Most independent financial professionals recommend Indexed Universal Life policies to their clients because of the tax-free income and death benefit, but many underestimate the power of living benefits.
In this episode of Money Script Monday, Sal presents a real-life scenario where an IUL policy holder received accelerated benefit payments to cover the cost of cancer treatments.
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This post is intended for financial professional use only.
Hello. My name is Sal Mendoza and welcome back to Money Script Monday.
Today we're going to be talking about the incredible true story of living benefits.
Let me first start off with a true story. About a year and a few months ago I was working with an independent advisor and he was doing some financial planning for a client using securities and fixed business.
In this particular case, he was looking at the third bucket which we call the tax-free bucket which is typically indexed universal life.
This particular client, she was a nurse, she was 38 years old and she was very healthy. She was actually making really good money.
As he progressed in the conversation, she decided to move forward with a max funded index universal life at a $1,000 a month.
An incredible story happened along the way which I'm going to tell you here in a second.
Life Insurance Policy
I want you to focus over here for a second.
A lot of us, what we do is when we're selling indexed universal life, we're selling it for protected income, we're selling it as part of a holistic plan where we're looking at securities, life insurance and/or annuities depending on how old the client is.
We're then looking to fill up that last bucket.
We have the taxable bucket, we have the tax-deferred bucket and then we're filling in that tax-free bucket which seems to be a lot of Americans just for some reason don't pay attention to and we're usually going to use, like, a Roth IRA or we're going to sell a max funded indexed universal life.
What's not talked about very often is the living benefits.
Sometimes it's talked about but a lot of times I feel it's skimmed over I guess you could say, with the main focus with death benefit and the incredible story of tax-free income.
There's nothing wrong with that. But today's story I wanted to really emphasize on living benefits, and I'll explain to you here in a second.
Now living benefits are going to be one of the three, are going to be your chronic, your critical and your terminal illness.
I'll give you a quick example of chronic. If you're unable to perform two out of the six daily activities, an example of one is we wake up one day and we can't even get out of bed.
We get to an age where it's that difficult to get out of a chair, to get out of bed and we need assistance.
If you have two of the six activities that you cannot perform you can then accelerate the living benefits from your max funded indexed universal life.
The second is the critical and that can be a stroke, that can be cancer, that can be ALS, that can be heart attack.
How many people that we know literally just by reaching out your hand, you probably have at least two or three people whether they're friends or family members of friends who have had at least some kind of critical illness that have touched their lives.
And lastly, terminal illness. Someone comes down with a terminal illness and they have between 12 and 24 months to live.
Then we have the ability to accelerate your max funded index universal life. But a lot of times what we do is we kind of skim over.
Let me continue on with the story.
The story basically is she went to the advisor and she basically said, "I came down with this pain in my back. I was working and I got this pain and at first, I didn't think it was no big deal. It was probably just a kink from picking up something and not bending my knees or whatever it was."
It continued that week and she decided to ask, since she works in a hospital, so she has a lot of friends who are doctors.
They ended up a week and a half later giving her a test and she has cancer.
It turns out it's not a very good cancer. It's a very progressive cancer.
She starts to remember the conversation that she had a year ago when she was talking about the indexed universal life because this particular independent advisor always talks about the living benefits and he makes an emphasis on it.
He always talks about the death benefit, he always talks about the tax-free income aspect, but he also focuses on the living benefits.
I think one of the reasons why is that he's happily married, and he's got two children and he wants to have that benefit.
He actually has that benefit on his own personal policy, so he talks about it to all his clients.
The next thing, now that we know she had cancer, what does that benefit look like, right?
We put this thing in force a year and three, four months ago. And so, what do we need to do?
We got all her medical records and we shipped it off to the insurance company and then of course the medical director is going to review that.
When they're doing that the first thing that they're going to use is they're going to use what's called the discount method.
The first thing they do out of the gates is they're going to find out what the mortality rate is.
They're going to categorize it into four stages and then finally they're going to calculate the present value of the death benefit using the six key markers here.
But more importantly, I'm going to read the letter that she received about a month after she submitted her medical records.
This is a powerful testimony and this letter right here.
Of course, we're going to go ahead and take off all the key pertinent information because I think this is something that needs to be told to your clients. Here we go.
We have completed our review of your claim for benefits under the accelerated benefits rider for critical illness.
We have determined that you have met the terms and conditions of the rider and are eligible to elect an acceleration of your death benefit.
Medical records you submitted for your claim regarding your diagnosis of cancer have been reviewed by our company medical director to confirm you meet the requirements of the rider as well to access the impact of the future expected mortality of the insured.
The medical director assigns a mortality rating dependent of the gravity of the critical illness.
- Category one: a minor impact of future mortality.
- Category two: moderate impact of future mortality.
- Category three: a severe impact of future mortality.
- Category four: life threatening on future mortality.
Your claim has been assessed as a category four.
The next step is to calculate the present value of your policy's death benefit.
The present value is the current worth of a future sum of money given a specified rate of return and right now with this particular case it was 4.60.
Once we determine the present value of the future death benefit, we calculate the accelerated benefit amounts.
The following factors may be used in calculating the accelerating benefit amounts:
- One: They use the death benefit accelerated.
- Two: The cash render value of the policy or the rider.
- Three: The future premiums payable under the policy or the rider.
- Four: Our assessment of the future expected lifetime of the insured.
- Five: Any administrative fee assessed.
- Six: The accelerated benefit interest rate in effect.
As you know, your policy's death benefit is $1,063,836. The present value of your death benefit is $894,893.
If you choose, to accelerate 100% of the death benefit after applying the $250 administrative fee, you're eligible for an estimated accelerated benefit payment of $894,643.
Now that is an incredible letter. That is an incredible story.
Here was a client that the advisor I was working with, just a little over a year and four months ago she was healthy and a little over a year later she has a life-threatening condition.
Thankfully, for the foresight of the advisor that I worked with, he made sure that that client, because she had two kids, had living benefits.
And today, she's already accelerated the living benefits. She's already received the check. She accelerated all 100% of that.
That's an incredible story. That story is so incredible about living benefits and the tax-free story and the death benefit that comes along for the ride that we're going to make this available to you online and of course we're going to remove the pertinent information.
If you're interested, feel free to reach out to your FSR or give us a call here at LifePro Financial, 888-543-3776.
My name is Sal Mendoza. Thank you for letting me share today on Money Script Monday. Thank you.