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Product Knowledge October Report

October 27, 2023

Wealth Transfer | Wealth Accumulation

In the last magazine, I talked about how using a GCU Irrevocable Burial Trust could ensure that your funeral is paid for, even if you go into a nursing home. I also mentioned that GCU offers a special type of life insurance called Single Premium Whole Life, (SPWL). As the name implies, this is a life insurance policy that has one premium payment and then the policy is paid up. As a matter of fact, after making a single payment, you can’t add more premium, even if you want to!

In financial services there are many agents that specialize in Estate Planning, Legacy Planning and Wealth Transfer Planning. Although all three of these specialties seem like they could be complicated, they all ask the same question,” What do you want to do with your money when you pass away and no longer need it?” Let’s see how GCU’s Single Premium Whole Life can answer this question.

  • Benefits of Single Premium Whole Life
    Single Premium. One premium and the policy is paid up.
    Cash Value Accumulation. The policy value will increase with both guaranteed cash value increases and non- guaranteed dividends.
    No Probate. Life insurance with proper beneficiary arrangements will not go through the probate process and the death benefit will be paid directly to the named beneficiaries.
    Tax Free Death Benefit. Not only does the death benefit not go through probate, proceeds are usually treated income tax free.
    Flexibility. You can remove or add beneficiaries at any time.

Here is an example: Linda, age 75, has three grandchildren. She currently has a $50,000 CD that she wants the grandchildren to share equally when she passes away. Her $50,000 split three ways equals $16,666 per grandchild. But if she uses the $50,000 CD for the premium of a Single Premium Whole Life insurance policy, the numbers change significantly. That $50,000 premium generates a death benefit of nearly $75,000. This amount split three ways gives each grandchild $25,000. That is a 50% increase for her grandchildren’s inheritance!
Life insurance can be an important part of any estate plan and you don’t have to be wealthy to make it part of yours!

  • The Benefits of a GCU Fixed Annuity
    Annuities have been around for many years and provide great benefits to people looking to enjoy their retirement years. While there are several different types of annuities, most of them offer similar benefits.
    These benefits include:
    Lifetime guaranteed Income. Annuities can provide an income that is IMPOSSIBLE to outlive.
    No Probate. Because annuities have a named beneficiary, there is no need for probate.
    Tax Deferral. You do not pay taxes on the growth of an annuity until you take it out.

While all of these benefits are important, I want to focus on the benefit of tax deferral. Over the last few decades, interest rates have been historically low and bank products were no exception. Savings accounts were earning under 1% and CDs were earning under 2%.

Well times certainly have changed. Now, it isn’t hard to find a saving account paying over 3% at a CD paying 5% or even more. With higher rates available it is important that you focus on the tax burden being generated. Here is an example why.

Jim puts $100,000 into a CD earning 5%. He is also in a 25% tax bracket. Here is the math.

100,000 x 5% = $5,000. However, he must pay 25% on the interest so he only gets to keep $3,750 of his gain, even if he doesn’t take the money out of the CD.

If he put the same $100,000 into an annuity earning the same rate, he only must pay taxes on the growth IF he takes money out of the annuity. In ten years, his CD would be worth $144,504 after taxes but the annuity would be worth $162,889. That is the power of tax deferral!

I’ll end this conversation with an old expression I learned when I first got into the insurance business… “Why would you pay taxes on the money that you earn when you can earn money on the taxes that you save?"

Jeff Long | GCU Sales Director

 

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