Process of 1035 Exchange

Discussion in 'Life Insurance Forum' started by americansenior, Aug 2, 2017.

  1. VolAgent
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    VolAgent Well-Known Member

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    Not necessarily. If the 1035 is properly handled it will bring over the cost basis from the existing policy. It may still be a MEC in the end, but we shouldn't automatically assume so.
     
  2. NewbieNewbie
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    NewbieNewbie Well-Known Member

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    Interesting. I never knew that. Good stuff.
     
  3. scagnt83
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    scagnt83 Well-Known Member

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    ULs are best for a large 1035 in my experience. You can skip or lower premiums for the first few years to help avoid a MEC. You can also use DB Opt 2 (increasing DB) to help avoid MEC as well. (and then switch to level DB eventually to save on internal costs)

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    For most people, the policy being a MEC does not matter one bit. If DB is the only concern, then it doesnt matter.

    Even if CV is a major goal, many people buy MECs that are single premium policies. Its essentially just an annuity on steroids.
     
  4. eersfan
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    eersfan Well-Known Member

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    Except gains are taxed on a LIFO basis and subject to penalty if taken out prior to age 59.5. I can't imagine why anyone would intentionally purchase a contract that is a MEC if they were going to take withdrawals. Years ago, a MEC was a great estate planning tool...when the limit was much lower.

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    All single-premium life contracts are a MEC.
     
  5. scagnt83
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    scagnt83 Well-Known Member

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    Thats no different than an Annuity. Which is why I said its just an Annuity on steroids. (technically an annuity is a form of life insurance... but I digress)

    It is still an excellent estate planning tool. (estate taxes have nothing to do with this btw)

    A single premium MEC will outperform a traditionally funded policy. That is one major reason why they buy it over a non-MEC.

    There are options that provide very high liquidity. So it acts like a liquid annuity that has an enhanced Death Benefit.

    Plus, Indexed Life has much higher Caps than an Indexed Annuity does. So if a person can pass UW, its a no brainer choosing between the two options.

    I will make more this year off of single premium policies than I will any other type. Those in the 55-65 range love it.
     
  6. americansenior
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    americansenior Member

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    As mentioned above, the policy is OVER 10 years old. I just couldn't remember exactly how long he said he's had it.
     
  7. jdeasy
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    jdeasy Well-Known Member

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    Wouldn't matter if it's 20 years old. A foresters 25K whole life is not going to have $25K cash value.

    And if it's foresters PlanRight it can't even be 10 years old.
     
  8. Todd King
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    Todd King Well-Known Member

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    Since this is your first time to 1035 something, let me forewarn you about something that may or may not happen. I just don't want you to be blind-sided when/if it happens.

    Company A, who has the money now, doesn't want to give it up. Some companies will do whatever it takes to delay the transaction. Everything from, "We didn't get the form", to "Oh no, you have to use 'our' form." I've seen everything from, "No, you faxed the form, but we need you to mail it to us" to "No, we have to have the original signature and this is just a copy".

    It's all BS as we know, but just don't get frustrated if this starts happening.

    On the good side; many times it goes through without a hitch.
     
  9. jdeasy
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    jdeasy Well-Known Member

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    Where's the update on this? How did it go once it was learned that there was not $25K cash value?
     
  10. pfg1
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    pfg1 Well-Known Member

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    Truth. Sometimes it can be tough, other times very easy.

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    I'd be interested to know what the REAL specifics were as well, assuming the OP dug into it and proceeded with the 1035.
     

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