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LIFE INSURANCE in an Uncertain Environment

LIFE INSURANCE in an Uncertain Environment. Will Your Life Insurance Policy Die Before Your Client?. 2005 => 2006 => 2007 = 2008 ???.

jakeem-goodman
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LIFE INSURANCE in an Uncertain Environment

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  1. LIFE INSURANCE in an Uncertain Environment Will Your Life Insurance Policy Die Before Your Client?

  2. 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?

  3. Types of Insurance Policies • Term Life • Universal Life • Variable Universal Life • Whole Life

  4. Term Life • Annual Renewable Term • Increasing premiums • Level Death Benefit • Level Premium Term • Level premiums • Level Death Benefit • Guaranteed Period

  5. Term Life cont. • Return of Premium Term • Level Premiums • Conversion Age • Paid Up Life Insurance • Return of Premium (not taxable)

  6. Universal Life • Flexible Premium Adjustable Whole Life • Level OR Increasing Death Benefit • Flexible Premiums • Non-Guaranteed • Interest Assumptions • Mortality Costs • General Account Returns

  7. Variable Universal Life • Flexible Premium Adjustable Whole Life • Level or Increasing Death Benefit • Flexible Premiums • Non-Guaranteed • Interest Assumptions • Mortality Costs • Individual Account Returns

  8. Whole Life • Guaranteed Death Benefit • Guaranteed Premium • Guaranteed Cash Value • Non-Guaranteed Dividends

  9. “We Promise to Pay” • Whole Life ONLY • The Guarantees of Whole Life • Premium Guarantees • Death Benefit Guarantees • Cash Accumulation Guarantees

  10. “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

  11. The benefits of target premiums The dangers of minimum premiums “Fat vs Skinny”

  12. Vanishing Premiums • Just wishful thinking? • Can they re-appear? • Additional Premiums required • Same premium for more years • More premium for same years • Death Benefit reduction

  13. 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

  14. Solving the Dilemma • Premium adjustment • Reduction of coverage • Replace coverage • “Insurance Rescue” • “Life Settlements”

  15. 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

  16. Old Policy Face $2,000,000Issue Ages 65M, 63F Policy Age 8 years CSV $238,193 Premium $59,506Guaranteed 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 92Old vs NewAM Best A- A++S&P A- AAAMoody’s A3Fitch A+ AA+Weiss C+ B Policy Rescue #1

  17. Old Policy Face $3,000,000Issue 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 Policy Rescue #2

  18. 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 Policy Rescue #3

  19. 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 Policy Rescue #3a

  20. 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) Policy Rescue #4

  21. 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

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