A MAN IN A TERRIBLE PREDICAMENT
Arthur Benson bought his whole life insurance policy many years ago for a lump sum of $1.9 million. It’s now worth over $5.4 million of cash value and has a death benefit of $7.1 million. He’s in great health. Well, that’s great, right? …So what exactly is the problem?
The problem is that just 5 years ago, Arthur took out a policy loan of $3.5 million to help purchase an investment property. The insurance carrier has been charging him an 8% interest rate and the loan has already accrued to nearly $5.1 million, a sum he can’t begin to pay off. In fact, if he doesn’t pay the interest each year (which he can’t) then the policy will lapse and terminate in just a few years. This will eliminate his $7.1 million tax free death benefit and trigger income taxes on a $3.5 million gain! WHAT!?! How could something so good take a turn so bad?
If Arthur is having trouble paying just the interest, do you think there’s any way he’ll be able to pay ordinary income taxes on $3.5 million? What about the penalties? Yeah, he’s got a problem…
SO, NOW WHAT? WHAT ARE ARTHUR’S OPTIONS ?
#1 – If he were to surrender the policy now instead of waiting for it to collapse, he’ll at least get around $150,000 of surrender value to help offset the nearly $1.4 million in taxes. There will be no death benefit. Ouch and Ouch.
WHAT ARE SOME REAL OPTIONS FOR ARTHUR?
#2 – He could sell his policy in a life settlement. Assuming he were able to qualify for one, that would allow him to get about the same amount of cash as a surrender. The settlement buyer would want to pay off Arthur’s policy loan immediately after purchase resulting in a very large initial investment so it’s unlikely Arthur’s family would receive any interest in the death benefit. He wouldn’t have to worry about paying premiums and keeping the policy active… but what about Uncle Sam? Under the tax rules for settlements, Arthur would still have reportable taxes due from the inside income gain on the policy – which he still can’t afford.
MAYBE THERE IS A BETTER OPTION FOR ARTHUR?
#3 – The third option (and, you guessed it, the best one!) is for Arthur to talk to his agent about Fair Market Advisory Services. Fair Market Advisory Services (“FairMarket Advisors”) is the exclusive national distributor of proprietary, tailored loans designed to solve predicaments like Arthur’s. His non-recourse, fixed interest loan is designed to:
- Keep Arthur as the owner of his policy, eliminate any taxable event, and let him keep his beneficiaries in place.
- Never require any out-of-pocket premium payments, obligations or personal liability for the loan.
- Refinance the massive policy loan in full on a tax-free basis, lowering his interest rate and ensure that the policy never lapses, regardless of how long Arthur lives.
- Pay Arthur $50,000 in net loan cash proceeds upon closing.
- Provide his beneficiaries with a net death benefit interest starting at $1,950,000. (See Below Policy Beneficiary Interest)
Now that is a solution! No Uncle Sam, no loss of policy, cash in hand, future tax-free money for his family, and best of all: peace of mind.
POLICY BENEFICIARY INTEREST (ESTIMATED)
| Year | Age | Policy Beneficiary Interest (estimated) |
| 2021 | 77 | $1,950,000 |
| 2022 | 78 | $1,880,000 |
| 2023 | 79 | $1,820,000 |
| 2024 | 80 | $1,640,000 |
| 2025 | 81 | $1,520,000 |
| 2026 | 82 | $1,380,000 |
| 2027 | 83 | $1,240,000 |
| 2028 | 84 | $1,100,000 |
| 2029 | 85 | $910,000 |
| 2030 | 86 | $710,000 |
| 2031 | 87 | $501,000 |
| 2032 | 88 | $270,000 |
| 2033 | 89 | $50,000 |
| 2034 | 90 | $50,000 |
| 2035 | 91 | $50,000 |
| 2036 | 92 | $50,000 |
| 2037 | 93 | $50,000 |
| 2038 | 94 | $50,000 |
| 2039 | 95 | $50,000 |
| 2040 | 96 | $50,000 |
| 2041 | 97 | $50,000 |
| 2042 | 98 | $50,000 |
| 2043 | 99 | $50,000 |
| 2044 | 100 | $50,000 |
| 2045 | 101 | $50,000 |
| 2046 | 102 | $50,000 |
| 2047 | 103 | $50,000 |
| 2048 | 104 | $50,000 |
| 2049 | 105 | $50,000 |