Maximum Future Flexibility – Cash Value Life Insurance

Life Insurance products are designed to protect risks from being transferred to an undeserving party by having a group of individuals pay premiums to reduce the overall cost of mitigating these risks.

This is seemingly the base definition of the purpose of insurance, but there are additional caveats based on the specific design of the products.

The market has been repositioned in recent years to be geared toward guarantees with traditional no-lapse features built into policies.

During this market shift there was a product line that was forgotten, Cash Value Life Insurance.

The initial advent of Universal Life Insurance promulgated the concept of access to cash value and maximum future product flexibility

The current interest rate environment is at a 40-year all time low and individuals are looking for creative ways to achieve the highest return on their money.  The cash value products provide an alternative savings account and provide great flexibility to prospects when looking to supplement retirement benefits from a pension, 401(k), IRA or any other existing retirement vehicle within their portfolio.

The cash value is also another source of capital for an emergency fund for an uncertain future medical expense, or these values could be used if a unique business opportunity that would not have been available to the policy owner otherwise.

If the policy owner’s experience financial hardship they are able to adjust the policy to keep their coverage intact

One of the most prevalent features is that the policy owners reserve the right to skip premiums if the cash value is great enough to cover their obligation.  This reduces the possibility of lapse or reinstatement, which can be a cumbersome task for the client to complete.

This is a concept that should be discussed, because the traditional guarantees might not be flexible enough to meet client objectives in a financial environment that is new to even highly sophisticated advisors.

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We want to help you provide the most comprehensive insurance planning to your clients and put you in a position to grow your business.  For more information on the cash value products please contact your Life Sales Marketing Manager today and ask about our Policy Review Program!

Social Security Maximization Using Life Insurance

Are you working with wealthy clients that are at or near retirement age?  If so, some of these clients may be collecting Social Security income benefits that they don’t need.

Life Insurance can be used as a powerful tool to leverage Social Security payments for future generations.

Here is a case study that shows exactly how this concept works using Life Insurance:
  • A male age 69 and his 65 year old spouse were taking a total of $24,000 annually from Social Security that they didn’t need for income purposes.  Based on their current tax bracket they were netting approximately $14,000 per year.
  • After meeting with their insurance broker they decided to gift $14,000 per year into an Irrevocable Life Insurance Trust to fund a Survivorship Universal Life Insurance policy.
  • This allowed them to purchase a 973K Life Insurance policy that would pay out to the trust, helping them create a lasting legacy for their children and grandchildren for years to come.

For this couple the decision was rather simple.  Do nothing with the unneeded Social Security income or leverage that benefit to fund a legacy trust for the benefit of their heirs for years to come.

For more information about how your clients can use Life Insurance to maximize unneeded Social Security benefits call your Life Sales & Marketing Associate.

Indexed Universal Life: The All-Around Product

The recent market volatility has prompted many advisors to look for Life Insurance solutions that can help clients achieve their goals while minimizing the impact of market fluctuations.

A product that has gained substantial traction is the Indexed Universal Life policy, a Fixed Life product that can offer clients the potential for growth and protection from market loss.

Product Benefits

Flexible death benefit guarantees.  Clients have access to a 20-year base policy death benefit guarantee (reduced for issue ages 65 and above) plus the optional Extended Death Benefit Guarantee rider.

Helps clients with a product that offers cash accumulation potential and minimizes the impact of market loss.  This product features cap rates as high as 12% and floor to allow advisors to give clients more stable returns over time.  The cap rate allows clients to maximize the interest credits they receive during up markets, while the floor rate protects them from loss during times of market decline.

Average of three market indexes.  Indexed UL uses an annual interest crediting strategy that employs monthly averaging to help protect the interest credited during periods of market volatility.  This strategy uses a blended average of market indexes (S&P 500®, the NASDAQ-100®, and the Dow Jones Industrial Average SM) and weighs them so that clients always benefit more from the better performing indexes.  It’s important to note that Indexed Universal Life policies are not stock market investments and do not directly participate in any stock or equity investments.

Some IUL carriers feature a 140% current participation rate which means that clients could potentially be credited interest at 140% of the actual index return, subject to the cap rate.

Additional Features

Competitive underwriting.  Underwriting options include simplified issue and guaranteed issue for corporate-owned and corporate-sponsored arrangements.

Access to an indemnity style Long-Term Care rider.  Advisors can help clients maintain control of their money and their independence by adding a LTC rider onto the policy for an additional cost.  The LTC rider may be known by different names in different states may not be available in every state and has an additional charge associated with it.

Target clients

Indexed UL may be a good fit for clients who are:

  • Seeking Life Insurance that offers guarantees and the potential for growth
  • Looking for more stable accumulation potential during volatile markets
  • In need of flexible death benefit options
  • Interested in planning for possible LTC expenses
  • 35 to 55 years of age

If you have questions about this product or case design, please contact your Life Sales Representative today.

How To Lower Your Client’s Premium – Every Time

What if you could offer your client the lowest premium on any Term or UL policy every time?

For years, Life Insurance carriers haven’t given their clients the option to offer the death benefit proceeds to be paid in any way but a lump sum.  However, with new product advancements a few carriers now offer a flexible death benefit payment option than can provide an income stream for the beneficiaries, while significantly lowering the premium for the insured.

The Income Provider Option from a few of our selected carriers allows the policy owner to select a guaranteed annual or monthly income stream death benefit for payment to one or more beneficiaries.

How it works:

Not only will this Income Provider Option allow the policy owner to control how the benefits will be paid, it also decreases current cost of the insurance by providing graded premium discounts based on how long the income stream pays out.  This endorsement is an extremely innovative and cost effective way to hedge against adverse underwriting or premiums above your client’s tolerance to get them the coverage they really need.

The Income Provider Option also presents the client with a great deal of flexibility granting them the ability to directly specify how the payments will be made to the beneficiary.  Payments can be structured so that a surviving spouse receives a payment from the policy every wedding anniversary, or a grandchild receives a sizable birthday gift from a grandparent for a designated amount of years.  This payment option can provide a lasting legacy and address the personal and sentimental value of the Life Insurance policy by ensuring the death benefit is paid the way the insured intended.

The Income Provider Option provides your client with two immediate benefits; first, it will give them peace of mind knowing their family will be cared for the way they intended, and second it will help lower current premiums, leaving them more discretionary income while they are still alive.

If you have a client in mind or would like to learn more about this great endorsement, please contact your dedicated Life Sales Associate.

Understanding Loan Options within IUL Policies

Indexed Universal Life (IUL) is a popular product choice for cash value accumulation because of its potential for higher interest crediting rates based on the performance of a selected index over a given period of time.

A big selling point for the IUL product line is the assurance that the client will never lose a single cent of their accumulated cash value due to poor market performance.  Unlike Variable UL policies which are subject to market performance and allow for both gains and losses on your account value, IUL uses a floor rate to protect your cash value from losses when your index account allocations have negative returns.

This makes for a great story during the accumulation phase.  But what about the distribution phase?  What is the best way to distribute the funds from the policy?

Understanding the different options available is the key to making the best decision for your client.  Most IUL policies allow for either fixed or variable loans.

The fixed loans have a stated interest rate on the outstanding loan amount so there is no question about the cost of the loan.  After a certain number of years, the IUL product will often provide for a wash loan or preferred loan where the amount being charged on the loan is the same as the interest being credited to the cash value (thereby resulting in zero net cost on the loaned funds.)

The more commonly illustrated policy loan distribution is the Variable Loan

Using a positive arbitrage (the illustrated interest crediting rate for cash value is higher than the interest rate being charged on outstanding policy loans) allows an illustration to reflect a gain on the outstanding loan rather than a charge.  Because this can make an illustration more attractive due to the higher cash value accumulations during the distribution phase, it’s what many producers prefer to show to their clients.

It is imperative that producers understand how these loan features work and communicate to their clients that they also have the potential for a negative arbitrage which can create considerable interest due on outstanding policy loans.

Depending on your client’s risk tolerance and whether or not they plan on paying outstanding policy loan interest as it accrues, either policy loan option can be appropriate.  If you do not have an understanding of how your clients would like to approach their policy loans and simply elect the variable loans due to the potential for positive arbitrage, you may be setting yourself up for a difficult conversation if the loan interest charged exceeds the interest crediting rate for cash value and the amount available for distribution decreases well below your clients anticipated income amount.

Agents who are selling IUL products and highlighting the ability to generate an income stream from the policy should have a thorough understanding of the loan provisions and be able to help their clients to better understand which feature is in their best interest.

Our Life Sales Team is here to help you navigate the various options and make the most suitable recommendations for your clients.  Contact us today.