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Tax favored status Immune to volatility of equity market Guaranteed universal life contracts are immune to interest rate risk Provides principal protection Provides attractive yield Many affluent families share the same favorable view of life insurance as institutional investors. Life insurance has graduated from acting solely as a safety net for families to now being utilized proactively within the portfolios of high net worth families. It is a wealth transfer tool that when properly structured, can provide a family with equity-like returns and bond-like risk.
Internal Rate of Return on Death Benefit
Life Expectancy 46.37 % Tax Adjusted IRR % IRR
If you look at this in practice here are some sample returns that a client could experience by placing a portion of their investment assets into life insurance premium. We recently worked with a client with a $20 million estate who was considering purchasing a $5,000,000 life insurance policy. The client was 70 years old and in reasonably good health. We were able to obtain a preferred offer from an A+ rated carrier and his annual premium was $138,758 per year which guarantees the policy to age 125. If death occurs at age 86 (average life expectancy for 70 year old clients) the IRR on the premium paid is 9.02%. This equates to having to earn 12.52 in a taxable account to equal the benefits of the life insurance policy. Even if the client lives five years beyond life expectancy to age 91 the IRR is 4.67%, taxable equivelant of 6.49%.
37.74
33.38 27.17
31.28 26.30 22.52 18.94 16.10 22.36 19.17 13.80 16.55 11.92
14.37 10.35
12.52 9.02
10.95 7.89
9.60 6.91
8.42 6.06
7.39 5.32
6.49 4.67
5.68 4.09
4.97 3.58
4.33 3.12
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