Tax Time: 1040 Overlays & Bigger Life Insurance Sales

by Jul 11, 2017Life

Tax time is upon us and often your client’s 1040 is road map of life changing events that can lead to powerful life sales and valuable insight that’s often only viewed by accountants and/or spouses. The tax return is a consolidated financial road map that can provide advisors with powerful clues to help you uncover new or overlooked insurance needs.

While there are lots of 1040 overlay resources that provide a road map, there are a few areas that often trigger larger life insurance sales. Use this as a guide to uncover some of the top opportunities you’ll find by harvesting your client’s tax return.

Let’s take a look at a few sections of the 1040 form and we’ll arm you with conversation starters that can help you engage in worthwhile conversations that can lead to life insurance sales. Let’s get started:


Dependents – Line 6c

Dependents can dramatically change how your client evaluates their finances. Many view the dependents as a fixed number of loved ones; the reality is that it’s not the case. Depends influx with new marriages, previous children from new spouses, births, adoptions etc.

Conversation Starters:

Under section 6c, you’ll find dependents, which will help you profile the family. Depending on how many dependents, is there a plan in place to protect loved ones? And, the younger the dependents age, the more insurance is generally needed. “Do you want to provide for college?” If yes, “Is your goal on track?”

“Do any of your loved ones have special needs or need assistance?”

“What happens to your loved ones is something happens to you?”

“Do you have elderly parents you’re caring for or extended family that you provide for? How will you pay for ongoing care?” (LTC conversation)

“If something happened to you or your spouse, how will you fund medical care?”


Wages/Salaries & Taxable Interest- Line 7-8a

Most refer to earned income by their W-2 or 1099 income; however it’s also important to consider the top-line income when determining how much income replacement a client needs to cover in retirement. As we look at taxable interest on line 8a, how will your client use the money? Do they need it immediately, will it be used in retirement or will they leave this for their children or grandchildren? If so, is there a strategy that can be more tax-efficient in the future and still provide the income or legacy intended for those monies?

Conversation Starters:

“Have you experienced increase income this year?”

“What will you do with the increased earnings could a portion of those be used to help fund your retirement?”

“Where are your assets invested and how much is it earning?”

“What is this money dog-eared for?”

“Are you concerned about the taxes you’re incurring?”


Capital Gains – Line 13

Higher income families are more likely to incur capital gains. And, this passive income is also subject to an additional surcharge tax. For clients interested in building-up their retirement or leaving a legacy, the tax efficient aspects of life insurance can be highly desirable.

Conversation Starters:

“Where is your money invested?”

“Have you considered a more tax-efficient strategy?”

“Tell me why this is in a taxable investment?”

‘Where you aware it was a taxable investment?”


IRA Distributions: Line 15a & 16a

Typically, those taking individual retirement account (IRA) distributions or annuity distributions and pensions are retired. If your client is taking distributions, there are three obstacles they will most likely face: longevity, long-term care expenses and sequence of returns. Often purchasing a life insurance policy with cash value allows clients to access money and provides flexibility while they live, but also provide a death benefit when the plan is built appropriately. If your client is required to take distributions, find out if they need the income from the pension or annuity and purchase a life insurance policy to maximize their legacy to loved ones. Annuity withdrawals can sometimes produce 4-7X’s the income by placing these in indexed universal life (IUL).

Conversation Starters

“What is your plan on taking distributions?”

Is your client 70 ½?: “Do you need income or are you just taking RMDs because you have to?”

“What is your plan to sustain a long retirement?”

“Would you like to leverage your unneeded income to pass to your family?”

“Would you be interested in a more tax-efficient way to pass money to your loved ones?”


Taxes: Line 56

This sums the total amount of taxes your client pays. In nearly every instance there is a way to use life insurance as a tool to diversify tax exposure and create a death benefit to clients.

Conversation Starters:

“How do you feel about paying taxes of $________.”

“Have you worked on developing a plan to diversify your taxes for retirement?”

“Who do you lean on for tax advice? Have you discussed your investment with them?”

“Would you be interested in reducing your taxable income?”


Familiarize yourself with the layout of the 1040 and questions you can use to engage in conversations and ask the right questions. Help your clients prioritize their goals and be sure to reach out to the CreativeOne team to help you access additional tools. Make April 17th sales season for you.

Call the CreativeOne life sales team to access additional tax-filing resources.


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