FE Question on Converting Existing Policy

[WCMason]

My focus is med supps and MA; do a little FE when I find it but don't know the technicalities on more complicated situations. Got a call from an MA client with a question:

She's 76 in great health. 20 or so years ago she got a Met Life final expense policy, $10K for $23 per month. She says it has $8,700 cash value.

Until January she was in the Medicare Savings Program, so her Part B premium was being paid by the state. She said the subsidy ended due to the cash value in that policy.

So, we talked about a new policy having a new contestability period, and the possibility of her daughter--and current beneficiary on the FE--being the owner of that policy if needed to get her subsidy back. She's okay with both of those.

She was just living with the lost subsidy until a Bankers Life agent called her, found out about it, and is trying to get her to cash it in to get another policy. That prompted her to call me to find out if she really did have any options that might get that subsidy back but allow her to still have an FE plan.

Any thoughts on a strategy here?

 

[Indy007]

Are there any PUA's in the policy to add to the $10k DB? If not, you could 1035 into a SPWL to stop premiums and get a higher DB, then assign ownership elsewhere to get CV out of her name.

The BLC agent is just trying to get a quick sale and leave her paying more premium.

 

[Newby]

My focus is med supps and MA; do a little FE when I find it but don't know the technicalities on more complicated situations. Got a call from an MA client with a question:

She's 76 in great health. 20 or so years ago she got a Met Life final expense policy, $10K for $23 per month. She says it has $8,700 cash value.

Until January she was in the Medicare Savings Program, so her Part B premium was being paid by the state. She said the subsidy ended due to the cash value in that policy.

So, we talked about a new policy having a new contestability period, and the possibility of her daughter--and current beneficiary on the FE--being the owner of that policy if needed to get her subsidy back. She's okay with both of those.

She was just living with the lost subsidy until a Bankers Life agent called her, found out about it, and is trying to get her to cash it in to get another policy. That prompted her to call me to find out if she really did have any options that might get that subsidy back but allow her to still have an FE plan.

Any thoughts on a strategy here?

She could assign the policy to a funeral home. It's exempt from Medicaid when she does that. She could go RPU on that one and it should cover her funeral. You can sell her a new one now and have the daughter as the owner.

 

[WCMason]

Are there any PUA's in the policy to add to the $10k DB? If not, you could 1035 into a SPWL to stop premiums and get a higher DB, then assign ownership elsewhere to get CV out of her name.

The BLC agent is just trying to get a quick sale and leave her paying more premium.

On the PUA, maybe. She did mention something about $13K relative to the policy but was unclear what that was. I didn't include that as I wasn't sure of its relevance, either.

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[Indy007]

My guess is the $13k is the DB with the PUA'S added in.

It's only relevant to if it is replaceable. If you can increase her DB by 1035ing into SPWL, then assigning ownership, you'll do her 3 things.
1. Get her subsidy back
2. Increase her DB
3. She'll no longer have to pay premiums

Or you could do what Newby said and just make it RPU, then assign to a funeral home. No commission that way unless you sell a new policy with her daughter as the owner.

$8,700 1035 @ say 14% commission is $1,218 to you. Then if they want more with daughter as owner, you get that sale too.

 

[WCMason]

This has been a huge help. Never done a 1035 exchange. Understand it's a tax-free exchange of an old policy for a new, but haven't studied it since the state exam years ago; will do my homework on that. My only current FE contracts are with AmCon, Foresters, Sentinel. Never sold a SPWL, either. Any of these carriers good for that? If not, others to consider?

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[WinoBlues]

My guess is the $13k is the DB with the PUA'S added in.

It's only relevant to if it is replaceable. If you can increase her DB by 1035ing into SPWL, then assigning ownership, you'll do her 3 things.
1. Get her subsidy back
2. Increase her DB
3. She'll no longer have to pay premiums

Or you could do what Newby said and just make it RPU, then assign to a funeral home. No commission that way unless you sell a new policy with her daughter as the owner.

$8,700 1035 @ say 14% commission is $1,218 to you. Then if they want more with daughter as owner, you get that sale too.

Would that 1035 be considered transferring assets?

 

[Newby]

Would that 1035 be considered transferring assets?

If you transfer it to a policy with a new owner it is.

 

[WCMason]

If you transfer it to a policy with a new owner it is.

But no negative implications to the current owner?

 

[Newby]

But no negative implications to the current owner?

If they are on Medicaid there is. It's the same thing as giving money out of their bank account away to their kids.

They need to go RPU on the policy, irrevocably assign the ownership of the policy to a funeral home. That is day one exempt from Medicaid.

Then if they want to leave some money to their kids they can start a NEW policy with the insured never being the owner and it will never cause a problem for Medicaid.