At Algren Associates we take pride in every case we help you close. One of our greatest pleasures, however, is assisting our advisors create quality plans that they and their clients see value in.
One such case was just submitted, and we would like to share it with you.
A tax-advisor of ours that we will call, Ben, has a wealth, young, savvy client (Jerry) who works at an investment bank. Over the course of three years, roughly a decade ago, Jerry was sold three Whole Life policy that were “Guaranteed” to be paid-up two years ago and be cash rich.
The policies did not perform as advertised and Jerry found out a month ago that he will have to continue paying these policies for at least 9 more years and that the cash was not projected to be nearly as rich as he had been told.
An unhappy Jerry went to Ben and said he was interested in looking at other options. Ben came to us and asked us for suggestions. We showed Ben and Jerry that a new Indexed Universal Life policy could take the full amount of cash in his three Whole Life policies and with a conservative interest rate, Ben would only have to pay half of his current premium for five more years. We also showed that if the index under-performed our conservative assumption by 1.5% that Jerry would have to pay an additional five years’ worth of premium twenty years down the line.
Jerry was happy and ready to move forward with the proposal.
One week later, Jerry came back and said he had been thinking and decided to just take all of the cash, put a down payment on Real Estate, and purchase term insurance.
Before we go further. Some of the figures that are important to know:
- Each in-force policy has a face amount $1,000,000
- Two policies are under basis with total Cash Surrender Values of about $172,000
- The third policy has a Cash Surrender Vaue around $146,000 and is over basis by about $12,000
- The total premium for all three policies is $30,000
- Jerry is 43
In less than a week our team and Ben came back to Jerry with the following suggestion:
Jerry could surrender both policies under basis. He could then take $150,000 and use that for his down payment instead of the full $318,000. This would cause his mortgage payments to be about $9,000 a year more than had he used the full $318,000.
Next Jerry would drop-in the reminder $22,000 from the surrenders of the first two policies and 1035 the $146,000 from the third policy (so as to not trigger any taxable events on the gains) into an IUL product. Showing a premium of $15,000 we illustrated the Minimum Non-MEC face to be $1,400,000, which he would pay until his age 65. We supplemented the rest of his $3,000,000 of coverage with 30 Year convertible Term insurance with an annual premium of $3,500.
At age 66, Jerry would be able to take 20 years of distributions, between $72,000 a year to $104,000 based on assumed rates of 1% and .2% less than the current illustrated rate.
If you are still reading this, we appreciate you. If you did the math and realized that adding up the new premium ($15,000), the additional mortgage payments ($9,000), and the Term Insurance ($3,500) is $2,500 less than he is currently paying on his Whole Life policies, then we applaud you.
The response we received from Jerry was simple but incredibly gratifying.
“I agree on all the above information. I truly appreciate you guys working this hard to help find the right solution. Very impressed.”