FREQUENTLY ASKED QUESTIONS
HOW DOES RISING INTEREST RATES EFFECT THE PLAN?
When using leverage, the natural concern is what happens if interest rates go up? The 1980’s simulation represents the highest interest rates in modern US history. While high interest rates typically help this product, a sudden rise would have the loan outpacing the IUL product for a period of time. This simulation is structured to test the design’s performance in those conditions. Interest rates peaked at 16.88% in the 1980’s. IUL products that don’t pass this test are rejected. While no simulation is perfect, and assumptions must be made, we believe it would take market conditions worse than the 1980’s to create a loan breach.
WHY DO BANKS LIKE TO LEND TO THIS PROGRAM?
IUL insurance policy cash value is safer for lenders to lend against, than property and other types of assets. The program design makes it difficult for lenders to lose money. This is why lenders could continue to lend into this program through various economic crises. Even at the low rates of interest we are generally able to negotiate, when the low risk of default is factored in, this loan is profitable to lenders.
DO I NEED TO APPLY FOR THE LOAN?
No. There is no loan application or loan underwriting. The loan is a commercial loan that is made to the Master Trust. Your IUL insurance policy is assigned to the lender and is used as the sole collateral for repayment of the loan.
DO I NEED TO MAKE INTEREST PAYMENTS?
No. The interest is rolled up/capitalized into the loan and is projected to be repaid around the 15th year.
HOW IS THE COMMERCIAL LOAN REPAID? WHEN DOES THE LENDER GET THEIR MONEY BACK?
In approximately the 15th year, the commercial loan is projected to be paid off by using withdrawal and/or loans from the IUL insurance policy (underperformance could delay the repayment).
WHAT HAPPENS AFTER THE BANK IS PAID BACK?
Once the lender has been repaid, the policy assignment will be released once the lender has been repaid and you can take distributions in the form of policy loans or withdrawals at any time (dependent on the cash value).
WHAT DETERMINES THE CASH ACCUMULATION VALUE IN THE POLICY?
Your cash values are tied to, but not invested in, one of the popular stock market indexes. Typically, the cash value in the IUL insurance policy grows equal to the index’s growth. However, the credit amount to your policy may be limited by a cap, and the cap is determined by prevailing interest rates. For example, if the cash values were tied to the growth of the S&P 500 stock market index, with a 10% cap, that means if the index was up 8% that year, you would be credited with 8% growth on your cash values. If the index was up 15%, you would be credited with 10% which is your cap. If the index were down by 10%, you would not participate in that negative return. You would be credited with 0% that year.
WHAT ARE THE QUALIFICATION REQUIREMENTS OF THE PLAN?
While the life insurance carrier chosen may add their own qualification requirements, the following are the program requirements.
Client Income: Greater than $100,000 per year if corporately sponsored, $200,000 if individually funded.
Age at Plan Inception: 18 to 65.
Health: Normal to good health (possible exception for younger than 50, impaired health clients).
WHAT IS MY COMMITMENT?
The minimum contribution amount is $20,000 per year plus trust fees ($1,350). You can contribute as much as you like over that amount.
As the plan is designed, you are required to complete a life insurance application (which may include medical underwriting), sign all the necessary trust forms, and make a contribution, each year for five years. If you make modifications to the plan design, there is a chance that the growth of the cash will be insufficient to pay future premiums and you could be required to make additional contributions for any such shortfall.
WHY DO I NEED A TRUST?
The lenders require that your IUL insurance policy be held in a bankruptcy-remote trust to secure their loan. In addition, having a trust gives you added protection from probate issues.
THE INFORMATION CONTAINED IN THESE FAQS IS PROVIDED FOR EDUCATIONAL PURPOSES ONLY. NEW INVESTOR WORLD [, LLC / INC.], OPERATING AS NIW IS NOT PROVIDING LEGAL, TAX, INVESTMENT, INSURANCE, OR ANY OTHER PROFESSIONAL ADVICE AND THE FAQS ARE NOT INTENDED TO BE A REPLACEMENT FOR SUCH ADVICE. RESULTS ARE NOT GUARANTEED AND INDIVIDUAL RESULTS WILL VARY. READERS SHOULD CONSULT WITH THEIR OWN PROFESSIONAL ADVISORS.