With Estate Tax Change In Mind, Clarica Debuts 'Short Term' Survivor UL

–The one lump-sum premium appeals to people who dont like paying the large annual premiums often required by traditional survivorship ULs, he adds.

–It has no surrender charge, so clients can get their money back with no penalty. By contrast, says Caramadre, the planner, traditional survivorship ULs typically levy large surrender charges in the first 10 to 15 years. Some clients object to that, he says.

Heres how the provision works: The "money-back" feature is provided via a "guarantee age or endowment endorsement rider." This says the ULs cash value is guaranteed to equal the premium paid at the end of the 10- or 15-year "wait-and-see" period.

Owners choose whichever guarantee period they want. The guarantee is set according to the current cost of insurance and the current credited interest rate (5.75%, as of May 31, 2001).

At the end of the period, the owners can elect to get back their initial premium for any reason whatsoever, says Peterson. "This reason could be changes in estate tax law, but it also could be divorce, bankruptcy, rearrangement of the estate distribution plan, or anything else."

The money is returned free of surrender charge and, in most cases, tax-free, too. (Its tax-free because this is a return of principal, not gain, says Peterson. The only exception would be over-funded contracts, which pay back gain as well as principal.)

Sample case: On May 30, 2001, two 65-year olds, rated preferred, could have bought a 15-year $1 million contract for $54,000, assuming the current credited rate is 5.75% (fixed for all 15 years). They can get this money back at the end of the 15 years.

In effect, the earnings on the money pay the COI rates for the 15 years, says Peterson. Because of that and because of the money-back feature, clients view this policy as a way to transfer assets to pay for life insurance for 10 or 15 years, he asserts.

"Most who buy are banking on the assumption that they wont need this insurance after the end of the guarantee period," he adds.

If owners choose not to exercise their guarantee, they can: 1) continue the policy at original face amount, with current interest rates and with annual premiums based on current cost of insurance; 2) continue at a reduced face amount and reduced annual premiums, still using current COIs; 3) continue, with no additional premiums, until the UL lapses; or 4) 1035 exchange into another policy.

Will a presidential signature on the tax bill that passed Congress in late May take the sizzle out of Wait & See?

Not at all, says Peterson. "In fact, that legislation couldnt have done us a bigger favor."

The bill does phase in a rising estate tax exemption and it does provide for repeal of the estate tax altogether on Jan. 1, 2010, he allows. "But there will still be uncertainty about what will happen later on," the executive contends. (Note: A sunset provision provides for what is essentially a repeal of the repeal on Dec. 31, 2010.)

Also, he predicts, no matter what happens, "there will always be some taxation on transfers of assets."

In the meantime, from now until year 2010, there will still be estate taxes due, though at different levels than before.

Wait & See does allow policy loans and withdrawals, but these void the guarantee. It includes an accelerated death benefit provision for terminal illness on the surviving spouse. Up-front policy loads include premium expense, monthly expense, and monthly policy expense (three years). The guaranteed minimum interest rate is 4%.

Reproduced from National Underwriter Life & Health/Financial Services Edition, June 11, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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