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Sales Idea: What to do with a policy that has become a MEC





Tony Neiswander
Case Design Specialist

This month I am going to tell you about a new sales idea that I developed for an AIN Idea Lab I recently attended. This article will give you an idea of what you can do with a policy that has become a MEC unintentionally.

We all know that life happens and there are things that occur that we never planned upon. Let’s say that a client had an IUL that was set up to produce a supplemental retirement income in the clients later years. If for some reason that policy inadvertently becomes a MEC, the client will no longer be able to take income out without immediately having a tax consequence. Once the policy has become a MEC, there is no way to move that cash and undo what happened. That money will forever be a MEC. As you can imagine this can be a big problem for someone who had been counting on that money. Don’t fear though: there is a way we can make that cash work for the client again.

The idea is as easy as making a 1035 exchange of the cash currently built up in their policy and dropping it into a Mutual of Omaha IUL. This will help the client in a couple different ways. First this money will be used to create a much higher death benefit than they previously had. Assuming the plan of the first policy was to create a retirement income, the death benefit was probably set at the bare minimum to increase the accumulation. Well in this new policy, since the cash will no longer be used for withdrawals or loans we would solve for the maximum death benefit. This will create a substantial increase in benefit over the previous policy. Second, this policy from Mutual of Omaha will have a free Chronic Illness rider. There will be no extra underwriting done in order to get this rider either. This rider will allow a client who is unable to perform 2 of the 6 activities of daily living to accelerate some of the death benefit and a proportionate amount of cash value to pay for their needs. The best part is these accelerations will be unaffected by the MEC status of the policy.

There are some limitations to this - for example, only 80% of the policy will be able to be accelerated - but that is typical for riders of this kind. Either way that is still quite a bit of money that the client can use to pay for medical needs should they become unable to perform two of those six ADLs. This is a great way to put the cash that you may have thought was lost back to good use for the client. You have now given them a way to access the benefit without a major tax consequence and also substantially increased the death benefit should they die before needing any Chronic Illness benefits. If your client has a policy that is currently a MEC let us show you how to make this idea work for you.
 

TONY NEISWANDER, MBA  |  CASE DESIGN SPECIALIST   636.695.2842  TNEISWANDER@FIRSTHEARTLAND.COM

 

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