Single Premium Universal Life Policy

[adamli]

My sister is 65 and she was offered by her bank manager a "Financed single premium Universal life insurance policy", naturally the bank manager is only offering financing for the single premium because he is well aware that she has sufficient collateral. The manager introduced my sister to a broker who requested to do a thorough medical. Although she has not seen the results of her medical examination she was told the results were quite good, and well in line with the expected 65 year old lady. The indication the broker gave her was that the single time premium will be approximately 49% of the policy value and she can decide the policy value to be either high or low as she prefers (i.e. if she decides to take the 1m policy, the premium would be 490k etc....) With the premium being 49% and additionally the cost of financing being 1% p.a. of the fully paid premium it seems her siblings may only end up with maximum 30%-35% left from the final insurance payout. I can not help but think that the bank or the bank manager and the broker are making a substantial amount out of this deal which is why they are promoting it so aggressively to multiple banking clients.

The manager keeps telling her that the insurance cash value will increase by minimum of 2% every year and it will take my sister 7 years to breakeven with the premium and at any point she can draw part or all of the cash value but if she draws money from the cash value, her final policy value will be reduced by the same amount. The bank manager was telling her that the main benefit is that the she does not have to pay the premium from her pocket now and it would be automatically deducted from the final payout, all she has to pay is the cost of financing the premium.

The broker tried to scare her by saying that no one apart from them would be willing to give her high value life insurance at this age. Is this true?

For a person who is paying the full premium upfront should the premium be 49% of the policy value? What should the premium be for a 65 year old lady with good health.

Please can you give your expert guidance on how she can avoid the bank or the broker taking advantage of this situation and how she can get a fair policy without having to daily go through heavy and thorough medical examination for each and every broker/insurance company.

I have attached the example they used to demonstrate how the policy works with a cash value increasing at 4.1%.

Please guide and give as many tips as possible.

 

[BNTRS]

This approach is known as premium financing, and whether or not it's the best option depends a lot on what the interest rate on the loan is.

If this is a purchase focus on death benefit, and 99% of premium financing situations are, then the crucial details are, death benefit and loan interest rate.

We then evaluate what a comparable death benefit would cost through the traditional method of buying life insurance and simply paying the premium. We need to also keep in mind that the death benefit we evaluate through the traditional method of buying life insurance needs to be adjusted to match the net death benefit in the premium financing situation (since the loan would be repaid with death benefit proceeds).

Since she's already gone through a medical underwriting, you don't actually need a new exam completed to apply with a different company, you can use that exam to satisfy the medical underwriting requirements with pretty much any other carrier.

If you have more specific details on what she's been shown and you're willing to share, we'd be happy to look over and give you a definitive thumbs up or thumbs down.

You can reach us here: Contact Us

 

[car253]

OMG!! She is going to pay $2.4 million for a $5 million life insurance policy? What????

Don't walk! RUN AWAY!!!

 

[TaxFreeIncome]

Why pay the premium in a single pay? Why not over a 7 year period to avoid the contract from becoming a MEC? I have no problem with the financing as long as everything is disclosed to the insurance carrier. One more thing, normally these premium finance banks have to be approved with the insurance carriers. Ask the broker if their financier is approved? If not, find another broker.

 

[tlmarketing]

The bank manager makes their money on the lending, and the broker is going to make their commissions off the premium being paid on the policy....you have to ask:

1. Does your sister need the insurance?
2. Would she qualify for a $5m policy based on her needs?
3. What interest rate is the bank charging for the loan?
4. Is the rate fixed, variable?
5. How long is it locked in for?
6. Is the loan callable by the bank?
7. Does it have to be renewed each year or is it fixed for duration of policy

The reason why they do a dump in of premium in year 1 is that the loans may not be available in the future, the large premium will create a large cash value that they can use as collateral for the policy, and that broker is going to make a lot of money on the deal.

If you looked at $5m pay all years on a no lapse guaranteed universal life insurance policy, that premium range is $78,000 at a preferred best rate, $100,000 at a standard rate.


What insurance company is being used for the policy?
If you look at the bottom of the illustration pages, you may see something that says TP...the number next to this is the target or commissionable premium on the case...typically large cases like this will pay about 100% of the TP number, and the difference between the lumpsum premium and TP is paid as excess premium...maybe 2%

Depending on who it's with, the commission may be split between the broker and the bank...or bank manager in this case...

A broker on a case can put her through one exam, and then be able to share that exam with multiple companies if necessary.

 

[MPCFinPlan]

From what I've seen with universal policies, the interest that guaranties the Death benefit and premium can fluctuate with interest rates.

Our whole life policies at a single premium will not only be a single premium, but will pay dividends.

It all goes back to what you want the insurance to do, and there isn't that info from the question in the thread.

 

[mithrobt]

A friend is considering replacing a Variable Life Policy with a single premium UL policy. The new rep is an independent broker. The variable life rep did not clearly explain the risks (although the policy has accumulated significant cash value). Would like to understand the approx commission earned by an independent broker for a $300K Single premium UL policy.

Thank you

 

[DHK]

The commission earned on the sale is immaterial to the decision to be made.

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And without knowing any facts about risk tolerance, age, health, financial status, or even the client's financial objectives... there is nothing that any poster can add to provide any clarity to this transaction.

 

[mithrobt]

The commission earned on the sale is immaterial to the decision to be made.

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And without knowing any facts about risk tolerance, age, health, financial status, or even the client's financial objectives... there is nothing that any poster can add to provide any clarity to this transaction.

He's 65, will be classified as standard.He wants little (no risk). Just curious as to how much the broker may earn...in no way is it affecting the decision on the type of policy...Based on having a variable policy with approx $300K cash value, he does not want any risk in his life insurance aand wants to replace it...

 

[critter]

I am a fan of premium financing, but this situation sounds fishy. Does the bank manager have an insurance license? Some do, some don't. From the nature of the conversation you described, it sounds like he is certainly the one soliciting the sale of insurance here.