Case Study: Using OPM (other people’s money) to Fund Your Retirement
The following is a hypothetical case study demonstrating an approach for leveraging a PFEIUL (premium financed equity indexed universal life policy) with borrowed bank funds to increase income, save taxes and fund asset-based long-term care within a financial plan.
A divorced woman, aged 55, with a healthy divorce settlement looked to protect her principal as much as possible and fund her financial plan to age 100 without having to use other sources of income. In addition to her retirement plan, the woman was concerned about funding long-term care in the case of illness while protecting her legacy for her children.
Keeping the client’s key goals in mind throughout the decision-making process, LD Lowe would approach this case as follows:
–Given the client’s age and her time horizon to retirement, it would be beneficial to look for ways to increase annual income in addition to reducing tax liability.
–A PFEIUL policy is a premium financed equity indexed universal life policy – it is a large-sum policy that is structured so its premium can be paid by a bank loan.
–By securing a PFEIUL in the amount of $5 million, LD Lowe could assist the client with both increasing income annually and reducing tax liability by paying for the premium on the policy through a low-interest (approximately 3.5%) bank loan.
–After researching all available policies, LD Lowe, together with the client, would select a policy that reduced her tax profile, increased her income and also had asset-based, long-term care protection that accelerated a portion of the death benefit when she did not meet two or more of four daily living activities (bathing, feeding, dressing, mobility, etc.).
Following the purchase of a PFEIUL, the client could realize the same amount to provide her children for inheritance as the previous plan without the PFEIUL:
–Both plans would be run at the same return and inflation, to age 100.
–The plan with the PFEIUL leverages a bank loan to pay for a policy that would generate $900,000 more in income over the life of her plan, while saving more than $470,000 in taxes.