Preventing Policy Lapses in IULs

  • Originally published January 21, 2011 , last updated May 25, 2016

One of the main concerns about using life insurance to show a tremendous potential tax-free income stream (via loans) is the possibility of policy lapse causing an income tax event. NACOLAH's IUL policies all have a protection benefit that allows for the election of a paid up death benefit if the loan gets too high relative to cash surrender value. The Protected Death Benefit Rider with the Rapid Builder IUL takes that to another level.

Protected Death Benefit Rider

The Protected Death Benefit Rider gives your client a whole new level of control, allowing him to specify the amount of his guaranteed death benefit. For example, a client who took out a policy at age 50 decides at age 70 that they want to continue taking money from their policy but would like assurances that $100,000 of their death benefit is guaranteed. The Protected Death Benefit Rider moves the necessary funds to the fixed account to provide that guarantee while allowing the policyowner to continue their income stream if desired (the income stream will be lower when a portion of the death benefit is guaranteed).

Waiver of Surrender Charge Option with Table Shaving Component

This feature could have multiple benefits for the retirement supplement case. Inclusion of the Waiver of Surrender Charge means that the policy has a more impressive early cash surrender value. This can provide not only a greater level of control for the client in terms of flexibility and access to funds, but also shows a higher surrender value early for those clients interested in looking for funds in a short time frame. An example would be a client age 60 looking to have money to access for retirement in just 5 years at age 65.

Another great benefit of this rider is the table shaving feature. The table shave can make the retirement supplement sale more attractive for clients who may have a condition resulting in a table rating up to table 4. With the Wavier of Surrender Charge Option, the rating may be reduced down to standard rate class, allowing for lower mortality charges and better illustrated performance.

Rapid Builder IUL is just one of several products that can be effective for life insurance sales involving the supplemental retirement income concept.

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