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What’s in a Name

by Bob Cohen on February 5, 2016

File Folder with Paper - DG iStockThe life insurance industry has become increasingly complex. New and multiple policy types deliver both choice (a good thing) and complexity (not such a good thing) to your client’s decision-making. Policy names (Adjustable, Flexible and in my opinion, sometimes Combustible) are not helpful either. If I have a difficult time keeping up, I can’t imagine the challenge for advisors who are not in the life insurance industry and for the consumer, who has little chance to understand and select the option best suited for their circumstances.

Below is a simplified explanation of a subset of products. This is not an all-inclusive list nor is this a full description. Also, I take the position that there are no inherently good or bad products…there are however suitable and unsuitable products given the insured’s planning goals, premium tolerance and appetite for risk, certainty and guarantees.

Here we go…

Temporary Life Insurance

Term – A “death benefit” only policy providing pure protection for a specified, selected period of time. Beneficiaries receive death benefit proceeds should the insured die within the selected “term” period (10, 15, 20 or 30 years) and receive nothing if the insured lives beyond the term period selected. Term insurance accumulates no equity or cash value. It is inexpensive (at younger ages) because it is designed and priced to be outlived by the insured. As little as 2% of all term policies end in a death claim. The other 98% lapses. A good choice when the length of needed coverage is known.

Permanent Life Insurance

Universal Life – The scheduled premiums, cash value, and duration of the death benefit are determined largely by a projected interest/policy crediting rate and assumed amount of expenses. Actual cash value and duration of the death benefit are determined through a declared interest rate by the carrier and actual expenses extracted from the contract. Unfavorable differences between the assumed and actual policy performance can result in an increased premium or policy lapse. Flexible premiums, including skipped premiums, are allowed but require careful review and management as this will negatively impact policy performance and duration thus accelerating a potential lapse.

Whole Life Insurance – Generally the highest outlay of premium for a desired level of death benefit. Cash value is credited based on an annually declared dividend. The least flexible permanent policy, often referred to as a “forced savings plan.” Dividends can be applied against the premium to reduce the out of pocket costs. Dividends are projected and not guaranteed. Because dividends are a function of carrier profitability, a declared dividend can also be thought of as a “return” of premium overcharge. Whole Life has often been promoted with a “vanishing premium.” Don’t believe it. Premiums don’t vanish. They can be offset by the dividend and this is where a client can be misled. Be careful.

Variable Life Insurance – A co-mingling of life insurance and securities. The insured can couple their need for insurance with their desire to invest. This coupling comes with a higher fee schedule and may create greater likelihood of a policy lapse as the fees create a higher “hurdle” to achieve the policies assumptions. An infusion of additional, unexpected premiums may be necessary in order to make up for missed projections and the costlier pricing/ fee schedule. Returns can legally be projected up to 12%, compounded annually, which can lead to disappointment.

Indexed Universal Life – Designed as a hybrid between Universal Life and Variable Life. Indexed Life credits cash value based on an index performance (typically the S&P though most carriers offer others indices to select) and establishes an earnings / policy crediting “cap” and “floor” (which cannot go negative) to reduce volatility. A percentage of the index’s performance (referred to as Participation Rate) is then credited to the contract which is determined and can be adjusted by the carrier on an annual basis.

An example will best illustrate:

Policy Cash Value Credited at 9%
Index Return 12%
Subject to an Earning Cap 10%
Participate Rate 90%

The spread between the Indexed Return of 12% and the Policy Crediting Rate of 9%, is forfeited in exchange for the earnings floor that cannot go negative. How a particular carrier establishes these variables must be understood in order to maximize the contract.

Indexed Life requires review of its several features and matched against the client’s planning objectives. Often promoted as a “cash accumulation” policy.

No Lapse Guaranteed (NLG) Universal Life – Sometimes referred to a “term for life,” NLG is a low out of pocket premium policy that will remain in force regardless of interest rate, dividend and/or stock market performance as long as the scheduled premium is paid in full and on time. By design, NLG accrues little, if any cash value, and is an appropriate solution for those who favor term insurance though desire coverage to be in force indefinitely.



Power of Attorney - iStockPowers of attorney are very flexible documents used to reflect your wishes for decisions regarding your health care and control of your assets if you are ever unable to make those decisions yourself.  If you (the principal) are ever incapacitated, your powers of attorney dictate the individuals you have appointed to serve as your agent and successor agents to act on your behalf.

Recently, there have been several high-profile cases in which families have gone to court to fight for the authority to make the difficult decision of whether to continue life-sustaining treatment for a family member or to withdraw treatment.  Whether the intentions of the family members are dictated by love or greed, the fact is that most of these conflicts could have been avoided if the proper estate planning steps had been taken during the individual’s capacity.

Health Care Power of Attorney

A health care power of attorney allows you to reflect your wishes for organ donation and to authorize either your agent or your physician to determine when to discontinue life-sustaining treatment.  Alternatively, you may choose to continue treatment under all circumstances for as long as possible.  The document also allows you to name the agent and successor agents to make such decisions on your behalf if and when you are unable to do so.

There are several factors to consider when selecting your health care agent and successor agents, including geographic location, experience making such difficult decisions and the emotional capability to do so.  Though it is a common instinct to name co-agents, especially when children are named, in most cases it is better to name a single agent with one or more successors rather than co-agents.

Once the document is executed, you may want to provide a copy of your health care power of attorney to your physician.  It is also recommended that you inform your agent and successors that you have had the document prepared along with the contact information of your estate planning attorney and any specific wishes you have regarding your health care beyond what is reflected in the document.  In addition to reflecting your wishes for health care and choice of agents, the health care power of attorney also includes a Health Insurance Portability and Accountability Act (HIPAA) authorization which is necessary in order for your agent and successors to access your medical records and history.

Property Power of Attorney

A property power of attorney grants your agent significant authority to access your assets for your benefit in the event of your incapacity.  The greatest flaw in many property powers of attorney is that they are drafted to be effective immediately upon execution rather than during incapacity only.  There are only a few, limited circumstances when an immediately effective power is appropriate.  It is crucial that the drafting attorney and the principal understand the consequences of this decision.

In addition to the standard powers granted by a property power of attorney, a properly drafted document must work with your estate plan, particularly any trusts that you may have, to provide flexibility.  In many cases, this may be the final opportunity to qualify for government benefits in case of disability, avoid probate and minimize estate taxes at the principal’s death.  Due to the significant powers granted to your agent, in addition to being trustworthy, your property agent should be someone who will be able to work with your attorney and your accountant to make the decisions that are in the best interest of you and your family.

Consequences of Not Having Powers of Attorney

If you are incapacitated and do not have properly drafted and executed powers of attorney, your family may have to go to court in order to seek guardianship over your person and your estate.  This is an expensive, time-consuming process that can be easily avoided.  Additionally, if trust issues exist or arise, conflicts and costs may increase significantly.  Cases of second marriages, estranged spouses or cases in which a relative has a frayed relationship with the principal are especially vulnerable to such disputes.  Due to the complexities that exist in all families, it is important to work with an experienced estate planning attorney who can identify and address the issues that may arise.  The costs and burdens of failing to do so can be significant for your loved ones.

Who Needs Powers of Attorney?

Powers of attorney are instruments used to appoint an agent to act on your behalf if you are unable to do so.  Everyone who is a legal, competent adult is responsible for his or her own person and estate; any individual, regardless of age, can be incapacitated unexpectedly and should have a backup plan.  For this reason, it is recommended that all legal adults have up-to-date powers of attorney in place.

While the elderly are more likely to succumb to physical and mental health issues, young adults can also fall victim to unexpected physical and mental ailments.  In such cases, parents and other relatives of young adults have been denied access to the individual, their medical records and their assets due to the absence of powers of attorney.  Young or old, once the individual is incapacitated, it is too late to have the document prepared and executed.  The cost of having proper powers of attorney is minimal in comparison to the risks and burdens of not having them when they are needed.

This article was originally published by Manish Bhatia on


Paper WeavingYour estate plan likely includes formal documents (a will, perhaps one or more trusts) that direct transfers of your property when you die. But those documents won’t identify each and every item to be transferred. Eventually, whoever settles your affairs will find a sentence in one of your documents such as “I leave the rest and remainder of my property to…” The unavoidable question at that point will be “Have we found everything?”

One way to provide some assurance that everything has been found, and perhaps to explain the why’s and wherefores of your plan, is to write one additional, informal document called a testamentary letter.

What should this letter say? That depends entirely on what you believe will help others understand, appreciate and implement your plan. It can be matter-of-fact, just giving instructions about where to find safe deposit boxes, financial records and other information needed for first steps. Or it might explain what you hope to accomplish with the property that you will be passing on to survivors or charities, or recommend people to help with finances or any other matter.

Who should read the letter? That’s equally a personal choice. If there will be a probate process, the personal representative usually should be included, and some thought given to what he or she will need to get started. But a letter may be meaningful and helpful even when all of your property will be transferred in ways that avoid probate. It can be signed and dated if desired, but witnesses are not needed since the letter is not a formal legal document.

Here are some suggestions for composing a testamentary letter. Bear in mind that they’re only suggestions; the structure and tone ought to follow what you want to say. They can change, too, if some parts of the letter will speak to particular individuals only. And even if you’re not comfortable giving the letter to anyone while you’re alive, think about how to ensure it will be found and read when the time comes.


Tell the readers why you’ve written the letter. Your reasons might include: explaining your estate plan in non-legal language; providing instructions or words of comfort to your family; tying up loose ends; or just trying to minimize avoidable delays in the inventory and administration process. Clarify the relationship of the letter to the will or other formal legal documents; everyone should understand that the legal documents control in the event of inconsistency with the letter.

Overview of the estate plan

Summarize the overall plan with particular attention to any choices that beneficiaries or the personal representative will have to make, and any deadlines connected with those choices (for example, what will happen to any disclaimed entitlements). If the plan is complicated, this section might be written by the drafting attorney, but, regardless, it should give a “big picture” to the personal representative and any trustee(s). You could also address likely questions from those who will receive property, if their expectations may differ from the actual property disposition.

Cash for initial expenses of administration

One of the first concerns after your death may be access to cash that will be needed for funeral expenses, outstanding bills, and perhaps day-to-day family expenses. If your letter is going to be lengthy, make this information easy to spot. It should include bank accounts and any other relevant sources, such as life insurance policies, home equity credit line accounts or similar lending arrangements.

Location of documents and records

List, with instructions about locations, each of the items below that applies to your own situation. Try to anticipate what will be needed for tax returns, any sales triggered by your death (for example, closely held business interests), transfers of property to intended recipients and other duties of administration. Obviously, some listed items may not apply, or you may have other important documents that are not listed but that you’ll want to include.

  • Will
  • Trust instruments
  • Employee benefit plan documents
  • Social Security information
  • Insurance policies (life, burial, etc.)
  • Business agreements (partnership agreements, buy/sell, redemption, etc.)
  • Retirement plan documents
  • Power(s) of attorney (to or from others)
  • Income and gift tax returns
  • Birth and marriage certificates
  • Divorce or separation agreements
  • Patents/copyrights/royalties
  • Passport
  • Prenuptial and/or postnuptial agreements
  • Cemetery plot and other preneed arrangements for funeral or other services
  • Bank accounts (passbooks, bank statements, etc.)
  • Certificates of deposit
  • Deeds to real estate
  • Titles or registrations for cars, boats, and other personal property
  • Brokerage accounts
  • Stocks and other securities held personally
  • Other investments (limited partnerships, notes receivable, etc.)
  • Property ownership records (when and how acquired, basis)
  • Mortgages and notes payable
  • Credit cards and charge account information
  • Organizations/memberships
  • List of electronic files and accounts and corresponding user identification and passwords

Who to contact

Identify people who can be resources for your family and the personal representative. Among the ones to consider listing, with contact information, are the following. Again, there could be others.

  • Attorney
  • Accountant
  • Insurance advisor
  • Banking officer
  • Investment adviser or broker
  • Pension or retirement plan administrator(s)
  • Physician
  • Current and former employers, employees
  • Minister
  • Funeral director

Instructions and suggestions to surviving spouse, family and others

Depending on the circumstances, the survivors might benefit from some suggestions and directions about what to do immediately following your death. This could even be a separate letter, in a more personal tone. Possible concerns might be any of the following.

  • Reminders about the need to notify people (such as family, friends, employers, or employees) or institutions (such as the Social Security Office, Veteran’s Administration, life insurance companies, etc.).
  • Instructions about changing ownership registration for personal assets (autos, bank accounts, stocks, the family residence, etc.).
  • Notes about significant financial transactions, major purchases, loans, etc., whether proposed or recently commenced, that may have deadlines.
  • The location and identification number of any safe-deposit box and names of people who have access. If the box contains cash, consider providing an explanation of the sources.

Benefits and entitlements

If the information isn’t brought together elsewhere (such as in a safe deposit box), identify the sources (and amounts) of death benefits and provide specific information about who to contact to file and expedite claims for the following:

  • Social security and VA benefits
  • Employer retirement plans
  • IRAs, Keogh plans, and SEPs
  • Annuities
  • Income continuation plans
  • Civil service entitlements

Disposition of illiquid investments and personal effects

If any investments were acquired for personal or sentimental reasons, consider whether any recipient will share your interests. If not, you may want to identify the best potential markets for sale of the items. Shares of a start-up company linked to a social cause might be an example. Unusual collectibles might be another.

Even though personal property may be disposed of by a list attached to a will, explaining why someone did or did not receive a particular item may be helpful. Also, there will probably be some items that aren’t on any list you make, so the testamentary letter might address those excluded items in general terms.

Funeral and burial arrangements

Visualize the ideal funeral service and all the other rituals of saying goodbye, and let those who will be making the arrangements know. Each decision that can be made in advance will be one less strain on someone who may be feeling overwhelmed. Whether general or specific, thoughts about any of the following may be helpful to those who will be taking charge.

  • Cemetery preference and information (or the specifics of a plot already purchased)
  • Funeral home preference and details about any prepaid services
  • Desires regarding burial, entombment, or cremation (but note that, because donation of organs or other body parts may be time sensitive, that should be addressed in some other manner, such as in your health care directive or through a donor registry)
  • An obituary that you’ve written for yourself
  • A photo or photos of yourself that you would like used, or a request that no photo be used
  • Notification of out-of-town relatives and friends
  • Particulars about the funeral services (who should officiate, how elaborate, flowers or donations, songs, text for a eulogy, etc.)

General comment about how to begin

Writing a testamentary letter can be challenging because it requires thinking about the immediate aftermath of your death. At very least, try to identify documents that will need to be found right away, and the people who will need to be contacted. It’s always hard to predict how grief will affect anyone, but it’s prudent to assume that it can cloud thinking about practical matters. Discussing even seemingly obvious tasks will be forgiven. In the broadest terms, a testamentary letter is worthwhile if it’s something that, given the chance, the survivors and the personal representative would thank you for.


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