Insurance in Zermatt Life/Health Insurance Trust
As previously noted, IRS has launched an assault on welfare benefit plans that include cash‐value life insurance policies. In addition, it has come to our attention that some cash‐value insurance policies do not provide good investment value. This became obvious in the late 1990s during the dot‐com bust, and again in 2008, when so many variable policies and variable annuities lost as much as 50% of their value within a few months. Other insurance policies, either because they were not designed to perform as investments, or because insurance companies have increased internal costs while returns and interest rates have dropped, have also failed to deliver good investment value.
Effective immediately, the Zermatt/Life Health Insurance Trust will offer now offer the following three choices with respect to life insurance policies under the Plan:
1. Retain Existing. Retain existing insurance policies. If this is your choice, you will need to hold Benefit Strategies Group, LLC, Christiana Bank & Trust and the Zermatt Life/Health Insurance Trust harmless with respect to investment losses you incur.
2. “Buy Term, Invest the Difference”. Convert to a group‐term life insurance contract or term insurance contracts. We can arrange a 1035 exchange (so as to preserve the original policy’s tax basis) into a new contract. We have a group term life insurance contract available through Fidelity Security Life for groups with fewer than 10 participants on a guaranteed or simplified issue basis. Group of more than 10 participants may use a highly‐rated carrier. You may select among investments available with respect to the balance of the funds in your account.
3. High performing IUL. You may convert to a high‐performing indexed universal life insurance policy with Minnesota Life. This policy has a guaranteed surrender value for the first 3 years that is equal to the greater of the premiums paid or the accumulation account, and equal to the accumulation account after the third year. This policy is available through a section 1035 exchange on a simplified issue basis.
4. Drop insurance altogether. A few clients either choose not to fund life insurance, or cannot afford to continue funding insurance policies. It may be advisable for them to drop existing contracts and retain the funds for post‐retirement (post‐employment) medical expenses.