THE KUGLER SYSTEM -- VOLUME 1 A SUMMARY OF LIFE INSURANCE PRODUCTS TABLE OF CONTENTS Introduction Assumptions Used in This Text Chapter I: Basic Forms of Term Insurance Annual Renewable Term Insurance with Conversion Right Guaranteed Level Term Insurance with Conversion Right Decreasing Term Life Insurance with Conversion Right Chapter II: Ordinary Whole Life Insurance The Construction of an Ordinary Whole Life Insurance Policy Using Dividends to Reduce Premiums Using Dividends to Accumulate Cash Using Dividends to Purchase Single Premium Paid-Up Additions Using Paid-Up Dividend Additions and Future Dividends to Pay Policy Premiums Failure of a Whole Life Policy to Perform in Accordance with Original Illustration from Inception of Policy Failure of a Whole Life Policy to Perform in Accordance with Original Illustration after Crossover Year Using Paid-up Additions Rider and Paid-Up Dividend Additions to Pay Future Premiums Using a Lump Sum and Paid-up Additions Rider plus Dividends to Pay Future Premiums Using the Additional Insurance (Fully Funded) Rider to Increase the Death Benefit Using the Additional Insurance (Minimum Funded) Rider to Increase the Death Benefit Using Additional Insurance Rider to Pay Policy Premiums Failure of Additional Insurance Rider to Perform in Accordance with Original Illustration from Inception of Policy Failure of Additional Insurance Rider to Perform in Accordance with Original Illustration after Crossover Year Using a Lump Sum Premium and the Additional Insurance Rider to Pay Future Policy Premiums Life Paid-Up at Age 65 Cash Value Build-Up Using the Annual Renewable Term Rider and Converting the Rider in Future Years Non-Participating Whole Life Using a Rider on a Whole Life Policy that Provides a Blended Dividend Option to Increase the Death Benefit to a Specified Target Amount** Chapter III: Flexible Premium (Universal) Life Insurance The Construction of a Flexible Premium Life Insurance Policy Funding the Policy Value to Equal the Face Amount at Age 121 Minimum Funding to Maintain the Death Benefit to Age 121 The Difference between Funding to Preserve the Death Benefit and Funding the Cash Value to Equal Face Amount at Age 121 Advance Funding of Policy Values to Equal Face Amount and Pay Future Policy Charges Advance Funding of Policy Values to Pay Future Policy Charges Failure of Policy to Perform in Accordance with Original Illustration from Inception of Policy Failure of Policy to Perform in Accordance with Original Illustration after Crossover Year Using a Supplemental Lump Sum Premium to Allow the Cash Value to Equal the Face Amount and Pay Future Charges Stop and Go Funding Providing a Death Benefit Equal to the Face Amount plus the Cash Value (Option 2)
Using the Additional Term Life Insurance Rider to Increase the Death Benefit on a Fully Funded Flexible Premium Policy Return of Premium Death Benefit Option Adjustable Life Insurance and the Premium to Guarantee the Death Benefit Adjustable Life with an Inflation Rider Chapter IV: Secondary No-Lapse Guarantee of the Death Benefit The Insured Attains Age 100 with Pure Life Insurance Protection Remaining Under an Existing (Older) Flexible Premium Policy Withdrawal of Cash Value in a Flexible Premium Policy if the Insured Attains Age 100 Secondary No-Lapse Guarantee of the Death Benefit (Shadow Account Structure) Limited Pay Secondary No-Lapse Guarantee (Shadow Account Structure) Limited Duration Secondary No-Lapse Guarantee** Secondary Guarantee of the Death Benefit (Premium Account Structure) Secondary Guarantee of the Death Benefit for a Specified Number of Years Impact of Actual Policy Experience on the Secondary No-Lapse Guarantee Policy Primary No-Lapse Guarantee vs. Secondary No-Lapse Guarantee (Policy Account vs. Shadow Account) Primary No-Lapse Guarantee vs. Secondary No-Lapse Guarantee (Premium Comparison) Guaranteed Death Benefit Design vs. Cash Accumulation Design Younger Age Guaranteed Death Benefit Design vs. Cash Accumulation Design Older Age A Two Tier Approach to Providing a Secondary Lifetime Guarantee of the Death Benefit Determining the Revised No-Lapse Premium in Situations Where the Policyowner has Never Paid the Specified No-Lapse Premium The Secondary No-Lapse Guarantee with a Cash Value Enhancement Rider Utilizing the Catch-Up Option for Missed Premiums (Shadow Account Guarantee) Utilizing the Catch-Up Option for Premiums Paid After the Specified Premium Date (Shadow Account Guarantee) Utilizing the Catch-Up Option for Missed No-Lapse Premiums (Premium Based Guarantee) Utilizing the Catch-Up Option for Premiums Paid After the Specified Premium Date (Premium Based Guarantee) Secondary No-Lapse Guarantee with an Additional Account for Supplemental Premium Payments IRR on Death (Secondary No-Lapse Guarantee Policy) No Policy Provision Stating Amount of No-Lapse Premium to Guarantee the Death Benefit Chapter V: Variable Life Insurance The Construction of a Flexible Premium Variable Life Insurance Policy Fixed Premium Variable Life with Guaranteed Death Benefit Equity-Indexed Universal Life Insurance Chapter VI: Survivorship Life Insurance The Construction of a Survivorship Life Policy Ordinary Survivorship Whole Life Design Flexible Premium Survivorship Life Policy Design Ordinary Survivorship Whole Life Design with a Cash Value Increase at the First Death Survivorship Life with a First-To-Die Rider Survivorship Life in a Non-Marital Business Situation Joint and First-to-Die Life Insurance Minimum Funding to Maintain the Survivorship Life Death Benefit in Early Years
Chapter VII: Long Term Care Insurance and Chronic Illness The Need for Long-Term Care Planning Single Premium Life Policy with Linked LTC Benefits plus a Guaranteed Lifetime Return of Premium and Death Benefit Substantially Greater than the Premium Life Insurance with an LTC Rider and Guaranteed No-Lapse Premium Structuring an Accelerated Death Benefit to Include a Chronic Illness Benefit that Provides an Indemnity Payout with Charges Paid via a Discounted Payout Structuring an Accelerated Death Benefit to Include a Chronic Illness Benefit that Provides an Indemnity Payout with Charges Paid via a Lien on the Policy Including an Enhanced Accelerated Benefit Rider on a Traditional Single Life Policy Using an ILIT to Own a Life Policy with an Accelerated Death Benefit Rider that Includes a Chronic Illness Provision Chapter VIII: Definition of Life Insurance and Special Distribution Rules The Primary Advantages and Disadvantages of Term, Ordinary, Flexible Premium, Secondary No-Lapse Guarantee and Variable Life Insurance Qualification of a Contract as Life Insurance Modified endowment contracts (MEC s) Using Maximum Payments to the Paid-Up Insurance Rider to Enhance Ordinary whole life Cash Accumulation Structuring Substantial Level Premiums to a Flexible Premium Policy (Cash Value Accumulation Test vs. Guideline Premium /Cash Value Corridor Test) Structuring Maximum Premiums to a Flexible Premium Policy (Cash Value Accumulation Test vs. Guideline Premium/Cash Value Corridor Test) Single Premium Ordinary Whole Life Substantial Under-Payment of Guideline Premium May Prohibit Option to Adequately Fund the Policy in Future Years Partial Surrender of an Ordinary Whole Life Policy with a Built-In Gain during the First Five Policy Years Partial Surrender of a Flexible Premium Life Policy with a Built-In Gain during the First Fifteen Policy Years Fifteen-Year Force-Out Rule Glossary
THE KUGLER SYSTEM VOLUME 2 A SUMMARY OF LIFE INSURANCE APPLICATIONS AND TAX ASPE TABLE OF CONTENTS Introduction Assumptions Used in This Text Chapter I: Special Policy Considerations Cost Indices for Cash Accumulation and Death Benefit Increasing the Death Benefit for a Flexible Premium Life Policy The Rapidly Deteriorating Flexible Premium Life Policy Termination of an Ordinary Whole Life Policy Just Prior to the Anniversary Date Ordinary Whole Life Insurance Dividends Waiver of Premium Ordinary Whole Life Policy Waiver of Charges Flexible Premium Policy Ordinary Whole Life Policy Loans Flexible Premium Policy Loans Variable Life Policy Loans The Automatic Premium Loan (APL) Payment Election and Non-Forfeiture Options for Ordinary Whole Life Policies An Automatic Premium Loan (APL) Provides a Viable Option on an Ordinary Life Policy that May Cause a Subsequent Undesired Taxable Event Minimizing the Subsequent Contributions to Maintain a Policy with a Substantial Gain and a Maximum Loan to Prevent a Lapse Accelerated Death Benefit and/or Long-Term Care Rider Death Benefit Settlement Options Chapter II: Tax Aspects Notice and Consent Requirements to Have the Employer Owned Life Insurance Death Benefit Exempt from Income Tax Tax Aspects of the Death Benefit Received by the Beneficiary Tax Aspects of Lifetime Distributions from a Life Insurance Policy Surrender of a Policy with a Gain and a Policy with a Loss in the Same Year Partial Surrender of Policy Cash Value Ordinary Whole Life Policy Partial Withdrawal of Policy Cash Value Flexible Premium Policy Partial Surrender to Cost Basis Determining Cost Basis on a Life Policy with a Term Rider Partial Surrender of an Ordinary Whole Life Policy with Paid-Up Dividend Additions Tax-Free Withdrawal of Paid-Up Dividend Additions to Fund College Tuition Payments Income Tax Aspects When a Policy Lapses with a Loan Greater than Cost Basis The Part Gift and Part Sale Result when Gifting a Policy with a Loan Greater than the Cost Basis The Transfer-for-Value Rule Determining the Gift Value on a Policy with a Secondary Death Benefit Guarantee Gift Tax Valuation for a Life Insurance Gift The Inadvertent Gift of Life Insurance Death Proceeds (Different Policyowner, Insured and Beneficiary) The Purchase of a New Life Insurance Policy and the Three-Year Rule (IRC Section 2035) Sale of a Life Policy to a Grantor Trust to Circumvent the Three-Year Rule The Life Insurance Death Benefit and the C Corporation Alternative Minimum Tax Income Tax Aspects When a Policy Cash Value Equals Face Amount at Age 100 The Insured Attains Age 100 with Pure Life Insurance Protection Remaining under the Additional Insurance Rider Transfer of Life Insurance under a Divorce Decree
Chapter III: IRC Section 1035 Exchanges Tax-free Exchange under IRC Section 1035 IRC Section 1035 Exchange when the Existing Policy Does Not Have a Gain Qualifying a Current and Deferred Policy Exchange under IRC Section 1035 Restructuring Policy Loans Prior to a Section 1035 Exchange IRC Section 1035 Exchange via Carryover or Termination of Existing Loan Tax Aspects of a Partial Surrender on a Section 1035 Exchange with a Built-In Gain to Extinguish a Policy Loan Deferring the Section 1035 Rollover to Prevent Current Income Taxation on a Partial Surrender The Inadvertent Taxable Distribution on an IRC Section 1035 Policy Exchange Exchange of an Older Flexible Premium Policy for a Secondary No- Lapse Premium Policy Review of Life Insurance Policy Design and Amount to Determine if they are Consistent with the Estate Owner's Current Estate Objectives Implementing and IRC Section 1035 Exchange on an Existing Policy with Substantial Cash Value when the Policyowner s Objective is to Either Reduce the Premium or Increase the Death Benefit An IRC Section 1035 Transfer of an Ordinary Life Policy That Is Paid-Up Via Non-Guaranteed Dividends A Section 1035 Transfer of a Non-Participating Whole Life Policy to a Policy with a Secondary Death Benefit Guarantee An IRC Section 1035 Exchange on an Ordinary Survivorship Life Policy that is Paid-Up via Non- Guaranteed Dividends Implementing an IRC Section 1035 Exchange on a Survivorship Life Policy after One Insured Becomes Uninsurable Implementing an IRC Section 1035 Transfer on a Survivorship Life Policy after the First Spouse has Died A Section 1035 Exchange of an Ordinary Life Policy with an Additional Insurance Rider Why It May Be Economically Viable to Carry Over the Policy Loan on an IRC Section 1035 Transfer IRC Section 1035 Exchange of a Policy with an Outstanding Loan and Subsequent Partial Surrender of the Loan Amount Implementing a Section 1035 Exchange to a Policy Designed to Provide Cash Accumulation and Retirement Benefits Analysis of a Retirement Policy after the IRC Section 1035 Exchange IRC Section 1035 Exchange of a MEC Policy with Outstanding Loan to Minimize Income Tax on Partial Surrender to Pay off Loan Chapter IV: Split Dollar Applications Split Dollar Economic Benefit Arrangement (Employer Owns Policy Cash Value) Split Dollar Economic Benefit Arrangement (Irrevocable Trust Owns Policy) Split Dollar Loan Arrangement (Interest Not Paid on Premium Loan) Split Dollar Loan Arrangement (Interest Paid on Premium Loan) Split Dollar Life Insurance for the Owner of the Pass-Through Tax Entity Paying the Term Cost via a Dividend under Split Dollar for a Sole Stockholder of a C Corporation Private Split Dollar Family Split Dollar Chapter V: Life Insurance Product Applications and Uses Paying Premiums on a Flexible Premium Life Policy when the Insured is Terminally Ill Wash Loans and the Overloan Protection Rider The Advantages of Using Policy Withdrawals and Subsequent Policy Loans to Provide Retirement Income Review of the Ongoing Policy Illustration after Substantial Loans Have Been Taken from the Life insurance Policy to Fund the Retirement Payout The Advantage of Including the Overloan Protection Rider in Situations Where Life insurance is used to Fund a Retirement Payout via Policy Withdrawals and Subsequent Policy Loans
Minimizing the Death Benefit in Situations where the Objective is to maximize the Policy Cash Accumulation and Subsequent Retirement Payout Surrender to Cost Basis to Fund Supplemental Retirement Income Using Life Insurance to Create an Estate Using Life Insurance to Equalize the Estate Bequest to the Children Analysis of Using Cash Value Life Insurance or Section 529 Plan as a College Savings Vehicle Cash Value Life Insurance as a College Savings Vehicle Using a Life Policy to Cover Family Income Needs, Provide a College Education Fund, and a Supplemental Retirement Fund Chapter VI: Premium Financing Premium Financing Paying Loan Interest on a Policy Designed to Provide Sufficient Lifetime Value to Fund the Loan Repayment and Ongoing Premiums Comparing the Utilization of a Commercial Loan to Pay Life Insurance Premiums to Paying Full Premiums Using a Business Entity as an Exit Strategy when Third-Party Financing of Life Insurance Premiums is Desired (Part 1) Using a Gift/Sale of an Income Producing Asset to a Grantor Trust as the Lifetime Strategy to Pay off the Premium Loan (Part 2) A Combination Gift and Loan Arrangement to Finance the Purchase of a Life Insurance Policy Owned by an ILIT (Part 1) Using an ROP Rider to Pay the Premium Loan (Part 2) Utilizing a 1035 Exchange and Policy Values as Collateral to Obtain Third Party Financing of Life Insurance Premium (Part 1) Paying off the Loan for the Premium Payments at the end of 20 Years via Accumulated Policy Values (Part 2) Third Party Financing to Fund Life Insurance Premiums Payable to an ILIT on a Term Conversion (Part 1) Using an S Corporation to Fund a Zero Gift GRAT to Provide a Lifetime Exit Strategy to Pay off the Premium Loan (Part 2) Using Third-Party Financing to Fund the Extra Premium Attributable to a Medical Surcharge on a Life Insurance Policy (Part 1) Using Listed Securities to Fund a Series of Zero Gift Rolling GRATs to Provide a Lifetime Exit Strategy to Pay off the Premium Financing Loan (Part 2) A Dual Loan (Private and Commercial) Arrangement to Finance the Purchase of a Life Insurance Policy Owned by an ILIT (Part 1) Paying off the Dual Loan from the Life Insurance Death Proceeds (Part 2) Repositioning Assets to Provide Enhanced Life Insurance Benefits Repositioning an Existing Annuity to Enhance the Estate Distribution via Life Insurance (Joint Life) Repositioning an Existing Annuity to Enhance the Estate Distribution via Life Insurance (Single Life) Converting to an Annuity Payout in Lieu of Accumulating an Existing Annuity to Enhance the Estate Distribution via Life Insurance (Joint Life) Converting to an Annuity Payout in Lieu of Accumulating an Existing Annuity to Enhance the Estate Distribution via Life Insurance (Single Life) Utilizing an IRA to Structure a Lifetime annuity Payout to Enhance the Estate Distribution via Life Insurance (Joint Life) Utilizing an IRA to Structure a Lifetime annuity Payout to Enhance the Estate Distribution via Life Insurance (Single Life) Converting Municipal Bonds to an Immediate Annuity to Enhance the Estate Distribution via Life Insurance (Joint Life) Converting Municipal Bonds to an Immediate Annuity to Enhance the Estate Distribution via Life Insurance (Single Life) Glossary