Life Insurance Review

Transcription

1 Life Insurance Review A Sales Tool for All Clients Agenda Why a Life Insurance Review Typical Client Situations MetLife Support 1

2 Why a Life Insurance Review Role of Life Insurance Central in Completion of Client Plans Business Planning Retirement Planning Estate Planning Survivor Protection Flexibility in Design Can Tailor Policy to Client s Needs Makes Life Insurance Complex Complexity Calls for Ongoing Review 2

3 Why a Life Insurance Review Portfolio Review Life Insurance Review Opens the Door to All Clients Existing Clients New Clients What a Review Does Reviews a Client s Needs Examines Original vs. Current goals Aligns Life Insurance with Current Goals Who Needs to Do a Life Insurance Review Financial Advisors Trustees Business Owners Personal Changes Family Changes Buying a Business Marriage, Birth, Divorce Covering a Mortgage Term to Permanent Children s Education Term at a better price Providing for Single Life now calls for Grandchildren Second-to-Die Policy Insufficient for Current Needs Changing Job & Benefits Current Retirement t Options Insufficient to Cover Client s Lifestyle 3

4 Life Insurance Changes Policies Not Performing as Expected Changing Insurer Ratings Newer Products More Cost Efficient Better Guarantees Improved Underwriting New Riders Longer-Term Needs Call for Permanent or Better Term Coverage Some Policies Scheduled for a Jump in Premiums Typical Client Situations 4

5 Clients that May Need a Review Younger & Middle-Aged Clients Changing Family Needs Permanent insurance to supplement income Older Clients Focused on Estate Planning Trust Owned Life Insurance Need to keep their life insurance in force Business Owner Clients Employee Benefits need to support promises Business Continuation & Key Person Personal Client Changes All examples are entirely hypothetical and are not intended to represent any specific investment or insurance products. Actual results will vary. 5

6 2 children & Jessica stopped working Nick s employer benefits dropped to $50,000 Group Term Must purchase any additional group coverage Case Study Nick & Jessica Bought $300,000 term insurance 7 years ago for mortgage protection Hypothetical Example. For Illustrative Purposes Only. Current insurance could not: Pay for mortgage Support family Cover college tuition Current insurance could pay mortgage & 2 years of expenses Couple s Dilemma They need to - cover family support costs In addition to tuition & mortgage They also need to - save for retirement Nick is fully funding his 401(k) & IRA Current savings won t support family s lifestyle in retirement 6

7 Term vs. Permanent Insurance Term coverage was relatively low in cost BUT. No potential for cash value accumulation Price will increase after 15 years Nick s age 40 Coverage terminates after 25 years Compare Permanent Variable Life Coverage Couple selects premium amount $10,000 premium on $1,500,000 death benefit Projected annual retirement income of $84,003 for 20 years Assuming client dies 20 years after retirement: Paid $330,000 premium Received $1,350,006 through policy withdrawals/loans Beneficiaries receive $315,693 in death benefit Example based on a 32 year old male, preferred nonsmoker, funding a $1,500,000 hypothetical variable universal life insurance policy. Life illustration assumes 8% gross hypothetical rate of return and assumes current (vs. guaranteed) charges. Loans & withdrawals from a policy will reduce the death benefit and cash value. Please obtain a full product illustration for additional details. Term & Permanent Compared* Term Coverage Permanent Coverage Premiums must be paid each year or policy lapses Death benefit here disappears at age 50 No cash value Savings in a side fund is not self completing Couple can vary premium as long as policy is funded adequately At $10,000 premium Age 65 Projected Cash Value: $1,001,497 Death Benefit - $1,500, $84,003 income 20 years Tax free withdrawals/loans Equivalent of $129,235 taxable** * Hypothetical Example For Illustrative Purposes Only. **Tax Equivalent Yield calculation assumes that the client is in a 35% combined federal and state tax bracket. 7

8 Other Life Review Examples Review Can Even Help a Smoker 68 year old female preferred smoker $430,000 Death Benefit and $13,000 year premium Was able to maintain $430,000 and reduce annual premium to $2,106* 43 year old Male preferred non-smoker $250,000 face amount and $22,870 of Cash Surrender Value Former annual premium - $3,053; New annual premium - $667** *Example based on Guarantee Advantage Universal Life (GAUL) policy with no-lapse coverage continuation rider; 1035 exchange of $215,000 cash surrender value. **Example based on GAUL policy with no-lapse coverage continuation rider For Illustrative Purposes Only. Please Request a full product illustration for additional details. Trust Owned Life Insurance 8

9 Widespread Lack of Review Trust Owned Life Insurance (TOLI) Survey Professional Trustees 83.5% - No guidelines & procedures for TOLI 95.3% - No policies for variable life policies Family & Friends as Trustees 94.7% - No policies for variable life policies 71.2% - Have not reviewed life policies in past five years Survey published in Trusts & Estates magazine, May 2003, page 63. Trust established when clients were age 63 $5,000,000 covered by secondto-die in a trust Planned $80,000 Gifts for 12 Years (their age 75) Case Study Charlie & Stella Set up estate plan 10 years ago Irrevocable Trust (ILIT) bought two policies $2.5M Variable Second-to-Die for growth $2.5M Participating Whole Life for security This is a hypothetical client situation. Your results will be different. 9

10 10 Years Later Much Has Changed Trustee s Problem: Variable Universal Life 10 Years ago: Illustrated at 10% $40,000/year for 12 years would have carried $2.5M death benefit Performance: averaged 2% over past 10 years Under planned gifts: policy lapses at age 86 Or, triggers $82,000 in premiums at age 86 Or, continue planned premiums for life: lapses at age 93 Hypothetical Example. Actual Results Will Vary. 10

11 Trustee s Problem: Whole Life Participating Whole Life - $40,000 premium Kept premiums low with term-perm blend Dividends were to buy Paid Up Additions Would have sustained $2.5M Death Benefit Dividends have dropped with interest rates $2.5M death benefit will lapse at age 89 Or maintain current premiums for life Hypothetical Example. Actual Results Will Vary. Possible Solution Life Insurance Review shows Ongoing need for $5M death benefit Existing Policies will lapse without change Possibly look to newer life insurance contracts Section 1035 exchange into a Survivorship Universal Life with Joint Coverage Continuation Rider Can gift $96,000 (indexed d split gift) for 7 years and receive $5,000,000 guaranteed death benefit Example based on 73 year male & female preferred non-smokers funding Legacy Advantage Survivorship UL policy with joint coverage continuation rider; 1035 exchange of $897,000 cash surrender value; death benefit guaranteed to age 109. Clients may incur surrender charges or other fees as a result of this type of exchange. Advisors and clients should consider these potential charges in determining the appropriateness of replacing existing coverage. Hypothetical Example. Actual Results Will Vary. 11

12 Second-to-Die After First Death Trustee Owned An Eight Year Old Policy $5,000,000 Death Benefit Annual Premium $92,000 Only $2,500,000 guaranteed One of the Insureds Died Widow now age 72 Gifting Power was cut in half Lost gift splitting for the Annual Exclusion Jump in Cash Value following first death to $875,000 Could Exchange to a new contract Full $5,000,000 Death Benefit received Secondary Guarantees Premium reduced by 33% Example based on preferred non-smoker, Guarantee Advantage UL policy with no-lapse coverage continuation rider. Clients may incur surrender charges or other fees as a result of this type of exchange. Advisors and clients should consider these potential charges in determining the appropriateness of replacing existing coverage. Hypothetical Example. Actual Results Will Vary. Business Owners 12

13 Case Study Were 50:50 owners Each bought a $2,000,000 Term policy on the other Bill paid more for Ted s policy Smoker and weight problems) Balanced costs with salary bonus Bill & Ted Set up a cross-purchase when manufacturing business was worth $4,000,000 7 years ago For Illustrative Purposes Only Evolving Business Needs Business now worth $9,000,000 Added a 3 rd Owner (Betty) has 33% stake Have never re-examined their buy-sell 13

14 Older Plan: 7 Years Ago Bill 50% owner $2,000,000 stake $2,000,000 coverage Ted 50% owner $2,000,000 stake $2,000,000 coverage Where Do They Stand Today? Bill 33% owner $3,000,000 stake $2,000,000 coverage Ted 33% owner $3,000,000 stake $2,000,000 coverage Betty 33% owner $3,000,000 stake No coverage 14

15 Insurance Review: Issues Amount of Coverage Bill & Ted - $1,000,000 Shortfall Betty No Coverage Type of Coverage Currently Term Insurance Consider permanent coverage as an alternative? Structure of the Buy-Sell Cross Purchase or Redemption Which is best for current and evolving business needs Structure of the Buy-Sell Existing Plan Options Cross Purchase 2 policies, 2 owners $2,000,000 per policy Maintain Cross Purchase 6 policies, 3 owners $1,500,000 per policy Change to Redemption 3 Policies, 1 owner $3,000,000 per policy 15

16 Changing Coverage: Potential Benefits Changing to Permanent Coverage Policy cash values can build business assets Can offer Lifetime Benefits Can Fund Post-Retirement Benefit Programs Underwriting Changes Ted no longer smokes, has lost weight Product Changes May want to weigh new policy designs What options are there with current coverage Improved pricing may drop costs Options 1 & 2: Maintain Cross Purchase Maintain Existing Policies Drop Bill & Ted s coverage to $1,500,000 each Buy Coverage on Betty Have Betty Buy Coverage on Bill & Ted OR Price out new Coverage Ted s costs are likely l to see the greatest t savings Drop Term in favor of Cash Value Life Insurance Use cash value for lifetime buy-out 16

17 Options 3 & 4: Change to Redemption Plan Use Existing Policies i Transfer existing insurance to business Purchase new insurance to fund any shortfalls OR Replace existing term with permanent life insurance Use cash value to fund lifetime buyouts Use to fund nonqualified (NQ) benefit programs Clients should consult with and rely on their own independent legal and tax advisors regarding a particular set of facts and circumstances. Watch the tax results in your situation. Certain transfers of policies may trigger adverse income tax consequences. How Life Insurance Reviews Helped 17

18 Personal Client Changes Adjusted death benefit amounts to meet current family needs Converted from term to permanent to: Use a portion of their investment cash to build cash values Cash values to supplement retirement Cash values to help college tuition Loans and withdrawals will decrease the cash value and death benefit. Trust Owned Life Insurance Confirmed the couple s death benefit need Reviewed performance of existing insurance: Tracked the possible policy lapse in the couple s 80s Looked at alternatives with existing insurance Compared alternatives with newer insurance More cost efficient in the long run Offered better guarantees 18

19 Business Owned Life Insurance Updated business continuation plan Adjusted death benefits to proper amounts Converted from term to permanent to: Help build business assets Provide a source of lifetime buyout funds Build funds as a possible source for NQ benefit plans Loans and withdrawals will decrease the cash value and death benefit. What Information Will I Need? Permanent Insurance In-force Ledger Copy of Contract Term Policy Copy of Contract Employer Benefit Benefit Information 19

20 What We Covered Why a Life Insurance Review Typical Client Situations MetLife Support MetLife Brand One of famerica s largest financial i companies with roots as far back as 1863 Provides financial products to over 90 of the top one hundred FORTUNE 500 companies.* Recognized as the Nation s Largest Life Insurer** Serves 1 of every 11 U.S. households *FORTUNE 500, April FORTUNE 500 is a registered trademark of FORTUNE magazine, a division of Time, Inc. **Based on life insurance in-force as of January

21 Important Information Pursuant to IRS Circular 230, MetLife is providing you with the following notification: The information contained in this document is not intended to (and cannot) be used by anyone to avoid IRS penalties. This document supports the promotion and marketing of insurance products. You should seek advice based on your particular circumstances from an independent tax advisor. MetLife, its agents, and representatives may not give legal or tax advice. Any discussion of taxes herein or related to this document is for general information purposes only and does not purport to be complete or cover every situation. Tax law is subject to interpretation and legislative change. Tax results and the appropriateness of any product for any specific taxpayer may vary depending on the facts and circumstances. You should consult with and rely on your own independent legal and tax advisors regarding your particular set of facts and circumstances. Prospectuses for Equity Advantage Variable Universal Life, and for the investment portfolios offered thereunder, are available from MetLife. The contract prospectus contains information about the contract s features, risks, charges and expenses. The investment objectives, risks and policies of the investment options, as well as other information about the investment options, are described in their respective prospectuses. Clients should read the prospectuses and consider this information carefully before investing. Product availability and features may vary by state. MetLife variable life insurance policies have limitations, exclusions, charges, termination provisions and terms for keeping them in force. There is no guarantee that any of the variable investment options in this product will meet their stated goals or objectives. The account value is subject to market fluctuations so that, when withdrawn, it may be worth more or less than its original value. Guarantees are based on the claims-paying ability and financial strength of the issuing insurance company. Life insurance is medically underwritten. Clients should not cancel their current coverage until their new coverage is in force. Surrender charges may be due on an exchange of one contract for another. A change in policy may require a medical examination. Surrenders may be taxable. Clients should consult their own tax advisors regarding tax liability on surrenders. Life insurance products are issued by MetLife Investors USA Insurance Company, Metropolitan Life Insurance Company and in New York only, by First MetLife Investors Insurance Company. All guarantees are based on the claims-paying ability and financial strength of the issuing insurance company. Variable products are distributed by MetLife Investors Distribution Company (MetLife Investors), Irvine, CA. December 2009 BDVL20539 L [exp0211] PEANUTS United Feature Syndicate, Inc. Insurance Products Not A Deposit Not FDIC-Insured Not Insured By Any Federal Government Agency Not Guaranteed By Any Bank Or Credit Union May Go Down In Value 21