Disability Insurance As an Income Protection Strategy

Retirement income certified professional Brian Gibbs has provided financial consulting services to clients in and around the San Diego area for more than 40 years. As the CEO of the San Diego-based firm Heritage Retirement Advisors, Brian Gibbs advises clients on diverse retirement strategies, including tax reduction planning, income planning, estate planning, and insurance planning.

People can reduce the likelihood of unforeseen events draining their savings by purchasing adequate insurance policies. Disability insurance is an essential form of asset protection for anyone who is still earning an income. Disability insurance plans are often included as part of employer-sponsored benefits packages, but they can also be obtained through private companies.

Short-term disability covers up to 70 percent of a worker’s income if he or she is too ill or injured to work for up to 26 weeks. If the ailment persists after the short-term disability time frame ends, employees with long-term disability insurance may be eligible to draw from those benefits. Depending on the plan, a policyholder may receive benefits for a set period of time, or until they reach retirement age.

Life Insurance as a Tax-Advantaged Element of Retirement Plans

Serving the needs of San Diego area clients, Brian Gibbs heads Heritage Retirement Advisors and works in areas such as tax, income stream, and insurance-backed solutions. One area in which Brian Gibbs has extensive knowledge is enabling San Diego families to make the most of insurance as they move toward retirement.

Using life insurance policies effectively in qualified retirement plans requires navigating IRS regulations. While such policies cannot be held within IRA or SEP plans, the IRS does provide for their inclusion in certain defined benefit and profit sharing plans. The advantage is that life insurance premiums can be paid for with pre-tax funds, thus reducing overall taxes. At the same time, life insurance provides policy beneficiaries with a death benefit that is income-tax-free.

There are several factors to consider in such an approach. Within defined contribution plans, the whole life policy premium can be no more than 50 percent of total contributions, with this dropping to 25 percent for universal life plans. When contributions that have accumulated in the participant’s account for more than two years are used toward paying the life insurance premium, other rules come into effect.

Another consideration is that the life insurance policy can only be held within the retirement plan as long as the covered party is a participant. Unwinding such arrangements can be complex, and the assistance of an experienced professional is recommended.

Basics of Living Benefits Riders within Life Policies

An established San Diego retirement planner, Brian Gibbs leads Heritage Retirement Advisors and provides services that span tax and legacy planning strategies. One area in which Brian Gibbs helps his San Diego clients is with the living benefits offered as an optional rider within many life insurance policies.

The aim of living benefits is to provide the policyholder with the chance to use the life insurance benefits early in cases of serious medical condition or injury, including terminal illness. As such conditions can severely impact work income, the benefits can mean the difference between receiving critical care or not.

There are restrictions to living benefits, including a stipulation by many insurers that the condition or injury will cause the person’s life expectancy to drop to 6 to 24 months. As part of this, proof of medical diagnosis of injury or condition is required.

With living benefits riders typically allowing for payment of between one-fourth and the full amount of the policy’s total death benefit, there may be dollar limits involved as well. As an example, if the limit of 50 percent for living benefits is reached, the other 50 percent will ultimately be paid out to the family as a death benefit.

Keep in mind that fees are typically involved in living benefits riders. These may come as a one-time expense when creating the policy or as a fee associated with using the rider and accepting early benefits.