An interesting solution using Hancock’s 2nd to Die SUL. This is one of the few products we have seen that has really stood out in a market where guaranteed products are consistently re-priced in a negative manner. The Protection UL provides a guarantee that lasts to late 80’s/90’s even though it is not fully guaranteed, depending on issue age. We have a couple of advisors who have been using 2nd to Die as an asset replacement strategy for qualified money of clients.
- Qualified money will be fully taxable when left to beneficiaries.
- Spouses are able to take withdrawals over their life expectancy, but that is not the case with non-spousal beneficiaries. Non-spousal beneficiaries will need to take ALL the money out within 10 years. That means getting hit with a much larger tax liability, especially if there are limited beneficiaries and the qualified money is a large sum.
Case Study.
Two 60-year-old clients had over $2M saved in qualified money, along with other assets. However, they were very heavy on the qualified side of their investment allocation. Once the advisor made it clear that leaving money to their children via the qualified route (2 of them) would be less than favorable, the client was open to suggestions. After looking at using life insurance on a single life basis, the advisor looked at 2nd to Die coverage. Being that the spouse could still maintain favorable distributions on the qualified money, it was decided that 2nd to Die made more sense. In addition to that, there is both tremendous leverage and flexibility with this product.
(Click links for full illustrations)
- Single life option– Hancock Protection UL- on the wife. Assuming preferred- $1,000,000. Required an annual premium of $13,032 – NOT bad at all – 5.52% tax free internal rate of return at age 90
- 2nd to Die – Hancock Protection SUL. Assuming STD plus on husband and preferred on the wife- $1,000,000. Required an annual premium of $10,745. 6.56% tax free internal rate of return at age 90 and guaranteed to age 90.
- Same as # 2- if these clients wanted to take a “wait and see approach”, they could pay $5,916 per year. This would guarantee their coverage till age 84, and carry till age 90 at the current 4.35%. (Please note, this crediting rate is increasing to 4.65% on March 1st.) The clients in this case ended up starting with this solution. Their plan was to initially pay this lower premium and eventually increase their premium to extend coverage for longer.
If you have any questions about this, let us know. This solution works great for your clients that have a lot of money tied up in qualified plans. The 2nd SUL solution might just be the right structure!