1035 and MEC question

Dec 8, 2007

  1. Survivor
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    Survivor Super Genius

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    I've got a prospect with a UL policy written in the early 90s that is eating up the CSV. His cost of insurance has gone through the roof, and his payments maybe cover half of it.

    He has some CSV built up (but it's going quickly) and what I'd like to do is a 1035 exchange from this UL into another and fully explain to him current and guaranteed rates (which I don't think the original agent or company filled him in on well -- and they won't answer his questions directly). My software shows that this amount dumped into a new policy causes it to MEC, but the software does not allow me to account for a 1035.

    I am almost sure of this but I'd like you all to confirm:

    Will a 1035 exchange into a new policy cause the new policy to become a MEC if that amount of funds would cause it to MEC by opening it without the 1035?

    Thanks!
     
  2. JMO Fan
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    JMO Fan Guru

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    According to my understanding, yes it would be a MEC. Seek a tax advisor.
     
    Last edited: Dec 10, 2007
    JMO Fan, Dec 10, 2007
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  3. lifesettlementadvisor
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    lifesettlementadvisor Guru

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    depending on the age of the client, you can do a life settlement for him instead. with the cash, you can sell him a new product or new policy.
    for example, my investment has a 15% a year guarantee...;)
     
  4. Agent Jeff
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    Agent Jeff Expert

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    A 1035 exchange does not count as a premium payment for a 7-pay MEC test I know that much.

    I have no doubt that there are insurance contracts that you can cause to endow immediately or otherwise mess up by dumping too much cash value into them if the benefit is too low.

    The answer is not simple.
     
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