RightCapital is designed to provide significant insights into a client's financial landscape in order to create a space in which you, the advisor, can do financial planning just right. This includes incorporating life insurance policies and distributions within a financial plan. This article is designed to provide an overview of how life insurance policies impact client plans.
Life insurance is a legally binding contract where an insurer provides death benefits to beneficiaries after the insured party passes away. The insurer guarantees a death benefit as long as the policyholder has paid the premiums outlined in the contract. Typically life insurance policies include a death benefit that allows beneficiaries to maintain their standard of living once the insured party passes away.
Permanent life insurance policies in RightCapital may include a cash value that can grow over time. This cash value can be used by the insured to fund cash flow needs or increase the death benefit. For information on adding insurance policies and cash-value life insurance policies click the previous links.
Group Life: A life insurance policy offered by an employer or organization at a low or no cost for workers and members. This is typically included in specific benefit packages. Users can add premium inflation to account for rising when entering the group life policy into the Net Worth. Group life insurance will pay out to the beneficiary if the insured individual passes away.
Term Life: A life insurance that only lasts a specified number of years. Policies are typically sold in 10, 20, or 30 years terms. The length of the term life policy can be adjusted by changing the "Policy ends" details while entering the Term Life policy. If only part of the term life insurance death benefit will payout to the co-client, users can enter a "survivor percentage" that can be used by the co-client. Term life insurance will pay out to the beneficiary if the insured individual passes away within the policy term.
Whole Life: A permanent life insurance policy that can accumulate and distribute a cash value over time. If only part of the term life insurance death benefit will payout to the co-client, users can enter a "survivor percentage" that can be used by the co-client. Whole life coverage will pay out to the beneficiary when the insured individual passes away.
Universal Life: A permanent life insurance policy that can accumulate and distribute a cash value over time. This policy type earns interest but the premiums and death benefit can be adjusted over time. To adjust the premiums and death benefit over time in RightCapital, users can customize policy details by selecting "Cash value approach" > "Use illustration" > then editing the detailed schedule while entering the UL policy.
Indexed Universal Life: A permanent life insurance policy that can accumulate a cash value over time. This policy type earns a fixed or equity-indexed rate of return on the cash value within the account. The growth of cash value can be adjusted in the "Cash value approach"> Simple growth crediting rate when entering IUL policies into the Net Worth.
Cash value from permanent life insurance policies will be listed among invested assets within the Dashboard > Balance Sheet and as a tax-free asset within the Investment > Tax Allocation module.
RightCapital will allow clients to take tax-free loans or fully surrender any permanent life insurance policy in order to fund cash flow needs in the future. Tax-free loans from permanent life insurance policies will be seen as tax-free income within the financial plan.
If the client decides to fully surrender the policy, the gains on the policy are subject to income tax. When a policy is fully surrendered, RightCapital will take the surrender amount minus the total premiums (cost basis) to calculate the gain. The gains can be tracked in the Tax > Tax Estimate > Details > Schedule D.
RightCapital considers death benefits that payout to beneficiaries a tax-free income source within the financial plan. When using the estate planning module, RightCapital will factor federal estate taxes on the client's gross estate. Death benefit proceeds are considered when evaluating whether or not a client meets the estate tax exclusion threshold. Life insurance policies can be listed with an Irrevocable Life Insurance Trust as the owner to keep the death benefit from being incorporated into the client's taxable estate at the end of the plan.
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