You aren’t the same person you were 10 years ago. It’s likely that your current life insurance policies don’t support your life and goals today. That was true for this client, who now has coverage that fits perfectly:
The Previous Coverage: Our client, a 50-year-old CFO of an international investment firm, owned two insurance policies. The first was a $10 million policy for himself and his wife that a previous employer purchased; it was structured to provide tax-free retirement income. The second policy was a $5 million permanent universal life policy for himself that required 15 more annual premium payments.
Our Audit: We found that the client’s needs had changed since the policies were purchased. His four children were older, his income needs were different now and he required a policy benefit that would offset future estate taxes.
Our audit also uncovered several problems with both policies. The way the client’s previous employer paid the premiums would have created serious tax issues if the client withdrew or borrowed from the account. Further, this type of policy limited the premium amount that could be paid in the future, causing the policy to lapse prior to maturity.
A Better Solution: Paying close attention to the client’s budget and allowable gift tax exemptions, we recommended and executed a number of very beneficial changes. We retained the $5 million universal life policy but reduced the death benefit to a level that required no future premium payments. The client purchased a new 30-year policy to provide income for his wife if he dies before his children are self-sufficient. The new policy costs 40 percent less than what he was previously paying. We also facilitated a tax-free exchange of the $10 million policy into a new $9 million policy. This new policy guarantees premiums and death benefits until age 120. Additionally, the premium is 20 percent lower than he needed to pay for his previous policy.
Do you have the wrong life insurance policies?