Best Competitor to MassMutual for Cash Value Growth and Borrowing Out of Policy Quickly

[pfg1]

Wouldn't you be better off with a rapid builder iul from North american ... Maximum non mec ...

Better off meaning what?

The WL can be set up max non mec also, but has guarantees. Just my personal preference....I prefer WL.

 

[AOKING]

Here is the situation folks:

300,000 dump in, borrow out 240,000 for land purchase. Paying 15k-20k per year in after that. Can we keep it non-mec? Would IUL potentially be a decent solution with the right product?

Long time client. Not laundering funds.

Client is currently using a margin line of credit to borrow from the bank at 2.25% against his investments which have moved horizontally over the past 3 years.....Client is worried about incurring losses when market does turn and is looking for something a little safer with the ability to still utilize his capital and earn some interest.

Thanks,
AO

 

[pfg1]

It can definitely be done with WL. I think Mass can do it, Lafayette can, MTL can, and there are probably some others. Mass would probably be the best of those, performance wise. The key is getting the design right so that its non mec. IDK on IUL, me personally I would use WL.

 

[scagnt83]

For a single premium I almost always would use IUL. Especially if they want early access to Cash Value.

Use NA Rapid Builder or Midland ECV (same product / carrier essentially, just different contracting).

It will be guaranteed not to lapse all the way down to a 3.5%ish index return (depending on age and health rating).

They will have 100+% of their premium in CV end year 1.

I haven't found a single premium solution that even comes close to touching the product at all.



To answer the MEC question; you can design it not to MEC but it will not perform as well then. A single premium is meant to be a MEC. It will be taxed just like an annuity would be. Sure you lose the tax-free benefit of a non-MEC... but the MEC will outperform the non-MEC big time. So the performance will make up for the lose in tax benefits. The DB will still be income tax free though.

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Wouldn't you be better off with a rapid builder iul from North american ... Maximum non mec ...

Absolutely. Best single premium product on the market hands down. If you want early cash value nothing matches it.

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The key is getting the design right so that its non mec. IDK on IUL, me personally I would use WL.

If you dont MEC a single premium policy it is going to perform at a subpar level. The extra performance usually beats any tax benefits of the non-MEC. You could be talking about a rate of return difference of 2% - 3%.

 

[pfg1]

For a single premium I almost always would use IUL. Especially if they want early access to Cash Value.

Use NA Rapid Builder or Midland ECV (same product / carrier essentially, just different contracting).

It will be guaranteed not to lapse all the way down to a 3.5%ish index return (depending on age and health rating).

They will have 100+% of their premium in CV end year 1.

I haven't found a single premium solution that even comes close to touching the product at all.



To answer the MEC question; you can design it not to MEC but it will not perform as well then. A single premium is meant to be a MEC. It will be taxed just like an annuity would be. Sure you lose the tax-free benefit of a non-MEC... but the MEC will outperform the non-MEC big time. So the performance will make up for the lose in tax benefits. The DB will still be income tax free though.

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Absolutely. Best single premium product on the market hands down. If you want early cash value nothing matches it.

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If you dont MEC a single premium policy it is going to perform at a subpar level. The extra performance usually beats any tax benefits of the non-MEC. You could be talking about a rate of return difference of 2% - 3%.

But SC....he's not talking about a single premium. He's talking about annual premium with a lump sum dump in (to be able to borrow from). If designed properly it will perform fine as non-mec, not quite as good as a straight annual premium from a irr standpoint ...but pretty darn well.

 

[scagnt83]

300,000 dump in, borrow out 240,000 for land purchase. Paying 15k-20k per year in after that.

80% of Premium is way too much to borrow that early. He would need a premium of at least $350k bare minimum. But I would recommend at least $400k - $450k in premium to borrow that much that early.

Life insurance is not designed to pay into and then take almost all of it right back out in the first year or two.

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But SC....he's not talking about a single premium. He's talking about annual premium with a lump sum dump in (to be able to borrow from). If designed properly it will perform fine as non-mec, not quite as good as a straight annual premium from a irr standpoint ...but pretty darn well.

It is still the same initial situation as a single premium. You will have to needlessly increase the DB to accommodate that much premium in one year. That will decrease the performance by a good bit comparatively.

And at that large of a loan that early, it would be wise to have part of the $15k-$20k per year go to paying back the loan and not go into new Premiums.

Also, with that large of a % of Premium coming out as a Loan. They will need the most performance possible to keep the policy from lapsing.

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If they were not taking so much out so soon, I would agree that it would be more of a debate of MEC design vs. Non-Mec. But that much that soon needs the most performance possible in my experience.

 

[pfg1]

80% of Premium is way too much to borrow that early. He would need a premium of at least $350k bare minimum. But I would recommend at least $400k - $450k in premium to borrow that much that early.

Life insurance is not designed to pay into and then take almost all of it right back out in the first year or two.

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It is still the same initial situation as a single premium. You will have to needlessly increase the DB to accommodate that much premium in one year. That will decrease the performance by a good bit comparatively.

And at that large of a loan that early, it would be wise to have part of the $15k-$20k per year go to paying back the loan and not go into new Premiums.

Also, with that large of a % of Premium coming out as a Loan. They will need the most performance possible to keep the policy from lapsing.

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If they were not taking so much out so soon, I would agree that it would be more of a debate of MEC design vs. Non-Mec. But that much that soon needs the most performance possible in my experience.

Why is 80% way too much to borrow? It can be designed and it can be done. Many companies have 90% of cash value available for loan right out of the gate....its just that most policies have very little cash accumulated early. Yes, most of the time LI polices are not designed for max cash early to be borrowed out asap - but it CAN be designed to be done that way. Doesn't make it wrong - just different.

If designed properly it will still perform decent as non-mec. The key is the policy is being built for max access to cash early, not max irr. I have done these before (not that large) but the ratio's were similar, just lower amounts.

Of course they will need to pay the loan back or the whole thing doesn't make sense, but that is what this type of planning is for. Whether or not a design like this makes sense for the client, well that depends on alot of factors.

 

[scagnt83]

Why is 80% way too much to borrow?

In the first year, in my opinion, yes. After year 2 no, not if done properly.

Sure it can be illustrated. But in my opinion, that much is too risky of a thing to do in the first 2 years.

If you do, perhaps WL would be more suitable since it has more consistent returns. But you cant get the same amount of 1st year CV in a WL that you can in a UL.

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The key is the policy is being built for max access to cash early, not max irr.

Those two things go hand in hand.

The lower the DB the lower the expenses are.
The lower the expenses are, the more Premium is available to go into the CV.
The more Premium that goes into the CV, the higher the irr becomes.

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I have done these before (not that large) but the ratio's were similar, just lower amounts.

I strongly urge my clients to wait until year 2 or 3 to start taking big Loans. The policy will be so much more stable if they do.


I know that you can get it to illustrate and work. I am personally just not a fan of it. Too much risk involved. Dividends can be lowered or Indexes could not perform well and the whole things is ****** . The policy can take a lot more fluctuation once it gets rolling for a few years.

 

[AOKING]

Thanks for all the help with this one. Yeah, we were looking at whole life 300k dump in with 240k loan along with 15k-20k going towards the base policy. I was open to IUL if it could work.......You would feel uncomfortable offering this solution using IUL to one of your customer scagent?

Thanks,
AO