Whole Life Utilizations

[Franz Kafka]

For the 95% of the cases (bread and butter) I talk about social security as a public safety net and supplementing that with a personal safety net. I talk about how SS doesn't stop paying death benefit once you retire, about how it pays income if you become disabled before you retire, and how it pays you income when you retire. I show them illustrations with maximum first year PUA, show them how the premiums can be offset within 15 years, how the company will pay the premiums until 65 if they become disabled and how the CV can accumulate and be distributed tax-free.

For the other 5% (higher premiums), I talk about personal banking with easy access and high interest. I give up my load with high level PUAs sometimes up to 2/3 of the premium. These are CV power houses. I have several clients due to the nature of their work, borrow and pay back 2~300k in any given year. I initially show it as a business owned policy but talk about tax advantages in owning it under their own names. Since I don't write COLI on shareholders and don't go after larger businesses, true COLI cases on employees are far in between.

 

[Full Throttle]

Great thread so far, appreciate the insights. Wish we had more of them.

 

[CFP83]

Great topic for discussion by the way.....I firmly believe that the majority of agents these days sadly have never been taught all the ways that whole-life/permanent life insurance can be the "Swiss army knife" of financial-planning for our clients.

Pension Maximization: Although many producers seem to think that this is a dying market, there are still plenty of baby-boomers out there retiring with pensions. Federal employees, postal-workers, school-teachers, and public employees are just a few examples of where millions of baby-boomers retiring with pensions can be found. All these retirees have a choice between several differnt pension options that they need to select....and the choice once made is irreversable. By utilizing pension max the retiree creates a surivor pension that is tax-free (survivorship option through pension is fully taxable), will continue even when spouse dies (survivorship pension ends witht the death of your spouse), and many times can be implemented for an amount that is equal to the difference between the pensions single-life and 100% surivor option. For most pension max cases I utilize two policies, a term 10 or 15 then a whole life plan. The thinking here is that the client can rent the coverage to get them through the first 15 years of retirement but the second 15 needs to be "owned". The cash-values on the whole-life portion by year 20 are normally greater than the total premiums invested into both policies. Some use "blended" whole life plans that have some whole and some term in the beginning, eventually the entire contract becoming permanent. This works, however the client doesn't need to "own" the entire amount of coverage they need to cover their pension the day they retire....they can rent some and own some, this drastically reduces their total premium outlay as well.

Planned Giving: For clients who have charities, churches, organizations, colleges, or causes that they care greatly about, permanent life insurance can be the greatest tool you ever introduce them to (just ask Boone Pickens and Oklahoma State how its work out for them). By naming the organization the owner and beneficiary of the policy, the client can deduct 100% of the premiums as a "charitable contribution" each year. Most of the time I'll utilize a GUL here, however whole life works too, especially if the client wants the organization to have the cash-value access while the client is still living (the living benefit to the organization). Just did one of these this month with a wealthy client....we put in place 250k of coverage that runs $6000yr in premium....client total state and federal income tax bracket is about 40%, so after you consider he can write off 100% of the $6000 annual premium, the policy only really costs him $3700yr....he loves it.

Asset Class within the overall retirement savings portfolio: This one is easy to conceptually help the client understand. We all now that, especially with clients 40 and over, they need to have some exposure to bonds in their retirement portfolio. By utilizing cash-value life insurance for a portion of their "fixed income retirment assets" the clients long-term yield is equal to or greater than a mix of corporate and government bonds.....and obviously on top of this the client has all the other advantages that the whole life insurance provides. Also, what other portion of the clients retirement portfolio becomes "self completing" if the client becomes disabled and is not able to work...let alone save for retirement.

"Free pass to bounce the last check you ever write": The vast majority of my clients these days are over the age of 50. In this group their single biggest concern is "will my money last as long as I do?" When a couple owns permanent life insurance, or a "second to die policy" they can have the peace of mind of knowing that they can spend all their money during their lifetime....because the minute they die they will have a tax-free legacy for the children with the permanent life insurance death benefit.

Special needs/special considertion planning:
Whether the client has a child with special needs, or if one spouse is currently the care-taker for their disabled spouse, both situations call for money to be there if the caretaker/provider dies prematurely. I could go one for awhile about the various different applications I have used here, however it's pretty self explanatory......"mr. client if you were no longer here about what do you think it would costs to hire someone to do all the things you do for _______in a given year?"

 

[Larry Tew]

Great topic for discussion by the way.....I firmly believe that the majority of agents these days sadly have never been taught all the ways that whole-life/permanent life insurance can be the "Swiss army knife" of financial-planning for our clients.

I like the Swiss army knife analogy. I talk about WL being a Putter, not a Driver.

 

[Guest]

Using the Planned Giving concept, can the owner change the beneficiary at any time or is this locked in a trust or some kind of qualified vehicle (for yearly premium tax deduct)? Perhaps he can change the beneficiary only if the new one is a tax-exempt organization?

 

[VolAgent]

Using the Planned Giving concept, can the owner change the beneficiary at any time or is this locked in a trust or some kind of qualified vehicle (for yearly premium tax deduct)? Perhaps he can change the beneficiary only if the new one is a tax-exempt organization?

The owner is the charity. Baring fraud, it seems unlikely the charity would change it to another organization or individual.

 

[Guest]

The owner is the charity. Baring fraud, it seems unlikely the charity would change it to another organization or individual.

So how come this does not come under the banner of STOLI?

Not debating, just asking?

Talk about fraud, how hard would it be for a family member to set up a "bogus" 503C charity and have a life policy on my head and the insured gets to write off the premiums (good for insured!)and in the end the family member would get the DB (good for them?)

 

[VolAgent]

So how come this does not come under the banner of STOLI?

Not debating, just asking?

Talk about fraud, how hard would it be for a family member to set up a "bogus" 503C charity and have a life policy on my head and the insured gets to write off the premiums (good for insured!)and in the end the family member would get the DB (good for them?)

I would say the assumption is that a charity to which you have given over the years would suffer due to your passing.

Also, I don't think insurance companies just rubber-stamp these. I'm sure they have the same concerns you do, and want some documentation on the charity and relationship between the insured and charity.

 

[Larry Tew]

So how come this does not come under the banner of STOLI?

Not debating, just asking?

Talk about fraud, how hard would it be for a family member to set up a "bogus" 503C charity and have a life policy on my head and the insured gets to write off the premiums (good for insured!)and in the end the family member would get the DB (good for them?)

It's "501(c)3", and planned giving isn't like STOLI. Planned giving is like church members paying for life insurance on their life making the church the owner. The insured gets a deduction for the premiums. The church gets the death benefit (tax-free) because of their tax status. The church controls the policy.

Another example would be to insure your life naming another institution (alma mater for example) as owner and beneficiary.

 

[Guest]

Another example would be to insure your life naming another institution (alma mater for example) as owner and beneficiary.

I suppose if you are really committed to your church or alma mater this would be of great interest.

I see "planned giving" concept advertised in the alumni magazine all the time. My institution (U.Va) has more money than god, yet they still dun me every quarter in a mailing for a handout as well as in the magazine.

It would creep me out to have a total stranger (charity, church, etc.) own a "contract" on my life. I'm not against the concept (or a life settlement or viatical) for those who want it, but it's just not for me. Seems ghoulish. This is a "utilization" I'll leave to others to write.