Is this the right thing to do for the client?

secondcreek

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I met a 73 yr old gentleman on Saturday who has an old policy with a 10K death benefit and an outstanding loan he says that is nearly that much. He is not in a position to repay the loan. He has buried his wife and a son in the past couple of years and really wants to have 10k left to the family to pay for his final expenses.

His current premium is $123 a month. I can write him a new 10k policy for $124 a month.

Seems to me the loan will practically wipe out any death benefit on his existing policy, and he would be better off with a new policy. I don't think he would have much taxable gain from the cash value/loan.

Am I correct that a new policy would be his best solution? If it is, I am going to meet with him and call his current carrier to verify the info for his policy get the details on his loan. What are the pertinent questions we need to ask?
 
Depending on the loan amount you may want to do a reduced paid up on the balance and write some additional to get him where he wants to be, giving him at least something accessible for the next two years
 
Taxable gains on policies with loans can be much, much greater than you think because all the interest charges on the loan are added to the gain calculation. However, most 72 year old clients are in a very low tax bracket & many times a 0% tax bracket due to standard deductions, etc. so, it may not cost him much tax wise.

I would suggest he call the carrier & ask for

1. Total Death benefit today that would be paid if he died (Face plus Added Face from PUAR minus outstanding loan)
2. Total CV of policy & PUAR CV
3. Loan
4. If elect Reduced Paid Up, will the loan be extinguished or kept
5. Are there PUAR cash values that can be applied to the loan to reduce the outstanding loan
6. Is there an annual dividend that can be applied to pay down the loan
 
I had forgotten the interest on the loan would count toward the taxable gain.

Taking a Reduced Paid Up Option if it would extinguish the loan was my first thought. I have never dealt with taking the RPU option when there was an outstanding loan, so I definitely wanted to reach out to the forum and get some advice.

Thank you for the replies. Makes me think I am headed in the right direction in trying to help the prospect.
 
Make sure he signs something saying that he understands what you are doing.

I know this is life insurance but in the annuity world, creating your own form as a CYA is likely to get you in more trouble than not having one at all.

It is viewed as self-serving to the agent and having no bearing on suitability or intention.

Again, different product line but be cautious about creating your own forms. Well documented case notes and discussing this with the beneficiaries (if you can gain access) is almost always preferred in these situations.
 
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