If GUL is no longer the clear winner, then what is? 

Over the last few months I have driven the point home again and again - GUL prices continue to rise, and it is time to look at other designs as a viable alternative.  In those discussions our focus has been on fixed product, but what happens if we expand our reach a bit and look at everything the market has to offer?  Great question, and one that this case study may shed some light on.

This is a business succession case, involving a privately held business.  Mom and Dad have recently been bought out, leaving three siblings and their spouses, all in their 40's, each owning one sixth of the business.  As is typical when there is a significant ownership change, there are also some changes going on in the operation of the business, and the plan is to allocate most of the profits to expanding the business. 

Of course, the owners and their advisors all agree that implementing a succession plan now is an essential part of the process.  Based on a meeting with the life agent, attorney and their Cavalier Marketing Director the following goals were established:

• Have the surviving spouse inherit the shares of their deceased spouse.
• Implement a cross purchase buy/sell agreement funded with life insurance, with a separate entity to own the insurance for ease of management and favorable tax treatment.
• Write the agreement with specific provisions allowing for accumulation of cash values as a sinking fund for future buy/out needs as well as the possibility of distributing the policy to the insureds for personal planning needs should they no longer need the coverage in the business setting.
• Cash flow predictability in the form of guaranteed premiums and death benefits through traditional retirement age.

The result of all of this was the realization that a fixed product was not going to be able to cover all of the objectives that had been identified, and even a permanent product may be problematic from a cash flow perspective given the other goals the owners have for the business.    So how did we cover all of the bases?  Here's how:

• Recommend the purchase of term insurance on each of the owners via a section 162 bonus plan to provide liquidity at the passing of the first owner in each couple in an effort to avoid a sale of their shares based on financial hardship.  The surviving spouse or their living trust is the beneficiary of these contracts.
• Place survivorship coverage on each of the three couples, as there is no liquidity need at the first death and we can realize lower cost of insurance versus 6 individual contracts.
• Structure the buy/sell coverage with a minimum guaranteed premium initially, with the ability to overfund the contract in future years if it makes sense within the overall context of the business.
• Use a contract that provides excellent secondary guarantees along with the potential for cash accumulation if the clients are able to over fund the contract in the future.

When it finally came down to selecting a product, we agreed on a survivorship variable life contract funded slightly higher than the minimum guaranteed premium.  The clients wanted to strike a balance between the cash flow needs of the business and the desire to accumulate some cash in the contracts.  Lincoln SVULOne had all the right contract features, and we were able to negotiate a great offer for the one insured with a prostate cancer history, even though he is in his 40's and his surgery was only in June of this year.

The cherry on top of all of this?  Rolling target.  The total premium commitment from the client per year is $25K until they increase the funding of the buy/sell coverage.  Commissionable premium?  Over $60K, with up to nine years to reach full target.  Great for the client, great for the life agent.

Do you have a case that needs a fresh perspective?  Give me a call.