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New Policy Designs Can Offer Better Terms


We have seen more life insurance policy replacements going through lately at Quantum. Why? Due to higher interest rates and updated policy designs, we have found that often, today’s life policies may offer better terms for your clients. Consider a recent case we closed—for privacy purposes, let’s say the client’s name was Jeffrey.



Case Study: Jeffrey, 60-years-old

Jeffrey, age 60, had owned a whole life policy for decades. The policy had a death benefit of $800,000 as well as $400,000 in cash value that had built up. But against that cash value, he had taken a loan out in the amount of $170,000.


Per the whole life policy’s contract terms, the interest rate charged on Jeffrey’s loan was 7%, while the fixed annual dividend being credited on the policy was only around 5%. This created a drag on the policy as well as decreasing the net death benefit amount every year. Jeffrey’s financial advisor turned to Quantum to research options, and the life department went into action to compare possibilities from multiple carriers with the goal of putting his client in a better financial position. The financial advisor presented several options to Jeffrey, who ultimately decided on an IUL (indexed universal life) policy with additional coverage in the event he develops a chronic illness.


The Solution: A 1035 Exchange


  • Higher Death Benefit

The whole life policy death benefit of $800,000 went up to a $1,000,000 death benefit in the new IUL policy. (And remember, in the old whole life policy, the $800K was actually lower due to the loan interest rate exceeding the policy crediting rate.) The new IUL policy also had the same cash value of $400,000.


  • Assumed Loan with More Favorable Terms

The $170,000 loan was assumed inside the new IUL policy, but with a lower cost attached to it.


  • Uncapped Potential Growth

Jeffrey’s new IUL policy has uncapped potential growth on the cash value in the policy, unlike the whole life policy which was fixed at 5%. This means it is possible that Jeffrey’s policy can be credited more than 5% depending on market performance. Indexed universal life policies are credited based on the performance of a benchmark index such as the S&P 500, but they are not actually invested in the stock market, therefore are protected from market risk. If the stock market has a downturn in the future, the floor is zero, meaning the policy will not be credited less than 0% no matter what the index does.


  • IUL Policy Flexibility

If for some reason in the future Jeffrey wants to borrow more of the cash in the IUL—for instance, to use for retirement income or any another purpose—he can, at the lower cost terms (versus the previous whole life policy) spelled out in the new IUL contract. The interest assessed on any outstanding loans are deducted from the policy’s death benefit. Additionally, with the flexibility of IUL, Jeffrey can pay back any loans at any time, or add more to the policy’s value.


  • Additional Coverage for Chronic Illness

As part of his new IUL policy, Jeffrey now has coverage in the event that he experiences a chronic illness. This feature can accelerate half of the death benefit, meaning up to $500,000 can be accessed by Jeffrey in the event that he would develop a chronic illness.


Now is the time to help your clients review their life insurance policies. It’s easy to find out if your client could benefit from a 1035 exchange! Whether you are a current Quantum partner or considering a partnership with us, call your Quantum Life Insurance Consultant at 800.440.1088 today.