Success Story: Repurposing Existing Coverage to Meet New Planning Needs

Situation

TPG Financial was introduced to a high net worth couple in order to complete a policy review of multiple in force life insurance policies related to their business succession plan and personal estate plan.  We discovered the clients were over-insured for the business needs and underinsured for their personal estate needs.  After asking a few health questions, we determined the biggest challenge would be adding coverage to the personal estate due to insurability issues related to the husband’s medical history. 

Design

Through joint meetings and conference calls with the clients, financial advisor, business manager, personal CPA, and estate attorney, TPG Financial was able to design and implement a multi-faceted plan for the life insurance that would better fit the clients’ needs.

For the personal estate planning: 

• After medical information was collected, we confirmed that new coverage on the husband would not be an option.  We introduced the idea of repurposing some of the business-owned term insurance for personal needs.  We developed a plan to combine the wife’s super-preferred underwriting classification with converting some of the term insurance on the husband into a survivorship policy. Despite a few hurdles, TPG Financial was able to secure an exception to implement the conversion into double the face amount of survivorship coverage with John Hancock on this couple.    

• Logistically, the term policy was converted by the business, then sold to the husband personally, then sold to their family ILIT in order to take the most conservative approach to avoiding any undesirable transfer-for-value tax implications and ensure the most straightforward sale price during these ownership transfers.  

For the business planning: 

• The company owned more than $60 million in death benefit in force for key man coverage, most of which was term insurance.  However, the current need for coverage was only about $20 million and they desired to keep the coverage in force for a longer period of time than the term length since the client would continue to be a key employee for many years to come until retirement. 

• TPG Financial assisted with converting some of the existing term insurance that wasn’t used for the personal estate to permanent coverage for the business to ensure they had $20 million in long-term coverage and then facilitated refunds of unused premiums for term coverage no longer needed. 

Outcome 

• The clients have $35.5 million in personal coverage at a premium that comfortably fits into their long-range financial and estate planning.  This level of coverage provides peace of mind that their child will have the liquidity needed for future estate tax liabilities.  

• The business has $20 million in key man coverage that will be available until the client’s retirement. 

• All coverage is owned correctly and in the most tax-efficient manner.