The Sinking Ship

Barry Slocum, President of Gryphon Financial Solutions writes a great newsletter for his group. Since I am packing up today to head to the Gryphon “Soar and Roar 2015” Conference in Galveston, TX, I thought it would be a good time to share a piece from his newsletter.  In this article his idea of what to do with Life Policies that are under water is a good one. Often times if a clients policy was purchased before 2000 they can find themselves underwater. This is a great way to use a 3rd party authority (The Wall Street Journal) to help you help your clients make a decision. Thanks b.! See you in TX!

The Sinking Ship

And How It Can Reduce Future Taxes

Many advisors have either clients with old universal life policies on the books or have come across new clients who are furious with their old advisors because the life policy that they were sold did not perform to their expectations.

Rates that were illustrated two decades ago have dropped dramatically and that means that many contracts are at risk of not performing as intended or lapsing due to insufficient cash values. Knowing that there is not much that can be done to save these contracts aside from pumping even more money into a sinking ship, as your clients’ trusted financial advisor how can you rescue them from this scenario?

You have a few options, one of which is the subject of the linked WSJ article that suggests a 1035 exchange of your clients remaining cash value into an annuity. A 1035 occurs tax free and the funds will grow tax deferred until your client decides that they either wish to withdraw money from their account or trigger an income stream.

One advantage of this life insurance to annuity 1035 exchange that your client may not be aware of is that you can help them shield the amount of taxable income from their annuity dollar for dollar by the amount of loss that they experienced in their life insurance contract. The loss is calculated by the amount of money being 1035’d to an annuity compared to the original life policies cost basis. If the life insurance policies cost basis is higher than the amount being transferred to the annuity then you have just turned your clients Sinking Ship into a tax cutting treasure.

Please read the linked article for important caveats and contact your Gryphon Financial Solutions Sales Coordinator with any questions.


About Jeffrey Berson

40 years in and around the industry has made Insurance a part of my DNA. I have had the pleasure of working with and for some of the greatest minds in our industry. My "Bersonal" View is an attempt to capture some of the best ideas, the best concepts and the best practices in a way that can lead to success for others. It will certainly be my point of view, so please...don't take it "Bersonal".
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1 Response to The Sinking Ship

  1. ben ward says:

    Thanks Jeffery…have written about this many times over the years, but never had the WSJ to back us up. will do it again as this is a wonderful idea. ben

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