What Would You Do? Converting Term To Perm

[GAHEALTH]

Gopt a client that we are converting his term to perm. New premium is a little out of reach for them. They need the coverage but do not qualify for a new policy due to medical issues. (brain cancer - removed and undergoing treatment)Age 54.

Has $115K in a 401(k) from old employer. Thought about rolling over to an annuity and then doing a 72(t) distribution on the annuity for 6 years (age 60) and then possibly income stream or up to 10% withdrawals. Would like to leave money for retirement....need $8K to pay premium. At $115K the 72(t) rough payment is around $5300. They could cover the difference. He has to be clear of the cancer for 5 years to try and qualify for something new so our plan is in year 6 (age 60) to try to get medical underwritten new policy.

He could let the term renew every year for less than the $8K in premium (at least until year 7 in which it is more than the perm) and give up the conversion. But what if he can't qualify for anything down the road.

I think the conversion then a 1035 exchange down the road should it be better may be a better option. I know the premium may be higher - but he may be able to get into a better product with lower COI than the conversion option plan.

THoughts?

 

[proadvisors]

Re: What Would You Do?

I think your on the right road. It sounds like your really taking into consideration the clients needs. I would sit down with the client and say we have two options here.
I would tell him which you think works best. Ultimately though he has to feel good about it AND be able to afford the plan so he can keep it.
Let the client tell you which he is most comfortable with.

I would not go the renewable term option. My father had brain cancer
that went away and came back 8 years later and died.

He needs a perm solution.

 

[GAHEALTH]

Re: What Would You Do?

I think your on the right road. It sounds like your really taking into consideration the clients needs. I would sit down with the client and say we have two options here.
I would tell him which you think works best. Ultimately though he has to feel good about it AND be able to afford the plan so he can keep it.
Let the client tell you which he is most comfortable with.

I would not go the renewable term option. My father had brain cancer
that went away and came back 8 years later and died.

He needs a perm solution.

Thanks for the validation. I am looking to see if that would be the best scenario here. At least the income value would continue to grow. Was thinking of the AVIVA with 7% bonus and 7.2% growth on the income account. SHould make for a decent payout down the road.

 

[Larry Tew]

Re: What Would You Do?

72(t) works for many situations, this being one of them. The annuity company takes the responsibility for the substantially equal payments until 59 1/2 and you have have a good plan. Make sure the client knows the 72(t) payout is penalty-free but taxable.

 

[somarco]

Re: What Would You Do?

Consider medically underwritten (sub-standard) annuities if he has a shorter lifespan.