LIFE INSURANCE in an Uncertain Environment

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LIFE INSURANCE in an Uncertain Environment

• Will Your Life Insurance Policy Die Before Your
  Client?

2
2005 gt 2006 gt 2007 2008 ???

• These are uncertain times. Will there be a
  Federal Estate Tax? Will there even be a Federal
  Income Tax, or will we see a simplified tax and
  or consumption tax?
• After years of low interest and low inflation,
  will there be a sharp rise in rates? Will
  inflation return?
• How will all these moving parts of the economy
  affect our clients insurance?

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Types of Insurance Policies

• Term Life
• Universal Life
• Variable Universal Life
• Whole Life

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Term Life

• Annual Renewable Term
• Increasing premiums
• Level Death Benefit
• Level Premium Term
• Level premiums
• Level Death Benefit
• Guaranteed Period

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Term Life cont.

• Return of Premium Term
• Level Premiums
• Conversion Age
• Paid Up Life Insurance
• Return of Premium (not taxable)

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Universal Life

• Flexible Premium Adjustable Whole Life
• Level OR Increasing Death Benefit
• Flexible Premiums
• Non-Guaranteed
• Interest Assumptions
• Mortality Costs
• General Account Returns

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Variable Universal Life

• Flexible Premium Adjustable Whole Life
• Level or Increasing Death Benefit
• Flexible Premiums
• Non-Guaranteed
• Interest Assumptions
• Mortality Costs
• Individual Account Returns

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Whole Life

• Guaranteed Death Benefit
• Guaranteed Premium
• Guaranteed Cash Value
• Non-Guaranteed Dividends

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We Promise to Pay

• Whole Life ONLY
• The Guarantees of Whole Life
• Premium Guarantees
• Death Benefit Guarantees
• Cash Accumulation Guarantees

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We Promise to Paymaybe

• UL changes everything
• More moving parts
• Computer generated illustrations
• Smoke and mirrors?
• Projections Guarantees or Guesses
• Shifting of mortality risk
• Shifting of investment risk

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Fat vs Skinny

• The benefits of target premiums

• The dangers of minimum premiums

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Vanishing Premiums

• Just wishful thinking?
• Can they re-appear?
• Additional Premiums required
• Same premium for more years
• More premium for same years
• Death Benefit reduction

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Solving the Dilemma

• Whats Happening to Existing Policies?
• Interest Rates are Down
• Costs of Insurance are High
• Whats Different about New Policies?
• Interests Rates are low
• Mortality costs are Lower
• Secondary Guarantees

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Solving the Dilemma

• Premium adjustment
• Reduction of coverage
• Replace coverage
• Insurance Rescue
• Life Settlements

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Solving the Dilemma

• LIFE INSURANCE RESCUE
• 1035 Exchange
• Surrender and Replace
• Is Insurance Still Needed?
• Increased Coverage
• Less Coverage (if any)
• How many years?
• Outstanding Policy Loans
• Phantom Income
• Internal Erosion

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Policy Rescue 1

• Old Policy
• Face 2,000,000Issue Ages 65M, 63F
• Policy Age 8 years
• CSV 238,193
• Premium 59,506Guaranteed to Age 78
• Premium 65,859 to Age 94 Not Guaranteed

• New Policy
• Face 2,000,000
• 1035 Exchange
• Premium 60,000
• Guaranteed to Age 92 Old vs NewAM Best A-
  ASP A- AAAMoodys A3Fitch A AAWeiss C B
  

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Policy Rescue 2

• Old Policy
• Face 3,000,000Issue Ages 65M, 63F
• Policy Age 8 years
• CSV 900,000
• Premium 34,500 for 10yrs
• Guaranteed to Age 75

• New Policy
• Face 3,000,000
• 1035 Exchange
• Premium -0-
• Guaranteed to Age 120

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Policy Rescue 3

• Old Policy
• Face 500,000 VUL
• Issue Age 54
• Policy Age 10 years
• CSV 193,403
• Ongoing Premium 894
• Non-Guaranteed to Age 100 assuming 6 returns

• New Policy
• Face 515,000
• 1035 Exchange
• Premium -0-
• Guaranteed to Age 120

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Policy Rescue 3a

• Old Policy
• Face 500,000 VUL
• Issue Age 54
• Policy Age 10 years
• CSV 193,403
• Ongoing Premium 894
• Non-Guaranteed to Age 100 assuming 6 returns

• New Policy
• Face 1,000,000
• 1035 Exchange
• Premium -0-
• Guaranteed to Age 99

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Policy Rescue 4

• Old Policy
• Face 500,000
• Issue Age 55
• Policy Age 9 years
• Premium 9300
• Outstanding Loan 45,552 _at_ 8
• Guaranteed to Age 76
• 1035 Not Suitable
• (Phantom Income)

• New Policy
• Face 500,000
• Premium 11,821
• Premium to Age 100
• Guaranteed to Age 120
• (14,402 Additional Cash Surrender Value to
  Client from Old Policy)

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Income Tax Effects

• 1035 Exchange
• Basis Carry Forward
• Avoiding the unseen traps
• Caused by policy loans
• Caused by lapse or surrender
• Caused by policy changes