General Insurance
General Insurance ProviderColonial Pension Services
(Bahamas)Individual and Group Pensions
Provider
BERMUDA (Head Office)Colonial Group International
Manages $390M in pension assets Underwrites $300M in premium
income Capital in excess of $180M
$60M in annual pension contributions
280 staff in 5 jurisdictions
Colonial InsuranceGeneral Insurance Provider
Colonial MedicalGroup Medical Provider
Colonial LifeLife Insurance Provider (Individual
and Group)Colonial Pensions
Group Pensions and Individual Investments
Rated A- (Excellent) by AM BEST
A Large Regional Player – CGI has doubled in size every 5
years since 1979
Colonial Group International
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Global Insurance Industry
Total Gross Insurance Premium 4.597 US$ Trillion 2011 SwissReGlobal Premium as % of Global GDP 6.6 Percent 2011 SwissReGlobal Life Insurance Premiums 2.627 US$ Trillion 2011 Swiss ReGlobal Non-Life Insurance Premiums 1.969 US$ Trillion 2011 SwissReGrowth in Life Insurance Premiums -2.7 Percent 2011 SwissReGrowth in Non-Life Insurance Premiums 1.9 Percent 2011 SwissRe U.S. Insurance
Industry Life Insurance Direct Premium Written 166.2 US$ Billion 2011 NAICEmployment in the Insurance Industry 2.3 Millions 2011 BLSDirect Life Insurance Carriers 343.4 Thousands 2011 BLSReinsurance Carriers 26.3 Thousands 2011 BLSInsurance Agencies& Brokerages 644.5 Thousands 2011 BLSDirect Property& Casualty Insurers 528.8 Thousands 2011 BLSDeath Benefits Paid 59 US$ Billion 2009 LIMRAAnnuity Benefits Paid 67 US$ Billion 2009 LIMRA
SwissRe- Swiss Reinsurance- Board of Governors of the Federal Reserve NAIC- National Association of Insurance Commissioners BLS- Bureau of Labor statistics LIMRA - Life Insurance and Market Research Association
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Impact of Global Life Insurance
Industry
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Life Insurance Coverage Gap
Traditional role of Life
Insurance•Upon the death of the insured, Life Insurance can potentially: Create an estate- to help provide finance,
dignity and independence for loved ones, or create a legacy for heirs or for a charity.
or Preserve an estate- settle an outstanding
mortgage, provide a succession plan for a business help settle estate death tax.
6
Types of Life Insurance
• Term Life - Protection for a specified period, face amount of policy paid in the event of death. Used when: Need is temporary Need is permanent but insured cannot afford premium for
permanent Life Insurance. Insured wants “pure” protection and invest savings or
investment dollars elsewhere.• Whole Life - Furnishes protection for one’s whole
life. Premiums may be paid… Throughout insured’s life time Over a limited period In one lump sum
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Term Insurance• Level Term Specified level amount of
insurance and level premium for initial period of contract.
• Decreasing Term Death benefit decreases over
period of contract, level premium. Most economical of the three types of Term Insurance.
• Renewable Term At the end of each term (5-10
Yrs) premiums will increase to a higher level, death benefit remains the same. This becomes an expensive plan in later years.
$50,000$40,000$30,000$20,000$10,000 $0
Death Benefit Payable
Age 35 Age 40 Age 45
Premium Rates
30 40 45
Level
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Whole Life Insurance
No CSV in early years
At age 100CSV = Face ValueConstant Face
Value
• Has a savings or cash value component.
• Early years of premium more than enough to pay the current cost of insurance protection.
• The excess makes up the deficiency of premium in later years when annual premium is not sufficient to pay annual cost of insurance. These extra premiums are held by the insurer, creating the “cash value” of the policy.
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Unit Linked vs. Universal Life
• Universal Life Face Value of Policy remains
constant Accumulation Fund (AF)
subject to market risk Projected value of AF may not
be realized Some structures guarantee a
minimum return• Unit Linked/Variable Life
Face Value of Policy varies depending on value of accumulation fund
Policy life could be shortened Contractual Reviews –
important Investment risk with Insured
Initial Face ValueCash Value
Constant Face Value
Reduced Face Value
Cash Value
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Optional riders and benefits
Optional riders and benefits vary from company to company at additional cost. The most common ones are:
•Accidental Death Benefit - Pays twice the death benefit if death occurs by accident.•Accelerated Death Benefit - If diagnosed with a terminal illness with 12 months to live, policy is paid in full.•Convertibility Option - Convert a Term Policy to a Whole Life Policy without proof of insurability. •Premium Waiver - Waives the monthly deduction charges if the insured meets the definition of disability.
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Reality
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•Most persons take out Life Insurance when they become parents or homeowners … but some of the most interesting uses of Life Insurance can come when the kids are gone and the house is fully paid off.
•Basic Life Insurance products can be used to solve many problems that arise upon death or the transfer of assets.
Irrevocable Life Insurance Trust
(ILIT)•Trust which is set up by individual/couple for the
purchase and distribution of Life Insurance proceeds Trust must be irrevocable to be eligible for certain tax
exemptions (vary by jurisdiction…get individual tax advice)
Settler cannot be beneficiary Once the life insurance policy is placed in the trust,
the insured person no longer owns the policy, which will be managed by the trustee on behalf of the policy beneficiaries when the insured person dies.
•Can settle Trust in home or other jurisdiction
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Policy Beneficiary Trust vs. Named
Beneficiary•Life Insurance Trust
Not subject to probate Allows you to leave instruction as to how
payout is used Allows great flexibility in the use of proceeds
•Named Beneficiary Not subject to probate Provides flexibility Need to consider beneficiary’s tax position
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Potential Uses:
•Providing heirs with liquidity Immediate source of cash to settle bills and pay
ongoing expenses Replacing monies lost to taxes e.g. Inheritance
taxes
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Potential Uses:
•Providing a solution to the problems arising from multiple marriages Avoid a ‘battle of the tribes’ Accommodates beneficiaries with differing time
horizons and/or priorities
•Providing for ‘extended’ families Commonplace in certain cultures Separates and preserves the assets of the
‘traditional’ family Preserves anonymity, if necessary
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Potential Uses:
•Providing protection against ‘human capital’ failure What is ‘human capital’ failure?
Premature death Disability
•Providing Creditor Protection
•Providing protection against capital market volatility Provide protection from having to liquidate in
‘adverse’ markets
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Potential Uses:
•Replacing the value of an asset e.g. a home/business Buy/sell agreements Home/Business – leave to one heir…give other
heirs the value of their rightful share Funding for redevelopment of former estate
•Building a Legacy/Funding a Bequest Alumni Gift…buildings, scholarships Donations – Churches, Hospitals, orphanages etc. Favorite Charity
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Potential Uses:
•Forced Heirship Laws Prevalent among civil law jurisdictions and
Islamic countries
•Hedge against expropriation/nationalization of assets Hard assets outside of home jurisdiction
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Potential Uses:
•College Trust Ensures that children/grand children etc. can
have a fully funded education •Financial Security for surviving spouse
In many cases, a couple’s retirement plan is heavily based on the husband’s pension benefit.
But… Survivor benefit is often stopped or significantly
reduced upon death Similarly, healthcare benefits are also reduced
20
Thank You
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