Advisor Alert: Potential Window of Opportunity
As we continue to navigate uncharted waters, planning opportunities utilizing life insurance still abound for wealthy families and business owners. Here are some key items to keep in mind for your clients:
Open for Business: Top rated insurance carriers continue to write new business and fulfill claims. Many carriers are making it easier for clients to acquire coverage by increasing death benefit and age restrictions for their automated underwriting programs, which can help clients obtain coverage electronically, potentially without exam and medical record requirements. Some carriers are also willing to waive insurance exams on a case-by-case basis, and almost all carriers have embraced technology in some way to streamline policy deliveries for clients.

Grantor Trusts + Life Insurance: The applicable federal rate (AFR) for mid-term loans is just 0.58% for May. Rates this low can provide substantial leverage for clients, making strategies such as an intentionally defective grantor trust (IDGT) and a grantor retained annuity trust (GRAT) attractive planning vehicles. An IDGT can be structured to house insurance, thereby using earnings from the trust to pay premiums, and allowing the assets and the life insurance inside the trust to pass income and estate tax free to trust beneficiaries. A GRAT can be a flexible planning tool that may fund an irrevocable life insurance trust (ILIT). If a GRAT names an ILIT as beneficiary, a funding tool can be created to pay life insurance premiums, thus avoiding gift taxes or use of exemptions.

Premium Financed Life Insurance: Clients that understand and accept the risks associated with a leveraged strategy may find premium financed life insurance an attractive option to consider. In this strategy, a trust applies for the life insurance as owner and beneficiary of the policy (the client/grantor is the insured). The lender (bank) loans annual premiums to the trust. The grantor gifts the annual interest cost to the trust each year, and the trust in turn pays the loan interest to the lender. Since the loan continues to accumulate, the life insurance must be specially designed to accommodate this growing debt. The most attractive part of this strategy for clients is that the cash flow requirement for the annual loan interest cost is typically much less than the annual premium, which in turn may create very compelling rates of return at life expectancy. 

Exit Strategies for Existing Insurance: Clients experiencing a cash flow crunch may want to evaluate ways to reduce or eliminate the burden of life insurance premiums. Through a complimentary third-party review, we can help clients analyze an existing policy to evaluate ways to potentially reduce the premium spend. In the context of this review, we can assess whether a life settlement may be a viable option to consider. A life settlement may be able to provide a policy owner with a cash value that is much higher than the value that would have been received if the policy was otherwise surrendered.  A client may be a good candidate for this strategy if the client no longer needs or wants an existing life insurance policy, is over age 70, has had a change in health since the policy was issued, and has a permanent or term policy.

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