LIRP Question

[newiw]

So if a client withdrawls all CV to basis and then takes loans to get the distrubutions they want, what happens if the isnt enough CV to support the dist?

 

[DHK]

The policy can implode because there are still annual charges needed to maintain the policy.

But the big problem would be this: http://www.investmentnews.com/artic...could-lurk-in-failed-life-insurance-policies#

 

[scagnt83]

So if a client withdrawls all CV to basis and then takes loans to get the distrubutions they want, what happens if the isnt enough CV to support the dist?

As DHK pointed out, the policy will implode.

But if it is a UL then you really should just take loans and not withdraw to basis.
Also, many accumulation oriented ULs have overloan protection riders, which will keep the policy from lapsing and creating a taxable event.

 

[newiw]

So if I understand this right, as long as there is still CV the client is ok. The illustration I am looking at shows 7% and there is a ton a CV. But what happens if truly only performs at 1%. The illustrations show lapse. If thats the case and the client has taken a loan for say the last 5 years he would get nailed with a tax bill right?

 

[pfg1]

As others mentioned it could be trouble. Once you run out of CV, it will likely lapse... or addl premiums would need to be paid to keep it in force.

That is why imo anyone using these plans as a tool....whether WL or IUL needs an advisor that is involved the entire way. The advisor needs to be committed to the process long term...not just at the point of sale. The ins companies can't (or won't is probably better) service the clients like a good advisor can.

I have some great clients that are constantly moving money in and out of their policies (ie: their personal bank) and doing great things with them. Whenever they need help or have a question regarding funding, loans, etc... they call me, and we figure out what is best for them.

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So if I understand this right, as long as there is still CV the client is ok. The illustration I am looking at shows 7% and there is a ton a CV. But what happens if truly only performs at 1%. The illustrations show lapse. If thats the case and the client has taken a loan for say the last 5 years he would get nailed with a tax bill right?

If the policy does lapse, yes.... could be a tax liability if the distributions surpassed the basis. Again, another reason that an advisor needs to be involved in the long term process, not just the sale. Last thing the client needs is a big tax liability because they screwed up trying to use their policy.

 

[scagnt83]

So if I understand this right, as long as there is still CV the client is ok. The illustration I am looking at shows 7% and there is a ton a CV. But what happens if truly only performs at 1%. The illustrations show lapse. If thats the case and the client has taken a loan for say the last 5 years he would get nailed with a tax bill right?

First, if it is an IUL then it should have an OverLoan Protection Rider. So if it does get to the point of Lapsing then it will not Lapse, it will just revert to a very small DB that is fully paid up with no CV. Basically it keeps the policy in force no matter what so the tax hit does not happen.


Second, at no point in history would an IUL have performed at 1% over any 5 year period... much less a 10/20/30/40 year period. You should be much more concerned about it performing around the midpoint instead of the Min.