Who offers life insurance for 80 year olds?

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PostPosted: Sat Apr 18, 2009 11:34 am   Post subject:   

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We're writing up a case today for an 81-year-old....backdating to age 80 gives him $250k guaranteed forever for $13k/year or guaranteed for 10 years for $9500/year. The funds will be used to allow the spouse (who is 20 years younger) to continue paying the $11k/year premiums for a second-to-die policy for estate tax purposes once he is gone. Should fund the following ~23 years worth of premiums at no additional expense to her other than what was paid in premiums for the life policy on the husband. So yes, it does work in some cases, just not every case.




Can you explain this case a little bit more? I'm having trouble completely understanding it, but it sounds intriguing.



There are two policies. One is a GUL on an 80 year old male for $250,000 of coverage for 13K a year. The other is a second to die for 11K/year.



Has the GUL gone through underwriting? I'm asking because that is a great rate if you can get it with a strong carrier.



Who is the owner and who is the beneficiary of the GUL policy?



What type of policy is the 2nd to die policy?

What is the death benefit of the 2nd to die policy?

Who is the owner and beneficiary of the 2nd to die policy?



I appreciate your time with this. Thanks!
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PostPosted: Sat Apr 18, 2009 9:12 pm   Post subject:   

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I read somewhere that if someone does not qualify for other life insurance policies, FE would be a good option. So is there supposed to be an age limit before which I wouldn't qualify for FE? Or can I at 50 get FE?





Yes Sil, you can at age 50, not a problem. But you should know that, you are an agent aren't you?


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PostPosted: Sat Apr 18, 2009 9:23 pm   Post subject:   

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Can you explain this case a little bit more? I'm having trouble completely understanding it, but it sounds intriguing.



There are two policies. One is a GUL on an 80 year old male for $250,000 of coverage for 13K a year. The other is a second to die for 11K/year.



Has the GUL gone through underwriting? I'm asking because that is a great rate if you can get it with a strong carrier.



Who is the owner and who is the beneficiary of the GUL policy?



What type of policy is the 2nd to die policy?

What is the death benefit of the 2nd to die policy?

Who is the owner and beneficiary of the 2nd to die policy?



I appreciate your time with this. Thanks!




The GUL has not gone through underwriting yet - if it does not fly at preferred rates (which it should), they will likely not place the individual policy and only worry about the second-to-die policy. Their concern was that after the husband dies, the wife may not be able to pay the $11k/year premiums for the second to die policy. Both John Hancock and Lincoln National are right around $13,800 per year for the GUL. Husband will own the policy on himself with wife as beneficiary. The 2nd to die policy premium is so cheap because the spouse is 20 years younger, and has a $1 million death benefit for estate tax purposes. The owner and beneficiary of the second-to-die policy is an irrevocable trust. If husband gets approved at $13k/year for the individual policy, the proceeds will be used by the wife to continue gifting the second-to-die premiums to the trust, which will pay the second-to-die premiums. Hope that makes sense.

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PostPosted: Sat Apr 18, 2009 9:24 pm   Post subject:   

That was me making the above post, guess I wasn't logged in.

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PostPosted: Sun Apr 19, 2009 3:24 am   Post subject:   

hi dgoldenz,



The above case explained by you is surely a nice example of an exception.These cases do happen but rarely.But still i will appreciate that in a way, suppose somebody asks me whether some insurance company can offer a life insurance to 80 yr old guy/gul.? so my answer will be yes.



You have explained that it is affordable to go for $13,800 per year premium.But i honestly think that it is not affordable to each and every guy/gul who is a senior citizen.



Thanks

Keep in touch Wink



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PostPosted: Sun Apr 19, 2009 3:49 am   Post subject:   

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You have explained that it is affordable to go for $13,800 per year premium.But i honestly think that it is not affordable to each and every guy/gul who is a senior citizen.




Of course not....very few people at that age can afford such a large sum of money for just insurance. Keep in mind that while the husband (the 80 year old) is living, he is paying the $13,800 per year for the personal coverage in addition to the $11,000 per year for the second-to-die policy for a total annual outlay of nearly $25k. The idea is that once he is gone, the wife receives $250k income tax free to be used for the remaining second-to-die premiums. That amount would buy approximately 22 years of premiums after his death without consideration for interest earned on the principal.
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PostPosted: Sun Apr 19, 2009 4:49 am   Post subject:   

surely this is a nice savings if one goes for second-to-die premiums.Great saving but only one condition it should be second to die premium.



Thanks again for the detailed clarification.



As some of the senior members will surely give a thought while considering a life insurance. Wink



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PostPosted: Sun Apr 19, 2009 5:05 am   Post subject:   

I think you're missing the point of the second-to-die policy...

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PostPosted: Sun Apr 19, 2009 11:46 am   Post subject:   

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The GUL has not gone through underwriting yet - if it does not fly at preferred rates (which it should), they will likely not place the individual policy and only worry about the second-to-die policy. Their concern was that after the husband dies, the wife may not be able to pay the $11k/year premiums for the second to die policy. Both John Hancock and Lincoln National are right around $13,800 per year for the GUL. Husband will own the policy on himself with wife as beneficiary. The 2nd to die policy premium is so cheap because the spouse is 20 years younger, and has a $1 million death benefit for estate tax purposes. The owner and beneficiary of the second-to-die policy is an irrevocable trust. If husband gets approved at $13k/year for the individual policy, the proceeds will be used by the wife to continue gifting the second-to-die premiums to the trust, which will pay the second-to-die premiums. Hope that makes sense.






Thanks. I now understand what you are doing. Unfortunately, now that I understand what you are doing, I can't understand why you are doing this.



I understand the 2nd to die aspect of this. This is obviously a couple who will have an estate tax problem and want to leave money behind at death.



When the husband dies, why would continuing to pay the insurance premiums be any sort of issue for the wife? She'll have several million dollars in assets just like they had before her death. Before the husband dies, they'll be paying $24,000/year in premiums. After he dies, the premiums will be $9,000. Why would they be able to afford $24,000, but not $9,000? This only makes sense to me if the premium dollars are coming from income that he is receiving that would disappear at his death. There seems to be a problem if someone is going to have several million dollars in assets and can't afford a $9,000 insurance premium.



Assuming that I'm missing something and the money is needed to pay for the premiums of the wife's policy, I can't fathom a reason why the husband would be the owner and beneficiary of his policy. The policy will be $250,000. Let's make this convenient and say that the death benefit will kick off $9,000 of interest which will be used to pay the premiums on the 2nd to die policy. At the 2nd death, she will have $250,000 more than she otherwise would have had, which will increase the estate tax due at her death by about $125,000.



Again, I understand that I'm missing information, but here are two solutions that may be better and will have minimal or no impact on your commission.



1) The Husband's policy should not be owned by him. It should also be owned by a trust or direct by the beneficiaries of the trust. This way when he dies, the money will already be out of the estate. This money can then still be used to pay the premiums on the 2nd to die policy. This ultimately means that $125,000 more will go to the beneficiaries than how it is currently being structure.



2) I like this solution better. If the husband can get preferred rates on his policy, he probably has a life expectancy of 12+ years and has a realistic chance of living into his late 90's. This means that it is very possible that $24,000 of premiums will be needed for the next 15+ years. Why not take the same $24,000 and put it in a 2nd to die policy? This will buy a $1,000,000 2nd to die policy that only needs 10 years of premium payments on a guaranteed basis.



Ex. Husband lives to 93 and wife lives to 85. Doing it your way, the total premiums will be $24,000 for 13 years and then $9,000 for 11 years making the total premium $411,000. My way, the total premium is $240,000.
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PostPosted: Sun Apr 19, 2009 3:00 pm   Post subject:   

Very good insight, but there are a few things you are missing:



Quote:


When the husband dies, why would continuing to pay the insurance premiums be any sort of issue for the wife? She'll have several million dollars in assets just like they had before her death. Before the husband dies, they'll be paying $24,000/year in premiums. After he dies, the premiums will be $9,000. Why would they be able to afford $24,000, but not $9,000? This only makes sense to me if the premium dollars are coming from income that he is receiving that would disappear at his death. There seems to be a problem if someone is going to have several million dollars in assets and can't afford a $9,000 insurance premium.




The husband is still working and generating a large income, and will probably continue to work until he is no longer physically able to. The wife does not work, and would have no income upon his death. Having several million dollars in assets also does not directly translate into having several million dollars in LIQUID assets. This is a common scenario with people who own a lot of real estate - they're property rich and cash poor but still have an estate tax to pay.



Quote:
Assuming that I'm missing something and the money is needed to pay for the premiums of the wife's policy, I can't fathom a reason why the husband would be the owner and beneficiary of his policy. The policy will be $250,000. Let's make this convenient and say that the death benefit will kick off $9,000 of interest which will be used to pay the premiums on the 2nd to die policy. At the 2nd death, she will have $250,000 more than she otherwise would have had, which will increase the estate tax due at her death by about $125,000.




The individual policy may yet be placed in trust - that is for his estate planning lawyer to decide and will depend on the actual assets and how the estate tax laws play out. If they freeze the amount at $3.5 million per person, there will be no issue here.



Quote:
Again, I understand that I'm missing information, but here are two solutions that may be better and will have minimal or no impact on your commission.



1) The Husband's policy should not be owned by him. It should also be owned by a trust or direct by the beneficiaries of the trust. This way when he dies, the money will already be out of the estate. This money can then still be used to pay the premiums on the 2nd to die policy. This ultimately means that $125,000 more will go to the beneficiaries than how it is currently being structure.



2) I like this solution better. If the husband can get preferred rates on his policy, he probably has a life expectancy of 12+ years and has a realistic chance of living into his late 90's. This means that it is very possible that $24,000 of premiums will be needed for the next 15+ years. Why not take the same $24,000 and put it in a 2nd to die policy? This will buy a $1,000,000 2nd to die policy that only needs 10 years of premium payments on a guaranteed basis.



Ex. Husband lives to 93 and wife lives to 85. Doing it your way, the total premiums will be $24,000 for 13 years and then $9,000 for 11 years making the total premium $411,000. My way, the total premium is $240,000.




What you're missing here is that the total premium in the first scenario is $411,000, but they received a $250,000 death benefit after the husband's death, making their net cost $161,000 versus the $240k in the second example. Unless the husband lives for 20+ years and pays the entire death benefit in premium, they would come out ahead on the individual policy (setting aside interest income lost). The rub is what happens if he dies in year 1 or 2 of the policy - in your scenario, she continues forking out $24k/year that she may not be able to pay. In our scenario, she gets $250k and can easily pay the $11k/year premiums on the second-to-die.
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PostPosted: Sun Apr 19, 2009 4:01 pm   Post subject:   

Thanks for continuing the dialog. Obviously, I'm commenting without knowing very many facts. One of the things that strikes me is that there is cash flow issue that doesn't sound like it is being solved.



His income is needed. The wife won't have much income when he dies, so his death benefit will be needed to continue paying premiums.



In two years, what happens when he has a stroke that doesn't kill him? They don't have the money to continue paying the premiums because he's not working and the death benefit hasn't been paid. Where is the money coming from to pay the premiums?



Also, if he dies, and his insurance proceeds are being used to pay for the second to die policy because the wife can't afford the premiums otherwise, how is she going to be able to live a comfortable lifestyle?



The point is that there must be money available to pay the premiums regardless of whether he can work or not. Otherwise, there is a good chance that one or both of these policies have a great chance of lapsing.

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PostPosted: Sun Apr 19, 2009 5:37 pm   Post subject:   

His income isn't "needed" to pay the premiums, but it helps. They don't have $0 to their name in cash - there are substantial assets in liquid form, but if he died next year, the wife may live another 20+ years and need to use those assets for herself to live. She "could" afford to pay the $11k/year premiums, and he "can" afford the $25k/year premiums even if he wasn't working, they'd just be eating into their assets without his current income.



But if he can afford to pay the premiums for the $250k GUL, what is the problem? If he dies any time in the next 20 years, she will come out ahead (again, loss of interest income aside) with the death benefit. There is no perfect policy for every single scenario, especially when you are talking about massive premiums involved, but again, if he dies in the next 20 years, this is a better setup than if he had been paying $24k/year towards the second-to-die policy on a 10-pay or whatever.

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PostPosted: Sun Apr 19, 2009 10:11 pm   Post subject:   

If paying $24,000 would eat into their assets, they don't really have enough money in which there is an real estate tax issue. I am not trying to say that insurance shouldn't be purchased.



You keep saying "loss of interest income aside". It's kind of silly to ignore interest. If he lived for 20 years and the money averaged 5%, it would be $500,000 for his family instead of $250,000.



With cashflow issues, wouldn't they be better off gifting the hard assets and holding on to the liquid assets?



The problem isn't whether they would come out ahead, it's a question of what is the best solution.

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PostPosted: Sun Apr 19, 2009 10:24 pm   Post subject:   

I'm ignoring the interest income lost because on the flip side, I am ignoring the interest that would be earned on the $250k death benefit that could be used to pay the second-to-die premiums. If you want to consider the interest, she could get $12.5k per year at 5%, which would pay the second-to-die premiums every year, year after year. I still don't see how they're better off dumping extra money into the second-to-die policy when the GUL provides a $250k benefit that effectively reduces their total premiums by that amount. The only scenario where it doesn't work is if he lives to be 100+ years old. They can either pay 1.1 cents on the dollar for as long as both of them live, or 2.5 cents on the dollar for as long as the husband lives. Unless we could predict his age of death, there is no way of telling which way they would end up better off - hence, the decision is up to him.

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PostPosted: Mon Apr 20, 2009 3:29 am   Post subject:   

dgoldenz



don't you think that interest calulations will have a big difference on the cash value of the policy so what I personally believe is in every calculation interest calculation does matter a most.

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