Fixed index universal life insurance

Transcription

1 Allianz Life Insurance Company of North America Fixed index universal life insurance Are your clients worried about the cost of college? P For financial professional use only. Not for use with the public. M-5287 Page of 8

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3 Help your clients make an educated decision. Show your clients how their fixed index universal life insurance policy (FIUL) may help supplement the cost of college. Your clients buy life insurance to provide a death benefit for their loved ones. This valuable benefit can be used for income replacement and provide resources to help pay for college expenses, at the death of the insured. But in addition to providing a death benefit, some policies offer other living advantages during your client s lifetime. One of these is cash value accumulation potential. In this guide, we ll explore how your clients might use their policy s available cash value to help fund a college education. The rising cost of college Paying for college is one of the biggest financial commitments your clients are likely to make and in most cases the cost keeps rising. Options to pay for college The primary sources some of your clients may be counting on are grants, scholarships, student loans, or savings programs such as 529 plans to pay for an education. But there s another option that most consumers and some financial professionals often overlook: Your clients also have the potential to access their life insurance policy s available cash value to supplement college funding through policy loans. Adding the cash value from a life insurance policy can help your clients supplement their college funding strategy. LIFE INSURANCE MAY HELP fund college. Tuition and fees at public universities have surged almost 30% over the last 20 years while middle-class incomes have stagnated. 2 Policy loans will reduce available cash values and death benefits, and may cause the policy to lapse or affect any guarantees against lapse. Additional premium payments may be required to keep the policy in force. In the event of a lapse, outstanding policy loans in excess of unrecovered cost basis will be subject to ordinary income tax. Policy loans are not usually subject to income tax unless the policy is classified as a modified endowment contract (MEC) under IRC Section 7702A. However, withdrawals or partial surrenders from a non-mec policy are subject to income tax to the extent that the amount distributed exceeds the owner s cost basis in the policy. Loans, withdrawals, or partial surrenders from a MEC policy are subject to income tax to the extent of any gains in the policy, and if the payment occurs prior to age 59½, a 0% federal additional tax may apply. 2 Surging College Costs Price Out Middle Class, CNN Money, June 3, 20. Page 3 of 8

4 Fixed index universal life insurance A smart solution For some of your clients, it may make sense to use their policy s available cash value to help pay for college. The primary purpose of purchasing an FIUL policy is the death benefit, but they also offer many living advantages your clients may want to consider, including: Income-tax-free death benefit If your client dies, his or her beneficiaries will receive a death benefit. This can be used to help pay for a college education, final expenses, and more. Life insurance offers many VALUABLE BENEFITS. Tax-deferred accumulation The cash value in your clients policies has the potential to accumulate tax-deferred, so their policies may have greater accumulation potential over time. Plus, assuming no loans or withdrawals, the cash value will not decrease due to index(es) decline. Keep in mind that fees, expenses, and cost of insurance reduce the available cash value. Income-tax-free loans Any loans from your clients policies are distributed income-tax-free, and can be used for any purpose your clients choose. This gives your clients the flexibility to change their plans. Flexibility If the child does not go to college, the cash value is still available to use for whatever your client chooses. The death benefit will also be there for the beneficiaries. No premium payment restrictions Some college savings plans cap the annual contribution at $3,000. But there s no set limit to how much premium your clients can put into their life insurance policy (up to MEC guidelines). 2 Policy loans will reduce available cash values and death benefits, and may cause the policy to lapse or affect any guarantees against lapse. Additional premium payments may be required to keep the policy in force. In the event of a lapse, outstanding policy loans in excess of unrecovered cost basis will be subject to ordinary income tax. Policy loans are not usually subject to income tax unless the policy is classified as a modified endowment contract (MEC) under IRC Section 7702A. However, withdrawals or partial surrenders from a non-mec policy are subject to income tax to the extent that the amount distributed exceeds the owner s cost basis in the policy. Loans, withdrawals, or partial surrenders from a MEC policy are subject to income tax to the extent of any gains in the policy, and if the payment occurs prior to age 59½, a 0% federal additional tax may apply. Page 4 of 8

5 To help build cash value accumulation more quickly, your clients have the ability to pay up to the maximum premium into their policy. The maximum premium is the most the IRS will allow to be paid into a life insurance policy in the first seven years without turning the policy into a modified endowment contract (MEC). A life insurance policy becomes a MEC when it is funded with too much premium too early in the contract. If a life insurance policy is defined as a MEC, withdrawals come out as gain first and are taxable, and may also be subject to a 0% additional IRS tax. To take full advantage of the life insurance tax advantages, your clients do not want their policy to become a MEC. No eligibility requirements Supplementing the expenses of a college education with life insurance via policy loans means there are no complex eligibility requirements, no qualified education costs, and no income limits to consider. Plus, policy loans typically don t affect the student s eligibility for other forms of financial aid. Life insurance is subject to health underwriting of the insured and, in some cases, financial underwriting. The flexibility of fixed index universal life insurance can make it a valuable part of your clients financial strategy. 3 Page 5 of 8

6 Approach the right prospects Life insurance can cover MORE THAN A CLIENT S LIFE. Remember that your clients must have a need for the death benefit as the primary reason for purchasing the life insurance. Of course, this approach isn t right for everyone, but it may be appropriate for clients ages who are in good health and have young children. See how it works Here s a hypothetical example that illustrates how a single father could use life insurance to protect his son s financial future, while accumulating potential cash value for a college education. Eric, 30, has a 3-year-old son named Lance. Eric wants to purchase life insurance on himself, in case the unexpected should occur, but he also wants the opportunity to accumulate cash value to help with Lance s college expenses down the road. Eric also has an insurable interest on Lance. Eric will pay a higher premium for insurance than he would if he bought the policy on Lance, but life insurance on Eric will also provide the possibility for more cash value to accumulate for the future and provide a death benefit to pay for Lance s education if something happens to Eric. 2 This hypothetical example is provided for illustrative purposes only. Characters are fictional and are not actual Allianz clients. 2 Minors don t usually have the capability nor the legal rights to deal with the policy death benefits. To resolve this problem a trust could be established by the parents for the benefit of the child and the trust could be named as the policy death benefit beneficiary. 4 Page 6 of 8

7 Here s an example. Eric purchases an Allianz Life Pro+ Fixed Index Universal Life Insurance Policy with a $250,000 death benefit. 2. Because Eric is in the Preferred Nontobacco risk class, his target annual premium is $, But Eric chooses to pay $5,000 in annual premium, to help his potential cash value accumulate more quickly. 5. He takes policy loans for five years, which helps pay for Lance s college education Based on the guaranteed minimum interest rate of 2% and guaranteed maximum fees and charges, he would be able to take policy loans of $25,000 per year for two years, and then the policy would lapse. 3. Eric pays $5,000 in premium for 6 years. 4. In year 7 of the policy, based on the current illustrated rate of 8%, Eric is able to take $25,000 per year in policy loans. 2 Annual premium for 6 years $5,000 8% illustrated rate 2% minimum guaranteed rate 3 Cash value at age 46 $26,043 $64,973 Annual income starting at age 47 via policy loans 2 $25,000 per year for 5 years $25,000 per year for 2 years Based on historical performance, depending on the index allocation options chosen, had they been available, would have resulted in a wide range of interest rates. Some would have exceeded 8% and some would have been less than this. Keep in mind that different time periods and different indexes will produce higher or lower averages. The interest rate credited is based on the caps, participation rates, or spreads in the policy and is subject to change on any anniversary based on several external factors including, but not limited to, market volatility, short-term interest rates, and long-term interest yields. See the contract for more details. 2 Policy loans and withdrawals will reduce available cash values and death benefits and may cause the policy to lapse, or affect guarantees against lapse. Additional premium payments may be required to keep the policy in force. In the event of a lapse, outstanding policy loans in excess of unrecovered cost basis will be subject to ordinary income tax. Tax laws are subject to change and your clients should consult a tax professional. 3 Assumes a guaranteed interest rate of 2%, guaranteed maximum premium charges, maximum expense charges, maximum cost of insurance rates, and credited bonuses, if applicable. Page 7 of 8

8 True to our promises so you can be true to yours. A leading provider of annuities and life insurance, Allianz Life Insurance Company of North America (Allianz) bases each decision on a philosophy of being true: True to our strength as an important part of a leading global financial organization. True to our passion for making wise investment decisions. And true to the people we serve, each and every day. Through a line of innovative products and a network of trusted financial professionals, and with over 2.2 million contracts issued, Allianz helps millions of people as they seek to achieve their financial and retirement goals. Founded in 896, Allianz is proud to play a vital role in the success of our global parent, Allianz SE, one of the world s largest financial services companies. While we pride ourselves on our financial strength, we re made of much more than our balance sheet. We believe in making a difference with our clients by being true to our commitments and keeping our promises. People rely on Allianz today and count on us for tomorrow when they need us most. Guarantees are backed solely by the financial strength and claims-paying ability of Allianz Life Insurance Company of North America. Product and feature availability may vary by state. Products are issued by: Allianz Life Insurance Company of North America PO Box Minneapolis, MN P54350 M-5287 (R-/202) Page 8 of 8