The Ziff Agency Monthly
From the Desk of Larry Ziff The Ziff Agency, LLC
this issue The U nde r wr it ing C or ne r : S le e p A pne a P.2 H e lp C ov e r R e tir e m e nt C os t s with a SP IA P.3 The R e a lit y of D is a bility P.4
The American Taxpayer Relief Act of 2012 On January 1, 2013, Congress passed a law to avert some of the concerns surrounding the so-called "fiscal cliff." The package contains about $620 billion in higher taxes over 10 years, mostly falling on high-income Americans. The act does not impose new taxes on life insurance, annuities, pensions, or employer-provided benefits. The American Taxpayer Relief Act of 2012 focuses on several areas that impact taxpayers: • P ermanent extension of the Bush tax cuts for individuals with taxable income under $400,000 ($450,000 for joint filers). The top income tax rate for those in excess of these income amounts will be 39.6 percent. • M akes the qualified dividend provision of the tax code permanent and maintains the 15 percent rate on capital gains and qualified dividends for individuals with taxable income under the same levels as above. The maximum capital gain/ qualified dividend rate for those individuals in excess of those thresholds would be 20 percent. • B rings back the personal exemption phase-out and itemized deduction phase-out limitations for some taxpayers. Taxpayers with gross income in excess of $250,000 ($300,000 joint filers) will see a reduction in their allowable itemized deductions and personal exemptions. • T here is a permanent patch of the Alternative Minimum Tax (AMT) exemption. The AMT exemption amount is set at $78,750 for joint filers for 2012 and at $50,600 for single filers. Furthermore, the exemption amount is made permanent and will be automatically indexed for inflation from the 2012 levels. • N ew extensions of certain credits and deductions for 2013 that would have (or in some cases, already had) expired. This includes the mortgage insurance premium deduction, deductions for state and local taxes, and tax-free IRA contributions to charity (for tax year 2012) made in 2013 prior to tax filing due date. • T here is a new provision expanding the ability for employees to convert traditional retirement accounts [like 401(k) or 403(b)] into Roth 401(k) accounts. While a 2010 provision allowed for distributions from these accounts to be moved directly into an employer-offered Roth account, distributions were generally allowed only when the taxpayers separated from service, reached age 59½, died, became disabled, or received a qualified reservist distribution. The act will permit conversion in service regardless of circumstances. • T he CLASS Act for long-term care insurance was repealed. The 2012 act authorizes the creation of a special commission to explore the development of a long-term care program.
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• E xtends the $5 million estate and gift exemption (as indexed for inflation) and raises the top tax rate on estates and gifts to 40 percent.
Phone: 201.394.3796 Fax: 201.934.3289 firstname.lastname@example.org www.theziffagency.com
A key item that was not addressed turned into a tax increase on nearly all taxpayers — the ending of the payroll tax holiday. For taxpayers with income under the Social Security limit, this resulted in a 2 percent decrease in their net takehome pay. After two years of a payroll tax holiday, many taxpayers will feel the expiration of this benefit more than any other provision in the act. Average cost per taxpayer is $740 in lost take-home income. It is nice that we have some "permanency" in the tax law, but don't get too comfortable. Many of these issues will be addressed again and not all of the moving parts of the "fiscal cliff" were addressed. Many were put off for future debate, including raising the debt ceiling, required spending cuts under sequestration, and the "pay-fors" that were anticipated.
Life Insurance Protects Families The primary purpose of life insurance is to help people protect against the unexpected. When the worst happens, a person wants to know they did everything they could to help safeguard their family. With life insurance, the family that just lost a loved one won't lose everything.
——————————— Four months after her policy was issued, Anna, 48 was in a serious automobile accident. She died after 19 long months of treatment for ongoing complications. The benefit from Anna's $500,000 policy helped her two young adult daughters cover the medical and funeral expenses.
——————————— Nine months after Carla's $250,000 policy was issued, the 48-year-old suffered a fatal stroke. Her adult daughter, Joanne, donated the benefit from the policy to a nonprofit organization focused on providing medical resources to women in the community.
——————————— Six months after his $350,000 policy was issued, Shane, 58, went to the doctor complaining of abdominal pain. He was diagnosed with pancreatic cancer and died one year later. The benefit from his policy helped his wife, Shirley, avoid dipping into the couple's retirement fund to cover medical and funeral expenses. With the extra help, she was able to retire as planned.
The Underwriting Corner: Sleep Apnea Sleep Apnea (SA) occurs in four percent of the population and is a common problem for underwriting. It is the cessation of breathing during sleep that recurs several times a night. After breathing stops, oxygen drops in the blood, organs become deprived, and finally a smothering sensation awakens the person. In the awakened state, the person can overcome the apnea and start breathing again. The SA occurs in the deepest and most restful stage of sleep. The arousals deprive the person of the most refreshing qualities of sleep. A state of sleep deprivation exists. As a result of the disturbance of sleep, the afflicted person is drowsy during the daytime, can fall asleep during meetings, as well as have memory, personality, and mental changes. Besides the quality of life being diminished, accidents are more common. When organs become deprived of oxygen, arteries constrict causing high blood pressure and the heart can develop serious arrhythmias or fail. Heart attacks and strokes can occur which often lead to sudden death. Generally, blood pressure tends to stay high even during the daytime. Heart attacks are the main cause of SA-related deaths, causing many experts to call SA a major coronary risk factor. Often the first clue that SA exists is heavy snoring and high blood pressure (hypertension). Up to ninety percent of the time, people with SA have hypertension. Of course, we know that snoring is not always due to SA. When other symptoms exist with snoring, it may be necessary to pursue the diagnosis of SA. Once SA is suspected, the primary testing method is a sleep study. This study is done overnight in a sleep laboratory where multiple measurements are made: the depth of sleep, the oxygen level in the blood, the electrical activity of the heart (measured by an electrocardiogram), movement of the breathing muscles, and airflow. Severity is measured by how often and how long a person stops breathing and how far the oxygen level drops. Generally, if a person stops over 30 times an hour, stops for more than 30 seconds, or oxygen drops below sixty percent of the normal level, then the person is considered to have severe SA. For some people, SA can be cured by eliminating alcohol intake (since alcohol can affect the muscles of respiration), losing weight (since obesity increases the difficulty of moving air), or having surgery (since the operation can make a bigger air passage). In all cases of SA, the Continuous Positive Airway Pressure (CPAP) breathing machine (pictured right), which forces air into the lungs, does provide relief and reduces the risks if it can be used. The trouble is that less than half of the people treated this way will continue to use CPAP and once they stop using CPAP, the risk returns immediately. Case Study: A 42-year-old man is looking for $600,000 of term life insurance. He has hypertension that is controlled with medication and severe sleep apnea that has been controlled by CPAP for five years. At exam, his BP was 124/78 and the lab tests were normal. The offer that can be expected from the case is standard. The long and continued use of the CPAP machine is good evidence that this person not only can use CPAP, but also has modified his lifestyle. Portable CPAP machines are available for travel reducing the affect of SA on the person's habits. If he had only used the machine for two years, Table 2 would be the rating because of the risk of CPAP machine discontinuance and the consequences of SA returning.
Help Cover Retirement Costs with a SPIA A Better Income Outcome Carol, age 70, has $500,000 of investable assets. She needs $3,600 for monthly expenses. She receives $1,500 from Social Security. Her shortfall is $2,100. Systematic Withdrawal = Uncertain Outcome If Carol placed $500,000 in a systematic withdrawal program with assets diversified among stocks, bonds, and cash, no steady stream of income would be guaranteed. Her cash flow would be subject to volatility. Her funds could not be guaranteed to last a lifetime. Systematic Withdrawal + Immediate Annuity = Better Outcome Carol could use $200,000 (40% of her assets) to buy a single premium immediate annuity (SPIA) and secure $1,091 a month of guaranteed lifetime income. The other $300,000 could go in a systematic withdrawal program using the same assets detailed above. This combination strategy improves the probability of her having a steady and stable stream of income because she would be guaranteed income for life from the SPIA.
NAME: Tony Curtis DIED: September 29, 2010 AGE: 85 CAUSE: Heart Attack ESTATE MISTAKE: Tony Curtis usually played the happy-go-lucky guy on the screen, but his children were anything but happy or lucky when they found out what he left them in his
Carol's Options for Generating $3,600 Monthly Income
will — nothing. Because he
Famous Estate Planning Failures
disinherited them, he guaranteed a long court fight from at least some
Guaranteed Annuity Income Systematic Withdrawal
of the six children he had from six marriages. -As appeared in InsuranceNewsNet Magazine, June 2012
Cost of Waiting Result: More Certainty. More Security. Carol would receive $1,091 of added guaranteed income from a SPIA. More expenses covered with guaranteed income is a better outcome. What would happen later if Carol's portofolio value fell 25%? Using solely systematic withdrawals, she would receive only $1,575 per month, 75% of the original $2,100 ($525 per month less). If she combined a SPIA with a systematic withdrawal program, however, she would receive $757 from the systematic withdrawal, which is 75% of $1,009 ($252 per month less). Her total monthly income from investable assets plus the SPIA payout of $1,091 would be $1,848. The result: a drop of $252 per month instead of $525 — only a 7% decrease in total monthly income, not a 15% decrease. Systematic + Automatic Still Equals a Better Income Outcome $252 Social Security $525 $1,500 $1,575
Total = $3,075/Month (15% Reduction)
Guaranteed Annuity Income Systematic Withdrawal Income Reduction
Total = $3,348/Month (7% Reduction)
Illustration for female, age 70, birth date 1/1/1943, for Life and 10-Year Period Certain, with one-month deferral, as of 2/01/2012. An immediate annuity is permanent. The owner has no access to the premium, which converts to a stream of income payments. The contract has no cash value, no death benefit, and can't be surrendered. Terms selected, such as payout amounts, timing and rates, can't be changed unless commutation elected. Payouts end at annuitants death unless certain period or installment refund option is selected. Life contingent payouts may be less or more than premium paid based on length of annuitant(s) life.
Even in a low interest-rate environment, an annuity’s compounded growth and tax-deferral can grow savings faster. If you are waiting for interest rates to go up before buying an annuity, you may be missing out. If you put $50,000 into a 5-year guaranteed annuity paying 2.00%, you would be guaranteed $55,204 at the end of five years, less any withdrawals you may have taken. Wait ONE Year: You would have to earn 2.51% annually for four years to catch up with the annuity’s earnings of $55,204. Wait TWO Years: You would have to earn 3.36% annually for three years to achieve the same $55,204 you would have been guaranteed had you owned the annuity all along.
The Reality of Disability
HERE’S A THOUGHT... “There are no gains without pains.“ - Benjamin Franklin
Continued economic volatility. Rising home foreclosures. Eroded retirement accounts. Stubbornly high unemployment. The struggle for financial security and independence. Personal bankruptcies. All have heightened American workers' need for a reliable stream of income. Still, many are not protected from income loss by savings, private insurance, OR government programs. What is interesting is that most consumers believe that accidents are the most expected cause of disability, but research shows that over 95% of disabilities are not work related; therefore workers compensation cannot be used. Here are some interesting statistics about Disability Insurance:
THE REALITY: % of new long-term disability claims caused by each of the following
Musculoskeletal/Connective Tissue Disorders
Cancer and Neoplasms
Injuries and Poisoning
• M usculoskeletal/Connective Tissue Disorders are the leading cause of disability at 28%, while cancer is the second leading cause at 15%
• C onsumers believe their own “personal odds” of becoming disabled are 1 in 100 when in fact 1 in every 4 Americans in the workforce will become disabled
Complications of Pregnancy and Childbirth
Infections and Parasitic Diseases
• The average long-term disability claim lasts for 31.2 months
Respiratory System Disorders
• 37% of consumers have never thought about protecting their income
Genitourinary System Disorders
Far too many haven't taken any steps to prepare themselves financially. It is important to know what income protection plans are in place, how each one works, and the maximum benefit one is entitled to receive from each plan. Remember, once a disability occurs, it is often too late.
Endocrine, Nutritional, and Metabolic Diseases and Immunity Disorders
Skin and Subcutaneous Tissue Disorders
• A pproximately 42% of consumers believe that they would rely upon sick leave and vacation if disability struck them
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