Case Design Help

[Rearden]

Hi guys,

Need help on the following case.

Client has $50,000 from a life insurance death benefit payout, and is interested in putting it to work in an insurance product.

She wants to accomplish the following:

-Potentially pay into the plan the total $50k over two or three payments over the course of the year ($50k total in 12 months, broken up into two or three equal payments).

-Cares about maximizing cash value generation.

-Does not care much about maximizing death benefit.

-Wants access to cash value by year 5.

-Goal is to provide a source of money to help fund college expenses for family members.

What are your thoughts on products that would optimize the client's goals?

Thanks in advance,
Dave

 

[Todd King]

Sounds like an annuity (Like a 5 year MYGA) might be her better option.

 

[DHK]

That would also depend on her age. Accessing money from a non-qualified annuity prior to age 59 1/2... well, we've been down that road in the past week or so. Same issues with a single premium life policy as they are treated almost exactly like a non-qualified annuity.

 

[Todd King]

That would also depend on her age. Accessing money from a non-qualified annuity prior to age 59 1/2... well, we've been down that road in the past week or so. Same issues with a single premium life policy as they are treated almost exactly like a non-qualified annuity.

Okay, you're going to have to correct my thinking on this: If it isn't set up to be an IRA or equivalent, AND it wasn't pre-tax, then how would there be any problems, penalties, or taxes owed (on anything but the interest earned)?

 

[Rearden]

She's 44 if that helps.

 

[DHK]

Okay, you're going to have to correct my thinking on this: If it isn't set up to be an IRA or equivalent, AND it wasn't pre-tax, then how would there be any problems, penalties, or taxes owed (on anything but the interest earned)?

All gains are taxed and penalized from a non-qualified annuity OR a Single Premium Life Policy UNLESS withdrawals are set up according to 72(q) structure.

https://insurance-forums.com/community/threads/10-penalty-on-annuity.92648/

 

[DHK]

She's 44 if that helps.

44 and wants to access the money in 5 years... at age 49... ideally with a gain, and no taxation on the growth.

The only thing I could think of... is to use the money to fund a 5-year period-certain SPIA and use the SPIA income to fund a life insurance policy funded up to the MEC limits. Then borrow out from the life policy to use the funds.

I'd probably work with either Midland National or North American and use one of their IULs but waive surrender charges. This will help ensure the highest available cash values in the early years of the policy.

Scagnt83 may have other ideas, but this is the line of thinking I'd be pursuing.

Note: That's TWO sales... and probably a more suitable total recommendation!

Note 2: SPIAs are exempt from 10% penalties as they are automatically calculated to be in-line with 72(q) distribution rules, etc.

 

[DHK]

The risk of chargeback normally would increase if you waive surrender charges because they can come back up to 3 years. However, since the policy was "pre-funded" with the SPIA, your risk becomes almost nothing - unless the client reappropriates the income to something else.

 

[eersfan]

44 and wants to access the money in 5 years... at age 49... ideally with a gain, and no taxation on the growth.

The only thing I could think of... is to use the money to fund a 5-year period-certain SPIA and use the SPIA income to fund a life insurance policy funded up to the MEC limits. Then borrow out from the life policy to use the funds.

I'd probably work with either Midland National or North American and use one of their IULs but waive surrender charges. This will help ensure the highest available cash values in the early years of the policy.

Scagnt83 may have other ideas, but this is the line of thinking I'd be pursuing.

Note: That's TWO sales... and probably a more suitable total recommendation!

Note 2: SPIAs are exempt from 10% penalties as they are automatically calculated to be in-line with 72(q) distribution rules, etc.

I'll throw in another product that "could" be used...a Jackson National Elite Access VA with the liquidity option. No withdrawal charges if liquidity option selected. Otherwise, a 5-year surrender charge period that would be in line with the need stated. Growth, on the other hand, would be taxed.

 

[DHK]

Growth, on the other hand, would be taxed.

And subject to 10% IRS penalties on the growth upon withdrawal prior to age 59 1/2, unless structured for 72(q) withdrawals.