Life Insurance Policies with Loans Outstanding

[Bob_The_Insurance_Guy]

Met a guy who has several life insurance policies of varying face amounts. He has taken out loans on each of these policies. I don't know face amount or how much is taken out of each policy.

He wants to meet with me. I assume it's because he has very little face value left, or not as much as originally had, and wants to know what he can do with these policies, and "trade them in" for a new policy.

I told him you can stack policies, but he wants to simplify.

He is 65 years old, and in good health (so he says).

 

[STIBROKER]

WL..or UL's............................

 

[Bob_The_Insurance_Guy]

To tell you the truth, I don't know. Haven't got that far. Assumption would be WL, but not sure.

I am meeting with him, face to face, after April 15, and I'll have more info then. Just wanted a jumping off point for now as how to handle it.

On one hand, I don't want to be the typical insurance agent, who just writes new policies for old (especially since there are loans outstanding). On the other hand, a potential client wants to trade up (or, that is how he sees it).

In my 13 years in the business, this is the first time I have been approached with this situation.

For now, for argument's sake, let's say they are WL policies.

 

[DHK]

Why did he take out the loans? The answer should fall into 1 of 2 categories: Emergency or Opportunity.

Debt Consolidation (a la Infinite Banking) falls under opportunity - to consolidate payments, lower interest payments, etc.

If it's due to opportunity, why wasn't he able to repay the loans? What happened to his cash flow?

If it was emergency, does he ever see a way to pay back the loans?

What happened to the agent who sold him the policies? (This is an example of where the agent dropped the ball or left the business and the consumer is left holding the bag!)

If he wants to simplify everything, what you'll probably have to do is help him prioritize what he wants to have happen - both for his immediate cash flow and for his beneficiaries.

If he says he wants a new policy, check to see if you can 1035 both the basis and the loans to the new one... and (of course) if he'll qualify for a new policy. But the new policy will have new charges, higher expenses for his higher age and it might not make sense.

You need to do a good fact-find with him and help him prioritize his wants. Then you'll have the complete picture.

 

[NMFNMDRT]

Before I would even discuss options with the policies I would find out how much death benefit he wants/needs. That would tell me what to do with existing insurance issues and future needs.

 

[souldeux]

Does he know the names of the carriers he's got his policies through? In-force illustrations would clear up a lot of confusion.

 

[BNTRS]

There's not much for which you can prepare. You'll need to sit down, look over the facts, and go from there.

 

[sgriswold]

Bob, sent you a PM. I've salvaged tons of loan-burdened policies over the past few years and can help with ideas.

(my offer of help is open to anyone else too)

You want to start with the following:
- in force illustrations
- policy inventories (not always available, but these often have specific dollar amounts not readily usable on the illustration)
- taxable gain report. If theres no gain you may be able to cut losses with policy surrender, or have current carrier pay off loan internally.

Also you'll need carrier contacts or a good GA who can help you run illustrations. If you typically use Winflex, most carriers have poor support for loan transfers in that software. Others have poor support even with their agent software and require home office intervention.

However if you do this right and conditions are good, you can accomplish 3 things:
1) save client lots of money and be their hero
2) increase or preserve death benefit (or mitigate losses)
3) make a grip of commission

Feel free to call or pm if you need help.

 

[Brokers Alliance]

On April 1st we broadcasted one of our BRAVO video events called “Don’t Get Fooled Again,” where I featured a segment of the show on policy loans. To view the show just click on www.brokersalliance.com/aprilfools

I also wrote an article in December 2010 for the CPA Society newsletter on policy loans. I'm happy to email it to you or anyone else. Just email me at [email protected]

 

[jethroacosta]

As long as the cash value to loan is below 75% then it should be no problem to 1035 (tax free transfer) to a new and improved policy. Get the most up to date statements, and fax them to me or someone like me (insurance wholesaler) with a date of birth. We can show you how to bundle all the cash values, and give a new Death Benefit with LTC riders. Which should be greater for any insurance contract is pre 2001, which is when the mortality tables where updated.

If the policies are post 2001, check the surrender charge or if the client was sold a policy from a captive agent, because there products are usually expensive. With your older clients the Paramed is a major variable, so an informal application might be a good way to proceed.

Questions...please ask.

Jethro Acosta
[email protected]
Hartford Wholesaler
California
805-453-3036 cell
866-547-1766 fax