Many life insurance carriers have implemented restrictions on the amount of first year money that can be paid into their NLG contracts which has made it challenging to design 1035 exchanges, lump sum deposits and over-funded short pay solves that provide for a fully guaranteed DB. While there are still a couple of carriers who do not have any first year premium restrictions (we can help you to identify these carriers), there is a work-around available which will not restrict which products are available to your client and allow you to earn two commissions in the process.
By using a Single Premium Immediate Annuity or SPIA, you can perform a 1035 exchange from a life contract into an annuity whose distributions can be used to fund a life insurance contract that circumvents the current premium restrictions. The SPIA income can be structured to pay into your client’s bank account and the subsequent life policy can be set up to draft the premium payments directly from that same bank account days later. This automates the two-step process without requiring any additional work or coordination from your client.
While using a SPIA will allow you to move your client’s money into a guaranteed life insurance contract, please keep in mind that a portion of the SPIA income may be taxable. However, the client will benefit from the exclusion ratio on non-qualified funds. Rest assured, with a full service Annuity Department, you will have the back-office expertise to disclose all pertinent details related to this case design to your client.
If you have clients who would benefit from moving money from an under-performing asset or existing life insurance contract and would like to consider this concept, please call us today and we can begin to explore ways to provide your clients with the guaranteed coverage that best meets their needs.