Download - LIFE INSURANCE in an Uncertain Environment
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LIFE INSURANCE in an Uncertain Environment
Will Your Life Insurance Policy Die Before Your Client?
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2005 => 2006 => 2007 = 2008 ???
These are uncertain times. Will there be a Federal Estate Tax? Will there even be a Federal Income Tax, or will we see a “simplified tax” and or consumption tax?
After years of low interest and low inflation, will there be a sharp rise in rates? Will inflation return?
How will all these “moving parts” of the economy affect our client’s insurance?
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Types of Insurance Policies
Term LifeUniversal Life Variable Universal LifeWhole Life
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Term Life
Annual Renewable Term Increasing premiumsLevel Death Benefit
Level Premium TermLevel premiumsLevel Death BenefitGuaranteed Period
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Term Life cont.
Return of Premium TermLevel PremiumsConversion Age
Paid Up Life InsuranceReturn of Premium (not taxable)
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Universal Life
Flexible Premium Adjustable Whole Life Level OR Increasing Death Benefit Flexible Premiums Non-Guaranteed
Interest AssumptionsMortality Costs
General Account Returns
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Variable Universal Life
Flexible Premium Adjustable Whole Life
Level or Increasing Death BenefitFlexible PremiumsNon-Guaranteed
Interest AssumptionsMortality Costs
Individual Account Returns
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Whole Life
Guaranteed Death BenefitGuaranteed PremiumGuaranteed Cash ValueNon-Guaranteed Dividends
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“We Promise to Pay”
Whole Life ONLYThe Guarantees of Whole Life
Premium GuaranteesDeath Benefit GuaranteesCash Accumulation Guarantees
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“We Promise to Pay”…maybe
UL changes everything More moving parts
Computer generated illustrations Smoke and mirrors?
Projections – Guarantees or Guesses Shifting of mortality risk Shifting of investment risk
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“Fat vs Skinny”
The benefits of target premiums
The dangers of minimum premiums
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Vanishing Premiums
Just wishful thinking?Can they re-appear?
Additional Premiums requiredSame premium for more yearsMore premium for same years
Death Benefit reduction
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Solving the Dilemma
What’s Happening to Existing Policies? Interest Rates are Down Costs of Insurance are High
What’s Different about New Policies? Interests Rates are low Mortality costs are Lower Secondary Guarantees
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Solving the Dilemma
Premium adjustmentReduction of coverageReplace coverage
“Insurance Rescue”“Life Settlements”
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Solving the Dilemma
LIFE INSURANCE RESCUE §1035 Exchange Surrender and Replace Is Insurance Still Needed?
Increased Coverage Less Coverage (if any) How many years?
Outstanding Policy Loans Phantom Income Internal Erosion
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Policy Rescue #1
Old Policy Face $2,000,000
Issue Ages 65M, 63F Policy Age 8 years CSV $238,193 Premium $59,506
Guaranteed to Age 78 Premium $65,859 to
Age 94 – Not Guaranteed
New Policy Face $2,000,000 §1035 Exchange Premium $60,000 Guaranteed to Age 92
Old vsNewAM Best A- A++S&P A- AAAMoody’s A3Fitch A+ AA+Weiss C+ B
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Policy Rescue #2
Old Policy Face $3,000,000
Issue Ages 65M, 63F Policy Age 8 years CSV $900,000 Premium $34,500 for
10yrs Guaranteed to Age 75
New Policy Face $3,000,000 §1035 Exchange Premium $ -0- Guaranteed to Age
120
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Policy Rescue #3
Old Policy Face $500,000 VUL Issue Age 54 Policy Age 10 years CSV $193,403 Ongoing Premium
$894 Non-Guaranteed to
Age 100 assuming 6% returns
New Policy Face $515,000 §1035 Exchange Premium $-0- Guaranteed to Age
120
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Policy Rescue #3a
Old Policy Face $500,000 VUL Issue Age 54 Policy Age 10 years CSV $193,403 Ongoing Premium
$894 Non-Guaranteed to
Age 100 assuming 6% returns
New Policy Face $1,000,000 §1035 Exchange Premium $-0- Guaranteed to Age 99
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Policy Rescue #4
Old Policy Face $500,000 Issue Age 55 Policy Age 9 years Premium $9300 Outstanding Loan
$45,552 @ 8% Guaranteed to Age 76
§1035 Not Suitable
(Phantom Income)
New Policy Face $500,000 Premium $11,821 Premium to Age 100 Guaranteed to Age
120
($14,402 Additional Cash Surrender Value to Client from Old Policy)
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Income Tax Effects
§1035 Exchange Basis Carry Forward
Avoiding the unseen traps: Caused by policy loans Caused by lapse or surrender Caused by policy changes