Insurance

Life Insurance And Taxation

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If your company owns life insurance policies on your executives or any key people for that matter, you need to be aware of the potential tax ramifications and the requirements to avoid taxation of benefits. Important changes have taken place in the last few years that can significantly impact the taxation of corporate owned life insurance. The information below is designed to inform you of the IRS regulations that have been implemented over the last few years and what is needed to comply with these IRS requirements so that policy proceeds avoid needless taxation.*

Pension Protection Act of 2006 and Life Insurance Taxation

On August 17, 2006, President George Bush signed tax legislation containing provisions that significantly impact key man and other employer owned life insurance purchased after August 17, 2006. The legislation, known as the COLI (Corporate Owned Life Insurance) Best Practices Act (which is part of the Pension Protection Act of 2006), includes the proposed IRC Section 101(j). Under this proposed law, life insurance death benefits for business-owned life insurance policies issued after the effective date of August 17, 2006 are income taxable (to the extent the death benefit exceeds the employer’s premiums) unless certain requirements are met.

This new legislation applies to all employer-owned policies issued after August 17, 2006 and includes policies used for key man insurance, stock redemption plans, Corporate Owned Life Insurance and Supplemental Executive Retirement Plans (among others). It may also extend to collateral assignment (economic benefit) regime split dollar and split dollar loans. With this law, all situations where an employer will have full or partial ownership of a insurance policy that is issued after August 17, 2006, regardless of the purpose of the policy, will need to meet certain requirements and follow specific guidelines to avoid potential taxation.

Avoiding Taxation of Key Man Life Insurance

In order to prevent policy proceeds (death benefits) from being income taxable, both of the following requirements must be met:

1. Notice and Consent Requirements:

a) The employee must be notified (in writing), prior to the life insurance policy being issued, that the employer intends to buy a policy on his/her life and disclose what the maximum face amount that is being applied for on his/her life is;

b) The employee must provide written consent to being insured and agree that the employer may choose to keep the policy in force even after the employee separates employment; and

c) The employee must be notified in writing that the employer is the beneficiary of all or part of the death benefit proceeds.

Under the COLI Best Practices Act, unless the employer provides written notice and obtains the employee’s written consent prior to the issuance of the policy, the death benefit of the life insurance policy will be taxable from day 1. Notice and consent may not be obtained after the life insurance policy is issued to remove this taxable death benefit status.

2. Once the “Notice and Consent Requirements” are met, there are two “Exceptions” to the rule taxing death proceeds payable to an employer, one of which must be met:

a.) Exception #1:

1) The insured was an employee at any time during the 12-month period before the insured’s death OR

2) The insured was a Director or “highly compensated employee” at the time the contract was issued.

b.) Exception #2:

Any amount received by the employer as a result of the insured’s death is paid to:

1) A family member of the insured;

2) A designated beneficiary of the insured under the contract other than the employer;

3) A trust established for the benefit of a family member, other designated beneficiary, or the insured’s estate; or

4) A family member, designated beneficiary, trust, or estate in exchange for any interest they hold in the corporation / employer (i.e. buy-sell agreement).

If both the “Notice and Consent Requirements” and one of the “Exceptions” above are met, Corporate Owned Life Insurance proceeds would be received income tax free if the policy death benefits would otherwise be eligible for favorable tax treatment.

COLI Best Practices Act- Reporting Requirements

All employers are required to report annually all corporate-owned life insurance policies to the IRS. The annual reporting requirements imposed under the IRC Sec. 6039I include:

1) The total number of employees at the end of the year;

2) The number of employees insured under COLI arrangement at the end of the year;

3) The total amount of insurance in force on all insured employees at the end of the year; and

4) The employer’s name, address, tax payer identification number and type of business, and

5) A statement of valid consent for each insured employee (or, if all required consents are not obtained, number of insured employees for who consent was not obtained).

The IRS requires this reporting annually on Form 8925 ” Report of Employer-Owned Life Insurance Contracts.” It is a simple form and must be completed to comply with IRS Code. You should consult your CPA or professional tax advisor immediately for more information on Form 8925 and the IRS reporting requirements.

If proper record keeping and reporting is not maintained, any and all key man life insurance policy proceeds or other corporate owned life insurance death benefits may be subject to income taxation

In Conclusion

Corporate Owned Life Insurance Policies including key man insurance policies issued after August 17, 2006 may have death benefits that are subject to income taxation if certain requirements are not met. The Pension Protection Act of 2006, which includes the COLI Best Practices Act, includes provisions that have significant consequences for key man and other employer owned insurance purchased after August 17, 2006. You need to understand the Notice and Consent requirements and well as the Exceptions and Record Keeping and Reporting requirements and comply with the IRS so that key man insurance policy proceeds avoid needless taxation. Unfortunately, if you have a key man policy issued after August 17, 2006 and you have not been compliant, your best bet to avoid potential income taxation may be to scrap your current policy and start over!

* All of the above tax information is for information purposes only and is provided to explain the basic tax treatment of life insurance based on the Internal Revenue Code. Any individual or entity considering any life insurance policy should consult with their own CPA or tax/legal advisor that understands their particular tax circumstances and the rules governing their state. In no way is this information intended to be tax or legal advice.

Insurance

Reverse Auctions – Tips for Successful Bidding

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Reverse auctions provide an excellent opportunity for increasing your business, particularly in the service sector. The website will notify you of projects posted on a reverse auction site in your area of expertise. You review and bid on those that interest you, and increase your business as you become more successful in your bidding.

To get started, register with selected reverse auction sites that cover the services you provide. Select all the categories you are interested in being notified about, and select the geographical areas that you cover. Most websites will notify you of new projects in your categories and locations. Some reverse auction websites offer the opportunity to include a description of your services, licensing, insurance, bonding, how long you’ve been in business and the like. Most, however, insist that you do not list your contact information, so you’ll need a user name that is different from your business name, and you won’t be able to list phone, e-mail or website address.

This prohibition on contact information stems from two basic causes: First, listing your contact information is an invitation to the customers to contact you directly and subject themselves to your sales pitch before they have had an opportunity to see what other offers the posting might bring out. Second, reverse auction websites normally charge a small fee for successful transactions, and if the business is completed off line, the website will see itself as being short-changed.

So how should you respond to a posting for something you are interested in bidding on? Several factors make for a successful approach.
– Study the posting carefully. Is there enough information for you to adequately bid? Are the size, quality, time frame, accessibility, and other factors clearly spelled out? Are there sketches or photographs to support the posting, so you can better visualize what the job entails?
— If there are details missing, request clarification from the customer. Use the site’s communication tools to tell him or her what you need to know, maybe giving examples of the type of thing required. For example, on a house painting job, maybe the customer didn’t specify the type of paint to use. Suggest your favorite brand and two or three grades for them to pick from. If the sizes aren’t clear, request the specifics you need. If the geographic area isn’t specified, request a zip code so that you know pretty closely where the job is located, assuming it’s a physical job.

– Be sure you check the complete content of the project listing. The contract you enter into is binding on both parties, so you want to be sure you understood everything that was required.

— The other side of this is that the person listing the job may not have included all the information required to do the job, even though the listing appears complete. Include in your bid what your drive-up charge is (again, for a physical job), so that, if the scope is larger than was described, you can describe to the customer how it’s different once you see it, and what the extra charge would be. If they decline, you will have told them what it costs to have you come out to the site and then go away without doing the work. As long as the scope of the work is significantly different than what was described, the contract won’t be valid, but you’ll still be compensated for the time and trouble to show up.

– Many reverse auctions involve programming, website development, editing, technical writing and such, that can be done without ever meeting the customer. In reviewing this type of contract, be sure that the details are clear, and that you ask for clarification you need before bidding. You can, as many suppliers of this type of work do, bid a scoping price, in which the specification and scope of the work will be detailed out in a preliminary contract. Once the full specification is available, you can then bid on the resulting specification.

— Keep an eye on what competitors are bidding, and how they are describing it. Generally you can go back in and modify your bid if you either discover through reviewing their bids that you missed some element of the project, or if they are undercutting your price just don’t allow yourself to become so competitive that you cause yourself a loss!

If you haven’t tried reverse auctions yet give it a whirl. For a few minutes spent registering with a few sites, you may get business opportunities you wouldn’t have seen without being registered. And, as your reputation and rating on the site build up, you will attract more business.

Insurance

For Those Who Smoke, A Smoker Word Insurance Policy Is A Good Selection For Insurance Coverage. Alth

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Insurance

The 5 W’s of Marketplace Health Insurance

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Knowledge based on the 5W’s of marketplace health insurance should serve as a reliable foundation for understanding and choosing coverage which meets the qualifications of the Obama health plan. The 5W’s stand for what, why, who, when and where.

What is marketplace health insurance?

Marketplace health insurance is coverage obtained through one of the governmental health insurance exchanges which provides a minimum standard of benefits known as the essential health benefits as specified by the Patient Protection and Affordable Care Act, referred to by many as ObamaCare. The plans are sold by private insurance companies and generally are HMO and PPO plans. Each plan has a metal designation of bronze, silver, gold, or platinum, depending upon services covered and the actuarial value of the plan. Marketplace health insurance plans cannot deny coverage or charge a higher premium for pre-existing illnesses. They cover some preventive care services.

Why purchase marketplace insurance?

The answer to this question rests in Affordable-Care-Act subsidies, also known as premium tax credits, and whether or not you qualify. Eligibility for Affordable-Care-Act subsidies is based on annual household income provided that income is at least 133% but less than 400% of the federal poverty level beginning in 2014. The premium tax credit calculation is based on a provision of the Affordable Care Act that no American should spend more than 9.5% of household income on medical insurance premiums. Given that provision, Obama-health-plan insurance could be purchased outside of the marketplace from a broker or insurance company. The dollar amount of the annual premium in excess of that allowed under the Affordable Care Act for a given income level could then be claimed as an end-of-the-year deduction during income tax filing. If the coverage is obtained through a health insurance marketplace however, the credit can be applied to the monthly premium of any Obama-healthcare-plan selected, resulting in a lowering of the monthly premium of the plan.

Who is eligible to purchase marketplace insurance?

Marketplace health insurance through the federal or one of the state insurance exchanges is for individuals and families less than 65 years of age or small businesses with 50 or fewer employees. Eligibility includes United States citizenship and/or legal residence. Additionally, one must not be incarcerated.

When does having medical insurance become mandatory, when can I enroll, and when does the penalty for not having insurance take effect?

January 1, 2014 is the date that most United States citizens and legal residents must have medical insurance coverage or suffer a tax penalty of $95 per adult, $47 per child, or 1% of the annual household income (whichever is greater) if one is uninsured as of January 1, 2014 and coverage has not been obtained by February 15, 2014. Open enrollment will extend until the end of March 2014. If you have a qualifying life-changing event however, such as marriage, relocation to another state, loss of job-based insurance or expiration of COBRA coverage, marketplace insurance can be obtained as an exception at times after the closure of the open-enrollment season in March 2014 and in subsequent years.

Where can I purchase marketplace insurance?

If you reside in a state whose health exchanges operated by the federal government you will need to purchase through that exchange. Alternatively, marketplace health insurance can be purchased through a private health insurance exchange if it has contractual authority granted by the federal government to enroll Obama health plan applicants. As of December 1, 2013, residents of the District of Columbia and states with state operated insurance exchanges must obtain marketplace medical insurance through the state exchanges. Those states are Those states are California, Colorado, Connecticut, Hawaii, Idaho, Kentucky, Maryland, Massachusetts, Minnesota, Nevada, New Mexico, New York, Oregon, Rhode Island, Vermont, and Washington.

Insurance

Is Paid Credit Card Payment Protection Only For Those That Don’t Need It

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It’s the quandary that people in debt face every day: How do I spend as little as possible on debt and still manage my risk? Lenders might offer a person taking out a credit card extended credit card payment protection for a small monthly fee, but people may feel they don’t have the spare cash to spend on securing a balance. In their mind’s, paid credit card protection is for those people who are rich enough not to need it, because they can afford the additional cost of carrying it. However, this type of thinking is exactly the opposite of what should be going through someone’s mind when they’re offered payment protection. Instead, they should be weighing the risk of defaulting on debt more than the cost of the small monthly payment used to make sure they can continue making payments if they get ill or are made redundant in their jobs.

How the rich might weigh the risk of not carrying payment protection

First, rich people would figure out how much of a balance they typically carry and whether they have enough savings to cover the balance should they suddenly lose their business or get seriously ill. If they are already carry disability or life insurance, this might help in the case where they were suddenly diagnosed with an illness or suffered a major accident. It would not help them if they lost their business and the associated income. For that they would need to rely on their savings or investment accounts to help repay outstanding debts.

Or, rich people with huge outstanding balances may decide that claiming bankruptcy would be the better option if their hope of repaying their debt in a few years is miniscule when compared to the size of the debt. For those that don’t have the option of a large bank account or business investments to cover an outstanding credit balance, the paid credit card payment protection can offer some peace of mind when they lose a job or get sick or injured. This is much truer for someone who is depending on an employer and a healthy economy to keep from being made redundant. Business owners might decide that claiming bankruptcy makes more sense.

When bankruptcy is not an option

If your livelihood depends on being able to work in your profession, it may be a very bad idea to file bankruptcy to get rid of credit card debt – even if your business fails. Bankruptcy in the UK can bar certain professions from practicing if that individual is declared bankrupt by the courts. In such cases, a payment protection plan can offer some peace of mind that debt payments will be made and creditors will not force that individual into bankruptcy through non-payment. This will give them time to work out an individual voluntary arrangement to resolve all the debt without a bankruptcy declaration. This can not only save their credit for a time, but also save their potential earning power for the future when thing might be a whole lot better.

Other risks that demand that you take out credit card payment protection

Other types of risks that can help you decide whether you should pay the monthly fee for extra credit card protection is whether your loss will affect more than yourself. It may be one thing to lose a credit rating, but quite another if the loss of a job or an unexpected illness also puts your family at risk. If you can cover a mortgage with unemployment benefits for a period of time, but not the additional credit card payments, then you might want to consider taking out extra credit card payment protection. If you happen to be made redundant through no fault of your own, the benefits can mean that you will be able to keep your family fed and housed, even while maintaining a good credit history. This will undoubtedly help you if it takes a bit of time to find a new job or if a job offer is dependent on a good credit history. It can also save you from having to dip into retirement or investment accounts to make up the difference. When the risk of non-payment affects more than just you because you are the primary bread-winner, it makes sense to add extra protection to your accounts to keep you solvent even when things don’t go exactly as you had planned.

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