In a post yesterday I insinuated that we may be entering the greatest two years in history for estate wealth building, estate wealth protection and wealth transfer. That statement still stands, but….
I asked Kevin Cox with Lincoln Financial to review the post in relation to a couple of articles that I’ve been asked to write and he had some interesting input and a call to action that could mean $millions gained or not gained depending on willingness to heed that call. Kevin has long been known for being at the cutting edge of bringing timely ideas together with great products.
His input included approaching the wealth building concept from a tax free interest angle versus the raw numbers of premium and death benefit. “Perhaps introducing the fact that a male age 60 and female age 60, both preferred non smokers, making a gift of $1,381,000 could create $10,000,000 of tax free assets for their heirs sounds great but it is hard for people to relate to. Their immediate thought is, well, I give up the money today and I don’t die for X years…is this a good deal? Perhaps if we say that executing this transaction creates a guaranteed tax free return of 5.07% even if the last of the insured’s dies at age 100 would make more sense! If both deaths occur sooner than age 100, the ROI can be exponentially larger. What other asset guarantees tax free returns of this magnitude over this period of time?” Mr Cox warned, “Keep in mind that companies are re-pricing right now due to the low interest rate environment so expect single premiums to increase in the neighborhood of 12-25% within the next 3 months.”
We’ve heard about the rate increase coming on no lapse guarantee UL’s for some time. We’ve seen the rumblings as companies weasel out of guaranteed universal life options on term insurance conversion privileges. We’ve seen John Hancock pull sales of a popular whole life product because interest rates wouldn’t support continued sales.
It’s here folks. Lifetime guarantee life insurance rates are going up and there isn’t anything foreseeable that will change that. Anyone in a liquid asset position that can take advantage, well, they’ll grab the ring, get the prize, increase their estate dramatically! Most of us have seen THE DEAL come along before. Great deals don’t come without deadlines and the difference between those who generate wealth and those who don’t is the willingness to act.
Bottom line. If your life insurance agent isn’t talking to you about this and you have a net worth of $2 million or more, give me a call. I would love to put advanced estate planners to work for you and make sure your buck makes a big bang. If you’re an agent with a high net worth client and you don’t know how to present this, call me. It is too important not to shout about. Timing is critical.
Banner and Lincoln Financial need to reprice based on the fact that their UL products are dangerously underpriced to start with. Last summer I converted a $100,000 Banner term policy at 49 years old and standard nonsmoker. The UL contract has an annual premium of $1143.47. The Lincoln Financial product I think was a little more expensive, but not by much. According to the Lincoln illustration I am supposed to die at age 82. I got on moneychimp.com and entered the Banner premium into their formula for compounding at 5% compounded semi-annually (as in corporate bond coupons). In 33 years this entire premium investment will grow to $99,654.04. At 6% it will grow to $123,055.96. I do not know what the lapse rate is on $100,000 policies for 50, 60, and 70 year olds; but it better be pretty damn high. If not, then these policies as a group are not sustainable; and I definitely would not be betting the farm on one of them. New York Life, on the other hand demanded a premium of $1771 annually to convert a $90,000 term policy I have with them to a NLG UL. $1771 over 33 years at 5% yields $154,343.63, which is much more sustainable. I’m all for the lowest premium I can get. I just hope these companies are making enough on term to cover the spanking they are going to get when these UL turkeys come home to roost.
Jim,
Thanks for your input. I think Mr Cox spoke to the fact that continuing on with the rates as they are is unsustainable. “Keep in mind that companies are re-pricing right now due to the low interest rate environment so expect single premiums to increase in the neighborhood of 12-25% within the next 3 months.”
I think it is safe to say that Banner and Lincoln are in the process of fixing what they need to in order to meet their obligations while New York Life continues to overcharge for everything. Everyone gets to the finish line. Just different trails.