Don’t Make This Life Insurance Mistake!

Social Security taxation is one of my all-time pet peeves. Primarily this annoys me because by the time the taxes are felt, it’s too late for the taxpayer to do anything about it.

At that point, it’s just a matter of hoping they have enough resources to pay the tax-man and live comfortably.

Tax-Exempt Interest Affects Social Security Taxation

In the video below, I show you an article from Money magazine where in passing a tax pro mentioned how tax-exempt benefits are taxed when it comes to your Social Security.

Unfortunately, this mention was made in passing and I imagine most people would overlook it.

He said that tax-exempt interest is counted in your combined income to determine the amount of taxes you pay on Social Security.

Don’t Overlook This!

But the writer of the article completely failed to discuss in any further detail, as is typical with business writers. They seem to over-look what should be obvious and thus fail to ask the fundamental question “You mean to tell me my tax-exempt interest can make my Social Security subject to taxation?”

Doesn’t that seem odd? That tax-exempt interest is part of the calculation for determining taxes on Social Security?

When Tax-Exempt Is NOT Tax-Exempt

Of course it does! Tax-exempt is “Tax Exempt”, after all. But it’s not!

Why the financial media and other financial professionals don’t understand this boggles my mind.

But it gets worse!

Married or Single Is a BIG DEAL

How Social Security is taxed is also contingent on if you’re married or single.

A single person with $34k of Social Security benefits and $20k of other income, pays $1616 in Federal Income tax.

A married couple with $40k of Social Security and $20k of other income pays NOTHING in Federal Income tax. Yes, you heard that correct – NOTHING!

How Single Taxpayer Pays More in Tax on LESS Income

The single person had gross income of $54k and paid nearly $2k in taxes.

The married couple had gross income of $60 and paid nothing.

In fact for the married couple to pay the same amount of tax as that single person they’d need a whole lot more gross income.

Watch my video on this exact topic.

Don’t Wait To Plan!

But here’s the problem; What are YOU doing about future taxes, now? Is your tax software helping you understand the tax trap that awaits? Your financial advisor? Your accountant?

I doubt it. What most tax planning does is account for where you are today, without giving much a thought to what your circumstances will be in the future.

Then, it’s too late. When you’re an 80-year-old widow with a tax bill of $10k there isn’t much you can do. You pay the tax man, or they come after you.

So, plan now!


Life Insurance is a big deal. It’s an even bigger deal if you thought you had a life-long policy but suddenly find out that your policy has lapsed. Now what do you do???

Make Sure Your Life Insurance Doesn’t Expire Before You Do

In the video below, I’m going to show you exactly what you need to do make sure your life insurance policy doesn’t expire before you do.

Huge Difference Between Whole Life and Universal Life Insurance

I can not tell you how many clients I’ve had in my 20+ years who thought they had Whole Life Insurance. But in actuality they have Universal Life.

The difference between these two life insurance types are significant.

With Whole Life Insurance, you pay the agreed upon premium, on time, and the policy will literally be there for your “Whole Life”. There is no risk to you. Other than your ability to pay the premiums.

Whole Life Insurance Risk Is On The Insurance Company

Now, because there is no risk to you, the amount of whole life insurance protection will generally be much less than a similarly priced Universal Life Insurance policy.

The reason for this difference is that the risk with Universal Life Insurance is on you, not the insurance company.

Less risk to the insurance company, the more they can offer. More risk to the insurance company, the less they can offer. It’s really that simple.

Universal Life Insurance Risk Is On You

With Universal Life Insurance the policy interest rates can, and do, change regularly. Let’s say you bought a Universal Life Insurance policy in the late 80s or early 90s, you were shown a crediting interest rate of 6% or 7% or something along those lines.

Fast forward 20 years and what are interest rates today? Half.

Interest Rates Today Vs. 1980s and 1990s

When you bought that policy the illustration shown to you presumed the interest rates your policy received would stay at 6% or 7% throughout the policy.

That hasn’t happened.

In fact over the last 15 years or so, your policy has had SIGNIFICANTLY less interest credited to it, all the while the COST to insure you has grown each year.

Older You Get More Expensive Life Insurance Is

As you get older, you’re more likely to die, thus life insurance becomes more expensive. Yet, while the costs have gone up, the interest you’ve been making has gone down.

A life insurance policy with increasing costs and decreasing interest can not last! It will lapse.

Given the risk of lapsing policies to unsuspecting customers, one would think the insurance companies would go out of their way to help those owners understand that risk, right?

You’d be wrong.

Your Annual Statement Is Not Enough!

What the insurance companies do is they send an annual statement. Unfortunately the annual statement just represents how your policy is doing TODAY. It says nothing about the future strength of the policy.

I had a 68-year-old doctor client. He had a $1 million dollar Universal Life policy that had $88,000 cash value.

Just looking at his statement, he thought this policy was good to go and he stopped making ANY premiums.


I ran an INFORCE ILLUSTRATION though. The INFORCE ILLUSTRATION shows the FUTURE performance of the policy based on current interest rates and costs.

For my client, it was a rude-awakening. His policy was on track to lapse in 8 yrs, when he turned 77!

To say the least, he was not happy.

After the expletives cleared, I told him the options.

How To Keep A Underperforming Policy From Lapsing

Reduce the death benefit. Add cash to the policy. Cancel the whole thing and pocket his $88,000 cash value.

He wanted the policy. So canceling was not an option.

But he also didn’t want to reduce the death benefit of that $1¬†million either.

His only option was to add cash to the policy. Thankfully, he had a couple of CDs maturing he could add to the policy.

But what if he didn’t have that cash?

The moral of the story: Keep up to date on your life insurance policies.

Request an INFORCE ILLUSTRATION every 3 years.

If you don’t know how to read that illustration get the insurance company to walk you through it.

Your policy is too important to simply trust the insurance company. You need to do your due diligence.


© Copyright 2018 Heritage Wealth Planning