I am in a bit of a pickle.....can anyone offer me some help/advice to get back on the horse?

[DHK]

Yet to be validated by the IRS or courts.

While you are correct, I would challenge this. Every IUL (and a couple of WL companies) have this on their policies and have for many years. All state departments of insurance have approved these policies for sale in their state. These companies know that the policies are being sold for retirement purposes (and for industry preservation to avoid phantom income tax issues on so many policies that would otherwise lapse).

The industry is so far down the road on this... that if the IRS were to weigh in negatively on this, the industry would simply sue and make it a class action lawsuit to protect policyholders and the insurance industry. NAIFA, Finseca, NAFA, and other associations would all join in on that lawsuit.

Then yes, the courts would weigh in. And the fact is, these riders are a consumer protection device and I would argue that the courts would rule in favor for consumer protection provisions, especially since the consumer isn't the drafting party of these contracts. (A handy consumer protection when considering the law.)

And yet, if the lawsuit fails... policyholders and industry advocates would then probably need to sue all 50 state regulators and the insurance companies themselves for approving these policies for sale knowing the implications on consumers.

Looking at the reality... these riders are staying.

 

[Allen Trent]

While you are correct, I would challenge this. Every IUL (and a couple of WL companies) have this on their policies and have for many years. All state departments of insurance have approved these policies for sale in their state. These companies know that the policies are being sold for retirement purposes (and for industry preservation to avoid phantom income tax issues on so many policies that would otherwise lapse).

The industry is so far down the road on this... that if the IRS were to weigh in negatively on this, the industry would simply sue and make it a class action lawsuit to protect policyholders and the insurance industry. NAIFA, Finseca, NAFA, and other associations would all join in on that lawsuit.

Then yes, the courts would weigh in. And the fact is, these riders are a consumer protection device and I would argue that the courts would rule in favor for consumer protection provisions, especially since the consumer isn't the drafting party of these contracts. (A handy consumer protection when considering the law.)

And yet, if the lawsuit fails... policyholders and industry advocates would then probably need to sue all 50 state regulators and the insurance companies themselves for approving these policies for sale knowing the implications on consumers.

Looking at the reality... these riders are staying.

I tend to agree with you on it. The only thing I can't figure out is why a WL policyholder the elects RPU has their entire loan balance impacted taxable gain reported. If electing RPU is essentially keeping the policy from lapsing, how is that so different than a IUL, UL, WL with overloan protection to have a tiny insignificant face amount to keep the huge taxable gain due to massively compounded loan at bay.

I have trouble delineating those in my mind

 

[DHK]

I think I'm confused.

RPU, to me, is about not paying any more premiums and reducing the net death benefit to where no more premiums are due and the policy is paid up. I've never looked at RPU as a way to keep the policy from lapsing due to loans and loan interest.

Unless we're talking about a policy that was APL for a long period of time and now the policy is in danger of lapsing... but at least they had that amount of coverage for as long as they did?

But as far as the difference between doing an RPU on a WL policy vs Overloan Protection Rider on an IUL... could function very similarly.

I think the main difference is that the RPU was elected by the policyholder, while the OPR is triggered by the insurance company on a qualifying policy and policyowner to avoid a taxable event?

 

[Allen Trent]

I think I'm confused.

RPU, to me, is about not paying any more premiums and reducing the net death benefit to where no more premiums are due and the policy is paid up. I've never looked at RPU as a way to keep the policy from lapsing due to loans and loan interest.

Unless we're talking about a policy that was APL for a long period of time and now the policy is in danger of lapsing... but at least they had that amount of coverage for as long as they did?

But as far as the difference between doing an RPU on a WL policy vs Overloan Protection Rider on an IUL... could function very similarly.

I think the main difference is that the RPU was elected by the policyholder, while the OPR is triggered by the insurance company on a qualifying policy and policyowner to avoid a taxable event?

You are correct. I have seen RPU needed on some where large loan & APL so long ago just compounded to unstainable levels. Agent thinks the way to elminate the problem is RPU & most agents dont realize loans are extinguished at time of RPU & thus, can trigger a massive tax bill on the RPU or lapse or 1035.

Agree on the RPU being elected by policyholder & OPR triggered by insurance carrier (is OPR contractual or merely illustrated). However, RPU is statutorily required as a non-forfeiture option on every single WL by law. OPR is also selected by the policyholder either at time of issue or when they want to excercise it. Both RPU & OPR are clients electing or activating to avoid having the policy lapse or cash surrender non-forfeiture option. That is still why I have trouble grasping in my passive agressive bi-polar mind as to how they are that different.

RPU doesnt seem like an illustrated sales tactic to make an initial sale & more of a way to salvage a policy if needed. OPR seems more like a marketing sales strategy up front to get the maximum illustrated lifetime loans with the perception that OPR protects the sales strategy from being a future issue with the IRS. Plus, many of the OPR are activated at time of need (forfeiture avoidance) & the carrier charges the policyholder at time of the activation a percentage of the cash value. That would seem to me that the carrier is selling a rider at time of need to avoid a taxation at the time the tax bill is getting ready to go out.

I guarantee you if Donald Trump has such a policy that activates the OPR in the upcoming months, the IRS will take action to hit him with taxes due on those compounded outstanding loan values.....LOL

I certainly hope OPR is here to stay for many reasons, I am just not a huge fan of max distribution illustrations for 70+ year projections & thinking it will always be that way. Even a 1 time loan of $50k will become a potential $1.6M loan balance in 60 years

 

[DHK]

(is OPR contractual or merely illustrated)

Like too many things in insurance... it depends?

I know for WL policies, OPR helps enhance the cash flow through a given illustrated age.

However, RPU is statutorily required as a non-forfeiture option on every single WL by law.

And I know you know this, but IUL can lower the death benefit as well. You can't say RPU on an IUL, but it can simulate it very well.

I guarantee you if Donald Trump has such a policy that activates the OPR in the upcoming months, the IRS will take action to hit him with taxes due on those compounded outstanding loan values.....LOL

He would be of age to qualify!

And that's the biggest difference between RPU and OPR: Both the insured and the policy have to meet specific guidelines to qualify for OPR. Typically it's a minimum age of the insured to be 75 or older and the policy must be at least 15+ years in-force.

RPU (and lowering the IUL death benefit to simulate an RPU) can be elected at any time... and especially after 7 years to avoid the policy becoming a MEC.

 

[scagnt83]

While you are correct, I would challenge this. Every IUL (and a couple of WL companies) have this on their policies and have for many years. All state departments of insurance have approved these policies for sale in their state. These companies know that the policies are being sold for retirement purposes (and for industry preservation to avoid phantom income tax issues on so many policies that would otherwise lapse).

The industry is so far down the road on this... that if the IRS were to weigh in negatively on this, the industry would simply sue and make it a class action lawsuit to protect policyholders and the insurance industry. NAIFA, Finseca, NAFA, and other associations would all join in on that lawsuit.

Then yes, the courts would weigh in. And the fact is, these riders are a consumer protection device and I would argue that the courts would rule in favor for consumer protection provisions, especially since the consumer isn't the drafting party of these contracts. (A handy consumer protection when considering the law.)

And yet, if the lawsuit fails... policyholders and industry advocates would then probably need to sue all 50 state regulators and the insurance companies themselves for approving these policies for sale knowing the implications on consumers.

Looking at the reality... these riders are staying.

State DOIs makes zero judgements on Federal IRS law.

Their main role is to ensure the contract abides by STATE insurance laws.

Since the IRS has made no comment on this, nor have the courts.... the DOI has zero ground to deny the inclusion of an OverLoan Rider.

Their approval of it on the contract, does not speak to it's validity under Federal Tax Laws.

So it's a moot point.

---

So what if the entire industry sues?

Not the first time courts have struck down common provisions of a contract industry wide.

And the IRS could easily consider the Rider to cause the exact opposite of consumer safety.... crappy underfunded IULs that maximize commission are being sold with reliance on the OverLoan Rider to prevent huge tax consequences to the client when/if the policy lapses.

These are a new invention, only about 20 years old, that have yet to be tested by the IRS or Courts.

Intent plays a very large part in Court decisions.
Taking out enough Loans to cause the policy to Lapse.... shows intent to have the policy Lapse.

And IRS courts have a history of not looking kindly at new THEORIES that are intended to circumvent existing laws.

It is a huge unknown.... and that is why carriers put all that fine print on there about "subject to IRS rulings now and in the future" etc. etc. etc.

Right now, it is marketing tool that is completely untested in the eyes of the IRS and US Courts of Law.

I hope it is affirmed once it is tested (and it will be). But we have no way of knowing that.

 

[PrivClientSG]

Hi everyone! I am a new agent as of March. There are some things that I have learned that I wish someone had told me before getting my license. For Instance, the high cost of leads. Secondly, the demands of uplines that expect you to be balls-to-the-wall booked appointments right out of training. I told my upline recently that I will have to start out part-time because I did not have the $ for the amount of leads they wanted me to purchase. I am already contracted with 4 carriers, licensed in Texas and nine other states. I have spent over 1400.00 between licenses(not including my training and TX license fees), leads, marketing etc. I came to a point where I was getting thin on $. The good news is I put my first app in last week and I am about to be paid on that by Forester's the bad news is my upline cut me loose because I am not as much of a go-getter as they expected. I was just trying to get my ducks-in-a-row and as of today I found a great lead source and then they dropped this ugly news on my head. The Corp big wig up there with this agency said that "they are not providing carrier releases at this time. You are free to work with marketers, but you will need to follow carrier guidelines for transfer without release." I do not know what he means exactly. I have my eye on a couple of IMOs I am interested in but does this mean that I have to re-contract with these carriers? Can anyone help? Signed, Frustrated in Texas

Congratulations and welcome to the industry. That said, first, the part-time approach is always going to be difficult, and any agency, upline, whatever you want to call it, initially says they will be fine with it, but they won't be. Every minute they spend on you costs them, and unless they see apps being submitted, they look at you as a loss.

Second, I am not sure of your marketplace or business model, but getting licensed in 10 states sounds like a lot for a new person. Are you going to market and do business in 10 states from day one? Even as a part-timer? I don't know, sounds a bit wide-spread to me. Part-timers need to be very focused vis a vis their limited time.

Lastly, part of your story sounds like you are an over-preparer. The buying of all these leads, the getting your ducks in a row, etc. -- buy less leads and make appointments (or calls if that's your marketplace). Start with less and make what you make and build on that.

I can't speak to the releases and re-contracting. Good luck!