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by Jon Elder
Life Sales Relationship Manager

We’ve all heard the term “money in motion,” but how many of us have truly thought about the magnitude of the numbers represented by all that cash?! As an example, let me share with you some figures from an article titled “Just how much money is out there?” authored by Matt McAbby of Oxbury Publishing. 

According to this piece, pension funds manage approximately $29 trillion in assets, insurance funds manage approximately $19 trillion in assets and mutual funds manage approximately $28 trillion in assets. Most surprising of all, cash invested in Money Market mutual funds recently overtook that invested in stock mutual funds: $3.83 trillion – an amount equivalent to nearly half the S&P 500 total present-day market cap. This is money that is poised to be in motion in the very near future.  

How prepared will you be for this movement? Are you interested in an opportunity to move some of this sideline money onto the playing field?
 

A life insurance policy can provide a competitive guaranteed interest rate while simultaneously featuring an income tax-free benefit at death. Generally, life insurance premiums are paid monthly, quarterly or annually, but single premium life has also been a viable option for those clients who prefer to make a lump sum payment at time of policy issue. The single premium life policy will produce a more rapid cash value growth than a traditional policy because it is completely funded. Plus, the death benefit will pass to heirs on an income tax-free basis – just like a traditional life product. However thanks to a tax law change in 1988, the tax-free accessibility of the policy’s cash value is no longer available to policy owners whose policies are considered to be a Modified Endowment Contract (MEC). If your clients don’t anticipate needing any additional lifetime income, the single premium life plan can serve as an efficient wealth transfer or estate preservation vehicle. 

For those clients who want to preserve their money and potentially use it during their lifetime, there is an alternative life insurance plan to consider. Through the use of a Premium Deposit Fund (PDF), some carriers are offering an opportunity for a large premium deposit to be made without creating a MEC. The PDF is a saving deposit type of account in which the policyholder can place a lump sum as an advanced premium payment. In return, interest will be credited based on a favorable pre-determined interest rate. The money in a PDF is available for immediate use if needed. However, withdrawing too soon after making the deposit will result in lower interest rates being paid on the remainder of the policy. With proper structuring, a life insurance policy that is funded with a lump sum placed into the premium deposit fund will avoid the MEC rules. 

Adding an Enhanced Cash Value (ECV) Rider offers the availability of the lump sum in years one or two, which can be assigned as collateral when needed for premium financing strategies. If your client chooses to withdraw money from these contracts, any growth could be subject to income tax. As long as the MEC rules have not been violated in the design, your client would be withdrawing principal, which would be considered a non-taxable event for them. By utilizing the ECV Rider, your client will not be subjected to a surrender penalty on the policy. One word of caution: employing this tactic will impact your commission.   

A few carriers offer products designed to hold a large deposit without creating a MEC and without the use of a Premium Deposit Fund or Early Cash Value Rider. These products illustrate a fixed rate of return and will often allow the withdrawal of most of the initial lump sum in years nine or 10 while maintaining the policy death benefit without further premium payments. This provides yet another option to consider when designing your clients’ financial futures.    

Take the time to think about your existing client base. Who do you know that has a lump sum “parked” in a CD, Money Market account or checking account? Who do you know that wants a better return than bond funds are currently producing? Show them a way to reposition their “parking lot” money and transform it into “money in motion.” Call your Life Sales Relationship Manager to get the wheels turning and determine which clients may be right for this strategy.
 

FOR AGENT USE ONLY. NOT FOR USE WITH THE GENERAL PUBLIC. 12245 – 2012/3/27

Guarantees provided by life insurance and annuities are subject to the financial strength of the issuing insurance company; not guaranteed by any bank or the FDIC. This material only provides highlights of products – please refer to the product disclosure for information regarding exclusions, limitations, reductions of benefits and terms, including costs and complete details of coverage.