Life Insurance Funding Solutions for Affluent Individuals
DGS’ solutions for individual life insurance premium funding deliver significant advantages for Clients interested in estate planning and long-term capital creation.
DGS provides cutting edge solutions and efficient lending platforms to Clients by working closely with industry specialists in structuring premium funding transactions. DGS’s long time finance partners have structured and financed more than $4 billion of life insurance benefits over the last decade.
DGS Clients are able to borrow funds to pay life insurance premiums at historically low, fixed rates. Combined with the high crediting rate performance of leading life insurance product designs, Clients have a unique opportunity to accomplish their estate planning and capital creation objectives.
The specialization of DGS’ funding models requires that Clients meet certain financial criteria when structuring funded life insurance transactions, including:
- Personal net worth is at least $3 million
- Liquid assets are at least $500,000
- Current documented income is at least $250,000 per year
Advantages for Clients
- Low cost institutional premium funding methods are available, which can save Clients as much as 95% when compared with non-funded payment alternatives
- DGS sources life insurance from an array of reputable U.S. providers
- Much of the required collateral under the selected funding strategy can be satisfied by the insurance policy cash values within the insurance policies
- Clients can address any collateral shortfalls by posting cash, marketable securities, or by providing personal guarantees
Insurance Designs: Flexible Terms, Attractive Results
Indexed Universal Life (IUL) insurance products provide flexible-premium permanent life insurance that contains both a death benefit component and a cash value accumulation component. What differentiates IUL from other types of permanent life insurance product designs is the potential for consistent, strong growth in policy cash values.
Under the IUL design, annual growth in insurance policy cash values is tied to the “cap” percentage growth in one or more stock market indices selected by the Client, but is never less than the minimum or “floor” percentage stated in the insurance contract. While history is not a predictor of future growth, historical IUL cash value account growth has averaged above 7.5% per annum.
The following chart depicts the key elements in determining the annual growth in IUL insurance policy cash values.
Implementation Steps in Financed IUL Transactions
Client transaction objectives are determined at the outset by reviewing the Client’s current financial situation and by considering the anticipated need for the insurance proceeds. From that information, a customized premium funding plan can be designed for the Client.
- Insurance carrier premium funding guidelines are satisfied by the Client, including receipt of the past 3 years of tax returns and other requested financial information
- Once the financial vetting is complete, DGS works closely with the Client and advisors to identify eligible assets to post as collateral under the premium funding strategy
- The process then shifts to the life insurance underwriting steps, including
- Illustrations developed by the insurance carrier based on the customized plan design
- Client and advisors complete and submit an insurance application to the carrier for its review
- Medical or paramedical examinations scheduled for the Client and medical records are collected and verified
- Carrier’s underwriting offer determines the schedule of premiums to be funded
Frequently Asked Questions
Is it typical for affluent individuals to use premium funding techniques for their individual life insurance premium payments?
Yes, this practice is frequently used, with nearly all reputable U.S. insurance carriers allowing their insured Clients to use certain forms of premium funding. Further, DGS can provide Clients access to a growing array of specialized funding methods not generally available in individual life insurance markets.
Who should purchase an Indexed Universal Life (IUL) insurance policy?
A financially sophisticated person who understands an IUL policy’s pros and cons is the typical purchaser of this product design. Clients should also have a need for permanent life insurance protection, need to fund an estate in connection with estate taxes, desire to leave money to their children or grandchildren, want to supplement their retirement income, or want to maintain the lifestyles of their loved ones at the Client’s death.
Why is Indexed Universal Life an attractive form of permanent life insurance?
Current IUL products have proven to be capable of delivering consistent, strong policy cash value growth due to the associated index cap feature, with limited downside risk for Clients due to the contractual floor.
What are the current rates of return under IUL insurance policies?
The crediting rates of many of our individual IUL insurance policies have a floor of 0% (or higher) and a cap between 12% and 17% per contract year, depending on the insurance policy. The rate is driven by the performance of the indices selected by the Client. Historically, IUL cash value growth has averaged above 7.5% per annum.
Will a Client be required to post collateral in order to fund their IUL policy?
Yes, but much of the collateral can be satisfied by the policy cash value account. The “shortfall collateral” may be met by the Client posting cash, marketable securities, or other assets acceptable to the funding source.
Will Clients maintain control of assets pledged as shortfall collateral?
Yes. For example, interest on bonds or dividends on common stock pledged as collateral would continue to be received by the Client during the period of time that they are pledged under the premium funding solution.
Will the amount of shortfall collateral decline over time?
As the cash value account grows year-over-year, the amount of shortfall collateral required to be posted by the Client should decline.
What are some other advantages of an IUL policy?
Policy loans are allowed and generally free of income taxes. The cash value account under the life insurance will grow with income taxes deferred, like under an Individual Retirement Account. There are no limits to the amount of money you can contribute each year. At the death of the insured, the death benefit is not subject to a lengthy probate process, as the face amount is paid directly to the policy beneficiary. IUL’s permit tax free exchange of one policy for another.
Are there risks under DGS’ funding strategies?
The major risk to IUL Clients is whether the IUL policy crediting rates will exceed the mortality and expense risk charges, the cost of insurance charges, and other expenses associated with the IUL contract design. If the expenses are too great, additional shortfall collateral may be required. As long as historical cash value growth trends continue, this risk should be mitigated.
Are the insured Clients required to undergo medical underwriting?
Yes. Due to the size of Client estates and the large amount of insurance typically requested under this kind of life insurance purchase, the insurance carriers perform a complete medical and financial underwriting screen before accepting Clients as insured lives.
Disclaimer:
Information regarding life insurance funding solutions for affluent individuals is provided only to inform qualified individuals of the availability of this program. This information is not an invitation or offer to purchase or enter into a business agreement or transaction. Participation requires the proposed insured to submit financial and other underwriting criteria in order to be considered for the program.
For more information regarding DGS’ individual life insurance solutions, please contact:
Larry Walters
EVP – Admin, Operations & Chief Actuary
Email: lwalters@diversifiedgrowthsolutions.com
Telephone: 203.979.1216
John Schilhab
President & CEO
Email: jschilhab@diversifiedgrowthsolutions.com
Telephone: 210.262.0042
