AgencyONE sees cases every day that seem straight forward but end up becoming very complicated as their story unfolds. In this ONEIdea, we will discuss a case with a similar trajectory. The story begins as a very basic comparison where the advisor and his client want to replace an inforce policy for another with the same face amount but a lower premium. The plan is to use 1035 cash value to solve for this new lower premium. The client purchased his inforce Variable Universal Life (VUL) policy 25 years ago at the age of 29 when his needs were much different, and he and his family were just starting out. At his current age of 54, the client’s goal is to have a policy with a lower premium that includes a Long-Term Care (LTC) option – plans that reflect his family’s current needs.
The client’s inforce VUL policy details are as follows:
Male – 54 years old
Rate Class: Preferred Non-Tobacco
Death Benefit: $1,000,000
Current Annual Premium: $4,800, supposedly guaranteed to 100
1035 exchange: approximately $80,000
Because the VUL is considered a more volatile product and given the client’s current situation, AgencyONE and the client’s advisor believed that an Index Universal Life (IUL) policy would suit the client’s needs better and still provide the growth potential of the VUL. Upon running an IUL comparison, we discovered that we were not comparing “apples to apples” and that the premium for the proposed IUL policy was quite a bit higher than the current VUL premium which DID NOT help the agent with his sale.
Following are the details for the client’s proposed IUL replacement policy:
Annual premium for policy with the LTC rider: $8,629
TOO GOOD TO BE TRUE
AgencyONE thought it was too good to be true that the existing VUL’s $4,800 annual premium would insure the client to age 100. To get a definitive answer, we ordered two additional inforce ledgers:
- An “as-is” illustration using the current $4,800 premium and a 6% assumption. This would identify how long the current policy would run at this level.
- An illustration solving for the premium required to carry the policy to the insured’s age 100 assuming 6%. This would give us a new baseline premium with which to work.
With the inforce ledgers in hand, it was evident that the $4,800 premium was in fact too low to carry the policy to age 100. Following is what the inforce ledgers revealed:
- That the current $4,800 annual premium would only run to age 83 – 17 years less than what the client wanted and thought he had;
- That the actual premium required to carry the policy to age 100 was approximately $11,000 per year – $6,000 more than what was originally thought;
- That the policy funds were allocated to a very conservative account for the last 15 years; and
- That the account value was below basis since it was underfunded and invested in a conservative account.
Now that AgencyONE had ALL the facts regarding the existing policy, we were in a better position to help the advisor achieve the client’s financial goals. As it turns out, our IUL recommendation DID HAVE A LOWER PREMIUM that would carry the policy to age 100 – with or without an LTC rider. Upon further discussion with the client, the agent discovered another twist to the story – the client wanted to add coverage for his wife while maintaining the same premium he is currently paying for his VUL.
The client requested the following:
- maintain the same face amount;
- keep the same premium; and
- Add LTC coverage for both him and his wife.
THINKING OUTSIDE THE BOX
It quickly became evident that we couldn’t provide the $1,000,000 of permanent coverage for the price the client wanted so we proposed a split policy design using both term and permanent insurance. The overall cost for the policy would increase but with better planning and management, we felt certain we could provide much of what the client wanted.
The new proposal included:
- $250,000 of IUL insurance on the male client using a $10,000 dump in with a solve to age 100 and a policy guarantee to age 95. A chronic care rider was included, and the annual premium was $2,941.
- $250,000 of IUL on the client’s wife also using a $10,000 dump in with a solve to age 100 and a policy guarantee to age 94. A chronic care rider was included, and the annual premium was $2,784.
- $750,000 of 15-year term insurance with a $1,750 annual premium on the male client with a convertibility period to age 69 – planned retirement age.
The client accepted the higher annual premium considering that he and his wife were getting so much more for the money spent. As a bonus, the client was VERY PLEASED with the information that he could access the remaining $60,000 cash value from his existing VUL policy and decided to keep that amount in a reserve investment account to draw down as needed. The client took this a bit further and decided to pay for the permanent coverage without using any dump in and just use level premium only. Without the dump in, the client now has $80,000 to invest and use as needed!
- $250,000 of IUL on the male client using NO dump in with a solve to age 100 and a guarantee to age 95. A chronic care rider was included, and the annual premium was $3,540.
- $250,000 of IUL on the client’s wife using NO dump in with a solve to age 100 and a guarantee to age 94. A chronic care rider was included, and the annual premium was $3,379.
- $750,000 of 15-year term on the male client with a convertibility provision to age 69 – planned retirement age. The annual premium was $1,750.
The total proposed premium for this final scenario is $8,669.
With the final approval from the client received, the advisor and client plan to meet to complete the applications and get the case formally submitted. The next chapter is to work on preferred life offers since the clients purport to be healthy with no medical issues. But, with underwriting you never know – that is a totally different story – or ONEIdea!
Successful Case Design requires knowledge, creativity, determination, and the ability to “think outside the box” – AgencyONE has them all!
Please call AgencyONE’s Case Design Department at 301.803.7500 for more information or to discuss a case.