Success Story: Utilizing Existing Coverage to Meet New Planning Needs

Situation

TPG Financial was introduced to a high net worth couple in New York for a simple policy review of multiple in force life insurance policies.  TPG Financial reviewed these policies as part of their business succession plan and personal estate plan to discover they were over-insured for the business and under-insured for their personal estate.  The biggest challenge would be adding coverage to the personal estate despite insurability issues for the male life. 

Design

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

For the personal estate: 

• The male life was uninsurable via new medical underwriting, but Survivorship coverage would be an option with medical underwriting on the female life. Despite a few hurdles, TPG Financial was able to secure an exception to convert a John Hancock Term policy on the male life (currently being used for key man coverage) to double the face amount for SUL coverage with super preferred underwriting on the female life for the most competitive pricing option on personal coverage.  

• After a trust review, this policy was converted by the business, then sold to their personal estate, 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 had more than $60 million 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 now have $35.5 million in personal coverage at a premium cost they feel comfortable fits into their long-range financial planning.  This level of coverage provides peace of mind that their daughter will have the liquidity needed for future estate tax liabilities.  

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

• All coverage is owned in a manner that is tax efficient to the clients.