L I F E I N S U R A N C E P O R T F O L I O M A N A G E M E N T

Transcription

1 L I F E I N S U R A N C E P O R T F O L I O M A N A G E M E N T Optimize Funding of Existing Refinance Existing HOW CAN YOUR PARTNERSHIP WITH SCHECHTER WEALTH BENEFIT YOUR CLIENTS? Schechter Wealth works closely with our clients and their advisors to create Uncommon Solutions specifically tailored to each client s situation. We use a creative approach to analyzing life insurance and annuity policies in the marketplace and structure their ownership using traditional estate planning vehicles. The case studies, with accompanying flow charts and client testimonials, show how Schechter Wealth has become the quiet leader in sophisticated life insurance solutions.

2 Optimize Funding of Existing Life Insurance Policies Insurance carriers frequently promote the payment of premiums on a predetermined schedule. At Schechter Wealth Strategies, we evaluate each client s needs at our initial meeting. We then work with the client and his or her advisors to create a funding methodology which helps meet those needs. Optimize Funding of Existing O U R C L I E N T S The client is a 60-year-old man who holds a large portfolio of fixed life insurance consisting of Universal Life and Whole Life policies that were issued over the last 5 10 years. The client has been making annual premium payments since the policies were issued. The client has asked Schechter Wealth Strategies to review the efficiency of the policies and make recommendations. Our analysis includes a review of financial, legal and tax considerations and the following premium funding options: Minimum Funding: In a standard fixed insurance policy, a portion of the initial premium payments is often reserved to pay insurance costs in later years. This may not provide the most economical coverage for the client. Clients with cash flow concerns, as well as those who are unsure about their long-term insurance needs, may be able to minimize initial policy premiums. Maximum Funding: Paying more than the annual level premium may result in an attractive cash-on-cash return in some life insurance policies. This method should be explored if the client is interested in accumulating cash or as an alternative to fixed investments. Leverage: Premium financing ** may be appropriate in situations where the client has either a temporary insurance need or a short-term liquidity crunch. We have worked with many commercial banks and premium funding specialists to evaluate the right opportunities for our clients. We will also help the client identify potential pitfalls, including failure to plan an exit strategy. The life insurance polices were issued through another agent. Over the years, the client s needs have changed and some of the risks the client was insuring against are no longer present. He feels he holds too much life insurance and is interested in surrendering some of the policies. Schechter Wealth Strategies completed a thorough needs analysis and review of the client s life insurance portfolio. Upon review, it was found that a number of the Whole Life policies were in the cost recovery period which means that the annual cash-on-cash return is approximately 8% tax free. Additionally, Schechter Wealth Strategies found that the balance of the policies had accumulated enough cash value where additional premium was not required and the policies could pay the premiums using dollars from inside the policies. Schechter Wealth Strategies created a comprehensive schedule detailing the client s entire life insurance portfolio and necessary premium payments for each policy. The client found that while some of the death benefit provided was not needed from a risk standpoint, the policies provided an attractive internal cash-on-cash yield. Additionally, the total premium outlay was reduced due to several of the policies having significant cash value from which to pay premiums. The client maintained his insurance coverage levels while reducing his premium outlay by over $45,000 per year. For more than 30 years, Bob Schechter has been working with me, my business, and my family. Throughout the years, he s had a great understanding of the intricate issues, interpersonal dynamics, and complexities involved in running and transitioning our family business. Bob s unique ability to understand people, numbers, and business structure made him an invaluable advisor to us. Since the sale of our business in 1995, Bob, Marc, Jason, and Bob Heinrich continue to be extremely valuable to my family by helping us think through estate planning and investment opportunities in a fluid environment where change is constant. Murray Pitt Former Chairman and CEO Murray's Discount Auto Parts Stores Alternative Funding Options: Certain individual clients (typically those older than 70) can benefit by funding their life insurance policy through the use of a fixed annuity. This structure can provide both economic and tax benefits in specific situations. ability of the issuing insurance company. **Premium Financing is complex and involves many risks, such as the possibility of policy lapse, loss of collateral, interest rate and market uncertainty, and failure to re-qualify with the lender to keep the financing in place and maintain the desired level of insurance protection. In certain situations, additional out-of-pocket contributions may be required to retire the debt and/or maintain the desired level of insurance protection. A well planned exit strategy should be in place prior to accepting any financing arrangements. Testimonials may not be representative of the experience of other clients and is no guarantee of future performance or success.

3 Refinance Existing A N A L Y S I S Changes in economic factors, such as interest rates or stock market performance impact the life insurance company s product design and pricing. You can help your clients decrease premiums, increase benefits or do both by facilitating a review and, if appropriate, an adjustment of their portfolio. The life insurance industry has created new products such as no-lapse guarantee * policies that are designed for low interest market conditions. These products are not interest rate sensitive and are designed to guarantee coverage at the optimal cost. Life expectancies in the United States continue to increase which leads to lower costs of fixed life insurance. If your clients remain relatively healthy, their life expectancy improves as they get older. This can translate into lower costs as your clients age and remain healthy. Schechter Wealth Strategies has a unique comprehensive portfolio review that includes: Detailed Portfolio Snapshot: This is a complete picture of existing policies created based on factors such as current and projected policy performance. Policy Benchmarking: The existing policy is benchmarked versus the current market. It is evaluated based on its rate of return on cash value and death benefit. Refinance Existing The client is a couple in their mid 70s who hold four Joint Survivor Life Insurance policies purchased over several years with various premium streams. The client has a significant net worth invested in relatively illiquid assets that have a growth rate of approximately 8% per year. The client is in need of additional Joint Survivor Life Insurance to account for the growth in the assets and preserve the value of the estate upon death for their adult children. The client is also concerned about the stability and performance of the policies in a low interest rate environment and their efficiency relative to the premiums required. The policies are held in an irrevocable life insurance trust. The premiums of the policies cannot exceed the maximum gifting requirements for the client determined by the IRS. The client was unsuccessful in obtaining additional fixed life insurance with a previous agent due to their health history. The Schechter Wealth Strategies Solution Design Team combined the four policies into one new highly efficient Joint Survivor policy. The four varying premium streams were consolidated. The new Joint Survivor Life Insurance policy includes a Lapse Protection Rider which states that so long as the premiums are paid as scheduled the policy is guaranteed to remain in force through age 110. The Schechter Wealth Strategies Underwriting Team positioned the client s case as a favorable insurance candidate by educating the life insurance company on the positive health changes the client made since experiencing the medical issues. The Underwriting Team also detailed the client s proactive follow up with their doctors. The new policy increased the death benefit to the trust by 30% while streamlining and reducing the premium payments by 15%. Replacement Analysis for a Joint Survivor Policy Death Benefit $9,000,000 $8,000,000 $7,000,000 $6,000,000 $5,000,000 $4,000,000 $3,000,000 $2,000,000 $1,000,000 $ - age Guaranteed Death Benefit in Replacement Policy Death Benefit in Current Policy (subject to dividend rate changes and premium increases) Cash Value in Current Policy Cash Value in Replacement Policy This chart above shows how the death benefit was increased over $1,000,000 with no change in premiums. The cash value in the new policy is not as large as it was in the old policy, but in a particular situation, and in most trust-owned insurance, the death benefit is the driving objective. ability of the issuing insurance company.

4 Sell Existing Life Insurance Policies O U R C L I E N T S At Schechter Wealth Strategies we are able to provide our clients and their advisors with an open architecture approach to the life settlement ** market, where third parties purchase existing insurance policies as part of investment portfolios. If a person over 65 years old is considering surrendering or exchanging a policy, the potential for enhancing cash value through the life settlement market must be addressed. Due to the large amount of capital available, strong fixed life settlement offers may be available even if the insured s health is the same as it was when the policy was issued. We obtain our own life expectancy reports from the leading firms in the industry and share the results with our clients and their advisors. Before selling a policy it is essential for the client to understand how the market perceives the value of a particular policy. In some cases, the client may be better off holding the policy. There are multiple funding sources and it is essential that any case be shopped to the entire market. We use multiple sources to help ensure maximum market coverage and to create an auction market for policies we sell. Schechter Wealth Strategies open and comprehensive approach to the fixed life settlement market helps ensure that a high benefit will be received by the client. Sell Existing and Purchase New Policies (Buy Low, Sell High) The client is a 65-year-old man who owns approximately $18 million of life insurance that was intended to fund buy-sell arrangements. The policies were owned in a manner such that they were included in the client s estate or owned by qualified plans. The annual cost of maintaining the coverage had become a burden on the client s company but remained necessary to fund a buy-out at the client s death and provide liquidity to his widow. Schechter Wealth Strategies created an competitive environment for the client s existing fixed insurance which resulted in a five-fold increase in the final quote from the initial quotes and the policy cash value. The funds generated from the life settlement were used to eliminate all existing intra-family debt and to fund an annuity arbitrage transaction within an intentionally defective grantor trust. The arbitrage transaction allowed the client to purchase sufficient life insurance to satisfy the buy-sell obligations, with no annual cost to the family beyond the income taxes on the annuity. Through the use of life settlements and alternative insurance structures, Schechter Wealth Strategies and the client s professional advisors were able to restructure the client s large insurance portfolio in a manner that reduced annual costs of carrying needed life insurance by over 75% and provided for a more efficient transfer of assets at the client s death. The family was able to maintain the coverage necessary to fund the buy-sell agreements at a substantially reduced cost while moving the proceeds of the insurance out of the client s taxable estate. I continue to be impressed with the global business, tax, and legal knowledge that Schechter Wealth Strategies possesses. Jason Zimmerman and Robert Schechter have shed light on areas of the insurance industry that I had never recognized before. Utilizing some of these insurance products in a creative fashion has been an important part in our family investment planning. Ricky Sandler Founder, Managing Member, Portfolio Manager Eminence Capital ability of the issuing insurance company. **The proceeds from a life settlement transaction may be subject to claims of creditors. The amount received for the sale of the Policy may be impacted by the circumstances of the particular purchaser of the Policy, the insured s life expectancy, future premiums, the death benefit, the terms of the Policy, and the current market for insurance policies, among other factors. The amount received for the sale of the Policy may be more or less than what others might receive for the sale of a similar policy. Eminence Capital LLC is an investment management company that manages more than $4 billion on behalf of individuals, institutions, and investment entities. The funds are managed through a classic long/short hedge fund structure and are primarily invested in publicly traded U.S. equity securities. Testimonials may not be representative of the experience of other clients and is no guarantee of future performance or success.

5 251 Pierce, Birmingham, MI