Met life LIFE 98

[scagnt83]

Loan rate on the policy I just surrendered had just moved up to 5%.
The one purchased three months earlier in 1993, still has a 4.25 interest rate.
Same EXACT policy description. Same policies, just bought 3 months apart in 1993.
Why do they do that ?
Because they can
Because they don’t care
Because they don’t know.

Loan rates are based on a formula.

There is a reason and its stated in the contract.

It could be a benchmark of some kind that was set on the policy date.

Hard to say without seeing the contract.

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But they are not able to just do whatever they want with the Loan rate. Its stipulated in the contract.

Even if the policies have the same "name" they could be different versions.

Guardian for example, has a 2019 L99..... and a 2022 L99.

Both say L99 on the statements... but the features in the contracts are different.

Just 1 week later means having the 2022 version vs. the 2019 version.

 

[scagnt83]

Also it look like after surrendering the policy today that for my 2023 income tax…….after I apply my cash value to the taxes owed do to the gain, I’ll owe an additional 7k-8k in income tax.
Keeping the other policy until the renewal in Feb of 2024.
May surrender or pay the premium, probably surrender that also.

Yes, you owe more than the CV.

But the taxes on just the policy seem to be covered by the CV.

If you took away the other income, and taxed the $125k at 19%, you are at $23,750 in taxes for just the policy alone. That was my point.

The CV does not cover all of your taxes for all of your income. But it seemingly covers the taxes on the policy itself.

 

[Deepsea]

19% isn’t it.
I have other income, so the 125k gain is mostly taxed at 24% with 25k of it taxed at 32% !

 

[Allen Trent]

Ask Met Life if you can turn the end the life policies into a 10 year fixed period payout or lifetime payout. All life contracts & annuity contracts have contract language for owner or beneficiary to annuitize the contracts. On your case, while the checks will be small & the taxable amount high, maybe they will report the gain equally over the course of the payments.

It is possible, whether you annuitize like I mention, or you 1035 exchange to a new carrier or you elect RPU, that Met Life will report the loan payoff in 1 lump sum when the loan is paid off by Met Life when you end the policy. Right now, you have an outstanding loan with Met Life & they have a collateral position against your policy. If you end the policy for any of the 3 ways mentioned, they will possibly take your cash value to pay themselves what you owe them. You want to know exactly how you will be treated on a 1099 in each of these scenarios you might choose.

Because you mentioned dividends, I assume these are WL. Is there any built up PUAR or accumulated dividends? Could you surrender those to have them pay off part of the loan? Could you direct the annual dividend to reduce the loan? Could you restart premiums? While rates were low a couple years back, a house loan or commercial loan on your warehouse might have been a way to get rid of part of the entire life loan. It is possible your loan on your life policy is causing lower dividend rate being applied to your cash value with collateral assignment against it.

You are experiencing what many consumers & many agents don't realize can happen as they don't realize you can owe taxes on gains even if your policy never really gained any actual money. This is because the loan interest compounding counts as money you received in the calculation of basis & gain.

 

[scagnt83]

Ask Met Life if you can turn the end the life policies into a 10 year fixed period payout or lifetime payout. All life contracts & annuity contracts have contract language for owner or beneficiary to annuitize the contracts. On your case, while the checks will be small & the taxable amount high, maybe they will report the gain equally over the course of the payments.

I dont think thats an option from a tax standpoint.

If I remember correctly, Regs say the Loan is income in the year any settlement or 1035 is made.

 

[scagnt83]

It is possible, whether you annuitize like I mention, or you 1035 exchange to a new carrier or you elect RPU, that Met Life will report the loan payoff in 1 lump sum when the loan is paid off by Met Life when you end the policy.

Other than RPU, that is exactly what will happen.

RPU keeps the policy "intact" and avoids any taxation issues on the Loans. It is what overloan protection riders do, it RPUs the policy.

But I doubt they are able to RPU a policy with such a tiny CV. You need equity in the policy to RPU outside of an Overloan Rider.

 

[scagnt83]

A If you end the policy for any of the 3 ways mentioned, they will possibly take your cash value to pay themselves what you owe them. You want to know exactly how you will be treated on a 1099 in each of these scenarios you might choose.

They wont take the CV. The Loan balance is already accounted for in the CV. The CV is what is available to the policy owner. You can see it very clearly if you run Loans on an IUL and look at the expense report.

But even by definition:
"Surrender Value"... the legal definition is the value you get if you Surrender the policy.

Policy Value or Surrender Value has already been reduced by the Loan and Interest.

However, for RPU, they could take the CV because its being used to "pay up" the policy for life. Its not being surrendered.

 

[scagnt83]

Because you mentioned dividends, I assume these are WL. Is there any built up PUAR or accumulated dividends? Could you surrender those to have them pay off part of the loan? Could you direct the annual dividend to reduce the loan? Could you restart premiums? While rates were low a couple years back, a house loan or commercial loan on your warehouse might have been a way to get rid of part of the entire life loan. It is possible your loan on your life policy is causing lower dividend rate being applied to your cash value with collateral assignment against it.

He is between a rock and a hard place regarding all this.

He is currently using Dividends to pay the Premium.

Now that CV is so low, he will be required to start premiums again in 5-10 years.

Using dividends to pay the Loan is a drop in the bucket at this point. $20k CV at even 5% is just $1k a year being paid into the Loan of $150k. Its not even enough to service the interest.

Even if he split premiums between the policy and loan, it still is bound to implode in the next decade. If he can afford $4k into both, then maybe it will help make a dent.

He should have diverted dividends to the Loans years ago when CV was higher, or the Loan balance lower. Or, shouldve taken Withdrawals to basis and then Loans for the rest, it wouldve cut his current tax bill in half.

 

[scagnt83]

You are experiencing what many consumers & many agents don't realize can happen as they don't realize you can owe taxes on gains even if your policy never really gained any actual money. This is because the loan interest compounding counts as money you received in the calculation of basis & gain.

Very true. Loans must be managed. Especially if you dont withdraw your basis first. Especially if its not a wash Loan.

There was probably a nice arbitrage back in the 90s on those Loans.

But since Met lowered Dividends, not so much anymore. A 4.75% Loan rate is not bad, what kills it is the low Dividend Met now gives.

 

[scagnt83]

While rates were low a couple years back, a house loan or commercial loan on your warehouse might have been a way to get rid of part of the entire life loan.

It still might make sense from an estate planning standpoint. It depends what the value of his house and wharehouse are.

If the $500k in DB is greater than the property, it very well could make sense to get a HELOC for the Loan and just pay off the HELOC instead.

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Reverse Mortgage could be an option in 4 years.

If the home value is lower than the DB, RM to pay off the loans and let the kids inherit the policies instead of the house. (real estate is an extremely inefficient & cumbersome asset to inherit)

In 4 years he could look at a reverse mortgage on his residence if its less than $500k. Too young for that right now though.