Insurance Pro Blog Podcast | Life Insurance and Annuity Insights

This week's episode starts with an HVAC owner we'll call Tom. His company does several million dollars a year, and a lot of that business runs through one employee, Dana. She has relationships with the big accounts; customers call her when something goes wrong, and she knows how to walk a new site and spec out the job. One weekend, Dana is killed in a car accident. (Tom, Dana, and the company are made up, but we've seen versions of this happen.) By the end of that week, Tom is grieving someone he worked beside for years. He's also taking calls from customers who want to know who'll handle their account now, and then the bank calls. They're sorry about Dana, and they'd like to hear his plans, because his answer could change how they feel about his line of credit. That's the situation key person insurance is for. It's ordinary life insurance a business buys on someone it can't easily do without, and in this episode Brandon and Brantley walk through who that person is at your company, how much coverage it takes, what kind of policy fits, and the paperwork that decides whether the money arrives tax-free. The policy gives Tom cash and the time to keep Dana's accounts served while he finds someone to take her place. Here's what we cover. It isn't a special kind of policy. The company applies for the coverage, owns it, pays for it, and collects the death benefit, and the insured person knows about it and agrees to it. When we started in this business, the industry still called it key man insurance. Who your key people really are. It's often not the person with the best title. We walk through four kinds, starting with the rainmaker customers are loyal to, then the systems person who carries years of know-how nobody ever wrote down, the face of the business whose name gives customers peace of mind, and the license holder the business can't operate without. Plenty of owners belong on that list themselves. The ninety-day test. If this person didn't show up for ninety days and you couldn't reach them, what would stop working, and how long would it take a customer or your lender to notice? Whatever stops first tells you who it is. Sizing it to the damage. Most owners land on an amount because it sounds like a lot, or because it's what they're comfortable paying in premium, or because they multiplied a salary. A better place to start is the profit tied to that person's work. Tom might need $180,000 just to pay Dana's replacement through the transition, and once you add the accounts that could walk out the door without her, the number can climb past a million dollars. Run it that way and the answer is usually far higher than the owner's guess. The paperwork that decides whether it's tax-free. A life insurance death benefit is generally income-tax-free, but when a company owns a policy on an employee, that holds only if the requirements are met. Before issuing the policy, the company must tell the employee in writing that it plans to insure them and for how much, and the employee must agree in writing, including that the coverage can stay in place if they leave. The company then reports these policies to the IRS on Form 8925 with its tax return every year. If the paperwork was skipped, much of the payout could become taxable, and the company would owe that tax right when it can least afford it. Yes, even if you own the whole company. If the business buys a policy on you, you also sign the notice and consent. The IRS has said there's no exception for a 100% owner. If you already own a policy and aren't sure it was set up right. Take it to your CPA or tax attorney now. The IRS allows a narrow fix for an honest mistake caught and corrected by the tax return due date for the year the policy was issued, and there's no fix once the insured person has died. So if your company owns a policy on someone, go find the signed consent this week. Term or permanent. In Brandon's experience, nine out of ten key person policies are term, and there's nothing wrong with that, because term is cheaper, simpler, and fits an owner who doesn't know how long the person will be around. The tradeoff is that term coverage can run out while that person is still working for you. The golden handcuffs pitch. Some agents build key person coverage with whole life and promise part of the cash value to the employee, so it doubles as a way to keep them. Those deferred compensation and split dollar arrangements do work, mostly at large professional firms with highly paid people. At a smaller company, the key employee often says they'd rather just have the raise. What it won't do. It pays only at death, so it does nothing if your key person becomes disabled, which takes a different kind of coverage. Everything here is general and illustrative, and nothing in this episode is a quote or a recommended amount. Your CPA and attorney handle the tax treatment and consent paperwork. We can help with whether you have the right kind of coverage in the right amount, and whether it was set up properly. Want more first? Start with our guide to life insurance for business owners. Everything in this episode is general, and your company isn't. If a name came to mind in the first couple of minutes, book 30 minutes with Brandon. Bring a rough number and anything you have on a policy the company already owns, whether it's on that person or on you. He'll help you figure out whether the amount holds up, whether term or permanent coverage fits the need, and whether what you own was set up right. Sometimes the answer is term, and sometimes it's that you don't need more coverage at all. Book a call with Brandon, or if you'd rather write first, send us a message.

Picture a man who's 62 and retiring in January. HR drops a thick packet on his desk, and a few pages in there are three boxes. Box one pays him $5,000 a month for life, and it stops when he dies. Box two pays $4,600, and if he dies first, his wife gets $2,300 a month for the rest of her life. Box three pays $4,250, and if he dies first, she keeps the full $4,250. He has to pick one, and he only gets to pick once. (The couple and the figures are illustrative.) In this episode, Brandon and Brantley explain why boxes two and three aren't really a smaller pension. They're the same pension with a life insurance policy bought out of it, and the real question is whether that's the best coverage he can buy for her. What we get into: You're paying a premium either way. The $400 or $750 a month you give up is what it costs to protect your spouse. The plan prices the boxes to be worth about the same on average, so nobody is getting one over on you. But the plan doesn't know your health, and you do. What "pension max" is. For as long as either of us has been in the business, the industry has pitched taking the biggest check and buying life insurance with the difference. It can work in the right case. We've also seen it done badly for a long time. The math the pitch leaves out. Replacing $4,250 a month for 20 years takes a little over $1 million of coverage, before any interest. If the pension has cost-of-living raises, you need even more, or a policy whose death benefit can keep up. At 62, that likely costs more than the $750 a month you freed up. The pitch to watch for. You'll free up $750 a month, the policy costs $500, so you come out $250 ahead. Then you find out the policy was only guaranteed to age 85. Underwriting comes before the box. Most people don't think about this until the packet is in their hands, which is the hardest time to buy coverage. Getting people in their sixties and seventies approved is easier than it used to be, but it still isn't a given. Don't check any box until you have an actual offer at an approved risk class. You can still turn the policy down. Details on the form that change the answer. Some plans raise your check back up if your spouse dies first. In a private plan, your spouse has to sign off in writing before you can take a life-only payout, while government plans set their own rules. And some pensions tie other benefits, like health coverage, to the election, which a life insurance policy can't replace. The lump sum option. Some plans let you take a lump sum and roll it to an IRA or buy your own income annuity. Once in a while an annuity pays more than the pension, mostly depending on where interest rates are when you look. In our experience it's the exception. When to just check the box. The gap between the options is small. Your health may not get you a good offer. Or your spouse is much younger and the survivor income gets cost-of-living raises, so it could pay for decades. In those cases, the pension's own coverage is usually the better deal. Everything here is general and illustrative, and nothing in this episode is a quote. Taxes on pension income belong to your CPA, and plan-specific rules belong to your plan. Our lane is whether a policy can do the survivor option's job better, and how to tell a good design from a bad one. You're already buying life insurance on that page. The only question is who you buy it from. Want more first? Browse our retirement income guides, or see how a guaranteed income annuity works in our guide to single premium immediate annuities. _____________________________________________ Everything in this episode is general, and your situation isn't. If you're looking at that options page right now, or you will be in the next year or two, book 30 minutes with Brandon and bring the page. He'll help you see what the survivor option is really costing you, and whether a policy could do that job better at your health and your ages. If the box your plan already offers is the right one, he'll tell you that too. Book a call with Brandon.

Picture a couple in their fifties. Good incomes. They did everything they were told. There's about $1.6 million in their 401(k)s and about $150,000 in Roth accounts. By any measure, they did it right. So here's the question. When they retire, how much of that money can they spend without sending part of it to the IRS? About $150,000. The Roth. And then somebody shows them an IUL video aimed at a 35-year-old, and they figure that ship sailed a decade ago. In this episode, Brandon and Brantley walk through whether it did. (The couple is illustrative.) What we get into: It's a tax-mix problem, not a savings problem. Most high earners we talk to in their fifties have a huge pre-tax bucket and a tiny tax-free one. Every dollar out of the 401(k) is ordinary income, and it can also raise your Medicare premiums, tax more of your Social Security, and stack up with required distributions later. The $45,000 car that costs $56,000. Pay for it out of the 401(k) at a 25% effective rate and you've added more than $11,000 to the price. Pay for it from the Roth and it costs $45,000. That's why we often treat the Roth as the emergency fund, not the income source. The deduction you took at 35. A lot of those 401(k) deductions went in on autopilot back when income was lower. Now you're at peak earnings, the tax bill is real, and you're realizing what retirement withdrawals will cost. If you're younger, heed the warning: Roth-style savings matter far more than the $500 deduction feels like it's worth. Why the usual fixes are small at 55. Roth contributions and backdoor Roths have hard caps. Life insurance has no income test and no IRS dollar cap (the tax code limits premium relative to the death benefit, not by your income), so it can hold a lot more. Our honest take on Roth conversions. We like them. Since 2010 anyone can convert, in any amount. But the converted amount is taxed as income that year, on top of everything else you earn, and it works best when you have money outside the account to pay the tax. Most people we see don't. You also have to live long enough and trust that tax law doesn't get friendlier. The benefit is real, and often more modest than the calculators suggest. That's a CPA conversation. Your clock is longer than you think. How long you fund the policy isn't what matters. When you'll take income from it is. If you need it within five or ten years, it's probably too late. If you fund it now and wait, the policy may work for you for decades. Your age changes the math in both directions. Insurance costs more per dollar at 55. But the tax law requires less death benefit relative to the cash value as you get older. Brandon recently ran a couple with an age gap. The younger spouse came out ahead, by a small enough margin that we called it a wash. Using IUL to de-risk. We're usually hesitant about moving qualified money into life insurance, since a Roth conversion handles the tax side. But an IUL gives you a kind of exposure a Roth invested the usual way doesn't, and for some people that may be worth it. When it really is too late, or just wrong. You need income within ten years. Your funding depends on a bonus you hope repeats. You haven't used Roth contributions yet and only have $5,000 to $8,000 a year to save. You'll truly be in a much lower bracket in retirement (we rarely meet that person). Or your health means the underwriting won't go well. The honest framing: the couple and every figure here are illustrative, and nothing in this episode is a quote. Income from an IUL usually comes as policy loans, which don't show up on your tax return as long as the policy stays in force. If it lapses with a loan on it, that can create a tax bill. Conversions, brackets and RMD planning belong to your CPA. Our lane is whether a policy can do this job, and how to build it if it can. It's not too late to start. It's just too late to start carelessly. ________________________________________________________ Everything in this episode is general, and your situation isn't. Want to see what a well-built policy would do with your numbers? Tell us a few things about where you stand, and Brandon will build a design for you and send you a private video walking through it page by page, within two business days. No call, no pitch. If it isn't the right tool for what you're after, the video will say so. In your fifties and asking about an IUL? Pick IUL in the form, and tell us what you could put in each year until you retire and when you'd want the income. Brandon will build it backward from the end, as we talked about today. Run my numbers. Want the risks before the numbers? We took the five biggest worries about IUL one by one: the caps, the illustrations, underfunding, the tax trap when a policy lapses, and the claim that most policies fail. Here's what the evidence shows. Read the IUL problems guide.

Picture a couple in their early sixties. They own a business worth about $4 million. Everything else they own- the house, the 401(k), and some savings- comes to about $1 million. Their daughter has worked in the business for ten years and now pretty much runs it. Their son is a teacher a few states away who loves his life, is proud of his sister, and has never wanted anything to do with the company. The will says what most wills say: split everything equally. So when Mom and Dad are gone, what does the son actually own? Nobody did anything wrong here. The parents were trying to be fair. In this episode, Brandon and Brantley walk through why "split it equally" breaks down when most of what you own is a business, and what actually works. (The family is illustrative, a blend of situations we've talked through with people over the years.) What we get into: Door number one: split everything equally. Half of $5 million is $2.5 million each, and there's only $1 million that isn't the business. So the son ends up owning about 37.5% of a company he doesn't work in. He's entitled to the financial reports, a vote, and his share of the profits. Then the business makes $250,000, his sister wants to put $100,000 into new equipment, and he does the math on 37% of $250,000 and notices it's more than he makes in a year. Neither of them is wrong. And whoever runs the business owes a duty to the other owners, so if it gets ugly, it can end up in court, and that eats the capital you were fighting over. Door number two: the business to the one who runs it. She gets $4 million. He gets $1 million. The parents may think that's justified and the son may even agree. The problem is finding out about it in the lawyer's office after the funeral. Door number three: she buys him out on a note. Now the company is carrying about $1.5 million of debt in the same years it just lost its founder, and his inheritance depends on how the business does without Dad. He's not her partner anymore. He's her creditor. Ask anyone who's been there how Thanksgiving goes when cash flow gets tight. Door number four: sell it and split the cash. Perfectly divisible. Sometimes it's even the right answer. The daughter probably won't love it. The problem isn't the dividing. Every one of those doors is a way of carving up one asset. The problem is that there's only one asset. The second pile. Life insurance doesn't divide the business better. It creates a second pile of money on the day it's needed, so the business doesn't have to be divided at all. The daughter keeps the company whole. The son gets cash. Cash creates options, which has been a core idea of this show since day one. Why not term? Because you don't know when you're going to die. (If you did, you couldn't buy life insurance anyway.) A need with no end date calls for permanent coverage. Done right, a whole life death benefit can also grow over time, though dividends aren't guaranteed. Equal versus fair. Equal is a math problem. Fair is a decision, and you have to write it down. What if the daughter grows the business from $4 million to $10 million? The policy won't keep pace with that, and maybe it shouldn't, because she's the one who grew it. Then again, she might look at her brother's $3 million in cash and ask if he wants to trade. Whose life do you insure? Mom, Dad or both. Insuring both on a second-to-die policy can get more death benefit for less money. In Brandon's experience, though, there's usually one parent who's the primary owner, and that's often who the policy should be on. When the plan changes. Ten years in, someone shows up with an offer the family can't refuse. The policy doesn't back you into a corner. You can change the beneficiaries or take the cash value and use it differently. Adding life insurance to a plan like this almost always leaves everyone with more options than before. When you don't need this at all. The parents may decide the business goes to the child who built it, and that's that. Plenty of kids are fine with it. Just say it out loud, with everyone in the room, while you're alive. If a sale is already planned, term coverage until the deal closes may be all you need. And siblings can own a business together and do fine, as long as there's a solid operating agreement the parents put in place before they go. The honest framing: the family and every dollar figure here are illustrative, and nothing in this episode is a quote or a recommendation of an amount. A life insurance policy funds the plan. It doesn't write it. The will, any trust, the business valuation, and the tax side belong to your attorney and your CPA. And the policy solves the money, not the family. That part takes a conversation. Want more on the business-owner side? Start with our guide to life insurance for business owners. _______________________________________ Everything in this episode is general, and your situation isn't. Want to see what a well-built policy would do with your numbers? Tell us a few things about where you stand, and Brandon will build a design for you and send you a private video walking through it page by page, within two business days. No call, no pitch. If whole life isn't the right tool for what you're after, the video will say so. Got a business and children on both sides of it? Tell us roughly what the business is worth and who's in it, and we'll show you what closing the gap would take. Run my numbers. Not ready for your own numbers yet? Brandon's free buyer's guide shows what a well-built whole life policy looks like at $25,000 to $250,000 a year, what's guaranteed and what isn't, plus a quick fit test that tells a lot of people, "not yet." Get the free guide.

Cash pays real interest again. The Fed raised rates in September for the first time since 2023, and if you're shoveling money into a money market fund right now, it ain't so bad. It also makes whole life a harder sell inside your own head. Why commit money to a policy when cash pays this well for doing nothing? We've watched this for years. The number of people asking us about whole life rises and falls with short-term interest rates. So in this episode, Brandon and Brantley tell a story most people have never heard, because it's happened before. In the late 1970s, money poured out of whole life and into money market funds. Then the two traded places. What we get into: The last time cash won. Inflation ran hot in the late 1970s, and short-term rates rose to fight it. Money market funds held about $4 billion in the fall of 1977. Two years later they held about $45 billion, and two years after that, close to $190 billion. Treasury bills averaged about 10% in 1979, which is $10,000 a year on every $100,000 just for parking it. Whole life dividends were well behind. The insurance industry had a word for what followed: disintermediation, a fancy economics term for money walking out the door and not stopping. Then the tide shifted. Money market rates rose quickly, then fell just as quickly. As inflation settled, cash rates fell. Whole life dividends went the other way. By the mid-1980s, some dividend scales had reached the 10% range, in the same years that Treasury bill rates dropped to about 6%. Slow on the way up, slow on the way down. Dividends stayed near that peak into the early 1990s, then declined gradually through the 1990s and 2000s. When the Fed took short-term rates to essentially zero at the end of 2008, cash paid nothing almost overnight. Whole life didn't move that way. Some companies lowered their 2009 dividend, a few by more than the rest, and some didn't lower it at all. Under the hood. Insurance companies put most of the premiums they collect into debt, corporate debt in particular, and they buy more every year under tight rules. When rates rise, each year's purchases come in at higher rates. When rates fall, the company still owns everything it bought before, often for ten years or longer. That's why dividends are slow to catch up and very slow to fall back. The policy that missed its illustration and still did well. Policies sold in the late 1980s and early 1990s were illustrated with dividends that didn't last, and that's where a lot of the criticism of whole life comes from. Brandon walks through real results someone shared from a policy bought in the early 1990s. It never matched the illustration, and the owner still came out very well because of when they owned it. What "guaranteed" really means once you own the policy. The guaranteed column on an illustration shows what happens if no dividend is ever paid. Once a dividend is paid into your policy, that cash is guaranteed cash value from then on. Brandon tells the story of a supposed expert who saw the guaranteed and current values match on an in-force ledger and told the owner they'd earned nothing more than the guarantee. That's a misreading. The match means the guarantee is now working on a much bigger pile of money. A floor that goes up every year. It doesn't depend on what anyone at the Fed does. The indexed universal life fans talk about the floor and the ratchet. Whole life has something similar. (We like both teams.) The part that isn't about interest at all. It's life insurance. The death benefit can replace the dollars you spend down in retirement, which matters to anyone who's ever asked, "How much will be left for my kids?" after planning to spend as much as possible. It gives you options when you get there. Where cash still belongs. We are not telling you to empty your money market fund. There are plenty of reasons to hold cash, and nobody should go 100% whole life. The point is to not overlook what tends to come after cash rates turn. The honest framing: this is history, and history doesn't repeat on a schedule. On air, Brandon says he's moderately excited about what rising rates could mean for his own policies, and that's his opinion as an owner, not a forecast. Dividends are not guaranteed, and they can go down. A dividend rate is not the rate of return on a policy. When short-term rates climb fast, cash wins for a while, and we say so. This is not investment advice. Everything in this episode is general, and your situation isn't. Want to see what a well-built policy would do with your numbers? Tell us a few things about where you stand, and Brandon will build a design for you and send you a private video walking through it page by page, within two business days. No call, no pitch. If whole life isn't the right tool for what you're after, the video will say so. Got cash on the sidelines? Tell us roughly how much and what it's for, and we'll tell you what should stay in cash and what might belong in a policy. Run my numbers. Not ready for your own numbers yet? Brandon's free buyer's guide shows what a well-built whole life policy looks like at $25,000 to $250,000 a year, what's guaranteed, and what isn't. Get the free guide.