Monday, July 22, 2013

Executive Bonus Plans: Rewarding Employee Performance

Executive Bonus Plans: Rewarding Employee Performance

Rewarding employee performance strengthens the stability of a business and reduces employee turnover among the ranks of valuable employees.  Losing an important employee to a competitor can disrupt current and future business profitability.

Privately-held businesses entities have limited options when designing compensation packages for their employees.  Many small companies are unwilling to establish qualified retirement plans because of the high cost of the plans and because they have to include all eligible employees.

Nonqualified deferred compensation plans are an option but participation is restricted to certain highly paid management employees.  Having benefits in addition to normal compensation is a proven method for improving employee morale and job satisfaction and thereby reducing costly employee turnover.

An Executive Bonus Plan (also known as a Section 162 plan after the section of the Internal Revenue Code that permits an employee to deduct compensation paid to employees) offers the opportunity to reward any employee.  It could be a one-off bonus for exceptional work in any year or, more commonly, an on-going arrangement to provide additional compensation annually.  To enhance the future value to the employee and the employee’s family, the payment is usually paid as the premium for a cash value life insurance or annuity contract owned by the employee.

Attaching conditions, such as job performance or continued employment, to the right to continue receiving this additional compensation increases the attractiveness of such a plan to the employer and further increases the likelihood that the employee will remain with the company. 

The employee is responsible for payment of income tax on the bonus paid by the employer.  In some cases, the employer will pay an additional amount to cover the associated income tax liability in which case the plan is known as a “double bonus” plan.

As long as the bonus represents “reasonable compensation”, the business can deduct the bonus used to pay the life insurance policy premium.  The employee owns the life insurance policy and names his or her beneficiary.

An employer can place certain restrictions on the policy as an incentive to the insured employee to remain with the company.  One such restriction can be limiting access to policy cash values by the employee for a selected period of time, such as the employee’s expected date of retirement.

Additional Considerations
Employers should seek legal counsel regarding creating a formal agreement between the employer and the employee governing the Executive Bonus Plan.  Any corporate records notation or agreement should spell out who will participate in the executive bonus program, why such employee or employees were selected for participation, and the nature of the benefit these employees will receive.  Any restrictions on an employee’s rights to access insurance policy cash value, or any “golden handcuffs” arrangement, should be spelled out in the written agreement between employer and employee.

Actual restrictions on the policy itself, such as limiting the employee’s access to cash values, can be enforced using a policy endorsement filed with the insurance company. The endorsement should indicate the time period during which policy restrictions will remain in effect, and list the conditions for removal of any restrictions on the employee’s access to the policy.

The purposes of a permanent cash value life insurance Executive Bonus Plan include growing funds on a tax-deferred basis to be made fully available to the employee for supplemental income in retirement.

From an employee’s perspective there are two concerns with this type of arrangement.  If this is not a “double bonus” plan, the employee may be concerned about having the funds to pay the income tax liability.  Also the employee may be concerned about the viability of the life insurance contract if the employer does not pay the bonus each year.  To address some of these concerns, the employer and the employee could agree to establish the plan for a limited period and make payments in an amount sufficient to sustain the policy after the payment period.

With a properly structured executive bonus plan, both the employer and the employee win.  The employer benefits from greater employee loyalty and lower staff turnover; the employee benefits from expanded compensation options.

Article written by Columbus Life appeared in Columbus Life Advanced Market Insights October 2011 edition.


Tom Newsad has been building relationships for over twenty years in his community.  Newsad Insurance Services offers life insurance, fixed index annuities, health insurance, and disability and long term care insurance.  For more info see www.newsadinsurance.com . Tom serves clients in the Butler, Hamilton, Montgomery, Warren, Miami, and Preble county areas and beyond.

Wednesday, July 17, 2013


Indexed Annuity Magic: How Do They Do It?

One of the greatest mysteries in the indexed annuity market is how insurance companies are able to offer market-linked gains on an annuity with a principal protection feature.  Many are familiar with the strong guarantees that fixed annuities offer, but it comes at the cost of low potential for gains.  On the other hand, variable annuities provide unlimited potential for gains, but you must be willing to stomach unlimited risk to achieve it.

The indexed annuity is a unique gem amidst a pebble-lined beach—but how is this awesome feat accomplished?  How can insurance companies offer purchasers market-linked interest without the risks associated with VAs and still afford to offer a guarantee?  It is actually pretty amazing and extraordinarily simple to accomplish.

For comparison, let’s explore what the insurer does with the purchaser’s money when offering fixed annuities.  When an annuity purchaser makes a premium payment into a fixed annuity, the insurance company turns around and uses that premium to purchase bonds.  Generally, the bonds are high quality and they mature at the same time the surrender charges expire on the purchaser’s annuity (i.e. I buy a 10 year surrender charge annuity and the insurance company then purchases 10 year Grade “A” bonds to cover my annuity’s guarantees).  This provides a relatively safe investment vehicle for the insurer to make enough interest off of in order to earn their spread/profit.

So, just for simplicity’s sake, let’s make the assumption that the bonds are paying 4% interest and the insurance company is crediting 3% interest on its fixed annuities.  This means that the difference of 1% is what the insurance company is using to cover its expenses and anything that is left of its spread/profit.  Makes sense, right?

OK, let’s move over and apply this to fixed annuities: instead of putting 100% of the purchaser’s premium payment in bonds, with an indexed annuity, the insurance company puts about 97% of the premium payment in bonds.  (Some companies might use 96%, 98%, etc. of the premium payment; you get the idea!)  The bond covers the indexed annuity’s annual 0% floor, which protects the annuity purchaser from market losses.  It also covers the minimum guaranteed surrender value, providing a return of premium plus interest to the beneficiaries in the event of death, in addition to providing the same benefit to the purchaser if the indexed crediting does not perform.

Now, let’s get to the other 3% of the purchaser’s premium payment, where the real magic happens: this portion of the purchaser’s premium payment is used to purchase options.  It is the options that provide the index-linked interest on indexed annuity contracts. Today, we might take that three cents of our one dollar to the options-seller and ask that he sell us an option for the S&P 500, using an annual point-to-point crediting method with a cap being used to limit the exceeded interest.  The option-seller might tell us that our three cents will buy our customers a cap of 3.85%, which isn’t so hot.  Then again, the S&P 500 is relatively low right now.

However, if the market suddenly goes back up, and the S&P 500 returns to 1500 the next month, that option-seller will likely offer a much higher cap for our three cents.  (After all, if it is already at 1500, what is the likelihood that the S&P 500 will increase tremendously over a one-year period?)

So there you have it, folks.  No tarot cards, no voodoo dolls—just plain and simple math.  And even though the logic behind indexed annuities is rather simple, it is magical nonetheless.


Author: Sheryl Moore, President and CEO of AnnuitySpecs.com and LifeSpecs.com
Taken from Annuity News.com from article posted 9/7/2011.


Tom Newsad has been building relationships for over 20 years in the financial services industry.  Newsad Insurance Services of Middletown, Ohio, offers life insurance, health insurance, fixed index annuities, long term care insurance, and disability income insurance and serves Hamilton, Butler, Warren, Montgomery, Clermont, and Miami Counties and beyond.  Visit www.newsadinsurance.com for more information.

Tuesday, July 9, 2013

Term insurance policies that Newsad Insurance Services has sold in the past were also called Mortgage Insurance. They are also a life insurance policy. One of these policies is a decreasing term contract and many people that bought these policies had the need to cover their mortgages in a 15 year or 30 year joint decreasing term. The disadvantage to these policies is that the premiums remain level and the total death benefit decreases in value. A review by your Life Insurance Adviser is the perfect time to re-evaluate your needs for this product and protection.

Tom Newsad offers Life Insurance and Financial products in Butler, Warre, Montgomery, and Preble County areas in Southwest Ohio. Contact me at tom@newsadinsurance.com

Tuesday, June 18, 2013

Changes to Health Insurance Coming in 2014


Changes to Health Insurance Coming in 2014

            There are sure to be winners and losers as the federal government finalizes new rules for health insurance plans in the coming months.
            Starting in 2014, the federal health care overhaul will limit the factors that insurance companies can use in setting rates, allowing premiums to be based only on a person’s age, history of tobacco use, family size, and geographic location.  And even those disparities in premium rates will be limited.
            Also, the law requires health insurers to provide “essential benefits” as part of their coverage, ranging from mental health services and prescription drugs to preventive and pediatric services.  That will provide a greater degree of health care security for people who buy health insurance on their own, but is will also increase the cost.
            The rules, proposed in late November 2012, are likely to have the greatest impact on those who buy health insurance on their own.  An estimated 350,000 Ohioans bought their own health insurance in 2010, but the number is expected to increase to 537,000 by 2014, according to a report produced by Milliman Incorporated last year for the Ohio Department of Insurance.
            In Ohio, overall premium rates for those who buy individual policies are expected to rise by 55 to 85 percent.  For employers with fewer than 100 workers, premium increases are expected to be 5 to 15 percent.  At employers with 100 workers or more, the increases, if any, should be less than 5 percent, according to Milliman.
            Young, healthy men are likely to see the biggest premium hikes under the new rules.  In part, that is because women can no longer be charged more than men for health insurance, and men who buy individual insurance will effectively subsidize the premiums of women, said Milliman.
            Currently, premium rates for those on the cusp of Medicare eligibility are about six times what they are for young adults, according to Milliman.  Under the new rules, those rates can be only three times as high.  That is likely to lower premiums for older workers who are ill.
            Health insurers are concerned that some young people will find that it is to their advantage to decline the purchase of health insurance and pay a penalty instead.
            “You need the young and healthy people in the system for this to work,” said Robert Zirkelback of America’s Health Insurance Plans, which represents insurance companies.
            There will also be implications for choice; those who are older than thirty won’t have the option of buying an individual health plan that provides only bare-bones, catastrophic coverage.
            Fabien Levy, press secretary for the U.S. Department of Health and Human Services, said alternatively that young adults will benefit from the law in several ways.  Those who don’t have health insurance coverage available elsewhere can remain on a parent’s health plan until age 26.  Also, tax credit subsidies of premiums should defray the cost as well, according to Levy.
            Aetna said the proposed rules’ limits on deductibles and their minimum coverage requirements will change the mix of plans it offers.  Kelly McGivern, Aetna’s senior director of government affairs, said the health insurer sees opportunities to customize its products and plans to meet its members’ health and financial needs even after the new rules take effect, however.
            “For instance, we could see a product that could be offered in the marketplace that has a more narrow network design focused on the highest quality providers,” which could result in lower premiums for consumers, McGivern said.

Information taken from the Middletown Journal, December 2012

Newsad Insurance Services has been providing insurance and financial services in the Middletown community for over 20 years and is affiliated with over 60 different companies.  Tom Newsad and Elaine Dominy cover the areas of Middletown, Trenton, Oxford, Dayton, Monroe, Liberty Township, greater Cincinnati, and beyond.

            

Thursday, June 13, 2013

Top Ten Most Expensive Health Conditions



Top 10 Most Expensive Health Conditions

Life insurance rates are determined by many factors including age, health, gender, and lifestyle. Life insurance underwriters put applicants in risk classes based on the likelihood of death before policy maturity. The higher the risk, the higher the rate class, and the more expensive a policy will be.

These are the top 10 health conditions that are most likely to affect your life insurance rate class:

1.)    Hypertension (High Blood Pressure)
·        High blood pressure that is not well controlled is a concern to underwriters because it can lead to vascular complications
·           T he industry takes individuals who have well-controlled and well-managed high blood pressure into consideration and often underwrites them very favorably 

2.)    Type 2 Diabetes (Adult Onset)
·        The potential complications that can result from diabetes affect risk class
·        Youth does not work in favor of the Type 2 applicant. The younger a person is when they are diagnosed, the higher the risk for a life insurance company as the person gets older
·        The important factor in getting affordable life insurance coverage with diabetes is good control and management

3.)    Sleep Apnea or Narcolepsy
·        Severe sleep apnea can be associated with high blood pressure and coronary artery disease
·        If sleep apnea is well controlled and well managed, applicants can still get a good underwriter rating

4.)    Heart Disease
·        Heart disease encompasses a wide range of diseases and conditions from atherosclerosis to a prolapsed mitral valve
·        Underwriters consider family history in heart disease assessments…they look at immediate family members- father, mother, brother, sister- who may have developed heart disease or had a stroke

5.)    Asthma
·        With asthma, underwriters are concerned about the severity of the condition and how well it is managed
·        An individual with well-controlled asthma should be able to be favorably underwritten

6.)    Cancer
·        The word “cancer” will flag any life insurance underwriter but its ultimate effect on an applicant's rate class can vary from negligible to substantial
·        Just as each cancer is individual, every insurance company will underwrite it differently

7.)    Obesity
·        Centers for Disease Control and Prevention statistics indicate that more than 1/3 of adult Americans are overweight and another 1/3 are clinically obese
·        Insurance companies calculate an applicant’s BMI when determining their risk class
·        Most carriers have build tables to determine which weights can qualify for each rating

8.)    Organ Transplants
·        Insurance companies treat organ transplants on a case-by-case basis
·        Kidney transplants are the most common and can be insurable but liver and heart transplants are rarely insurable

9.)    Depression
·        The rating for individuals with depression depends on the degree, the severity, and how well it is managed

10.)            High Cholesterol
·        Life Insurance companies are concerned with high cholesterol because it is a risk factor for the development of a lot of vascular conditions, including coronary artery disease, stroke and other atherosclerotic kinds of disease
·        Underwriters tend to treat high cholesterol like they treat high blood pressure…favorable ratings can exist if it is controlled and well-managed

-From Bankrate.com “Top 10 Health Hazards for Life Insurers”

Tom Newsad of Newsad Insurance Services has building relationships for over 20 years through insurance and financial services.  Newsad Insurance Services serves Middletown, Trenton, Hamilton, Franklin, Dayton, Centerville, Oxford, and surrounding areas.  For more click on www.newsadinsurance.com

Tuesday, June 11, 2013

Now More Than Ever

Now More Than Ever

Market volatility. Pension Plans being killed off. The future of social security in flux. All of these factors-and more-conspire against. Consumers, who are trying to create a solid stream of income for their retirement, enter or, perhaps better phrased, re-enter annuities.

 According to LIMRA (Life Insurance Marketing Research Association), an organization that does life insurance marketing and research, “will retirement assts last a lifetime?”

 One in five retirees receives income from individually purchased annuities! While data from LIMRA recent “sources of retirement income.” Studies show that just 4 percent of retiree’s income currently comes from annuities (most come from pension plans-38 percent, and social security 34 percent.) It’s becoming clear that annuities will have a growing place in consumer’s plans for retirement,

 At Newsad Insurances Services we guide our clients through an education process on current plans and designs. “Fear of the unknown is a bug reason clients have a version to annuities.” So I try to explain to people you need to know what you’re saying no to.

Everybody has two forms of expense in retirement Living Expenses and Life Style Expenses.

Our goal at Newsad Insurance Services is to provide financial information to our clients so they don’t make income retirement mistakes!

Tom Newsad of Newsad Insurance Services consults with clients in the surrounding areas:  Middletown, Trenton, Franklin, Miamisburg, West Carrollton, Hamilton, Preble County, Lebanon, and more.

We currently offer Life Insurance and Financial Services with over 60 companies.

Feel free to call Newsad Insurance Services at (513) 424-6871 or contact Tom Newsad directly at (513)348-9573, or click on www.newsadinsurance.com for more information

Tuesday, June 4, 2013


Low Interest Rates Raise Term Life Prices 

Term life is becoming costlier and a bit harder to find.  Following a decade in which prices fell to all-time lows, premiums for new term policies last year rose on an average of 3%, according to Tom Newsad of Newsad Insurance Services.  Newsad forecasts more increases for the coming year.  The culprit?  Sickly yields on bonds in which insurers invest most of customers’ premiums.  Hit hardest are policies offering longer term plans such as those for twenty and thirty years.  Term rates are up 5% on those carriers offering those rates.  Shopping your rates with an independent agency such as Newsad Insurance Services will give you the best chance to shop rates across the board.  One should only consider buying policies with A rated companies or better.


Tom Newsad offers insurance and financial services in Middletown, Monroe, Franklin, Trenton, Hamilton, and West Chester, Ohio.  See www.newsadinsurance.com for more information or contact Tom directly at tom@newsadinsurance.com .