How does this strategy work?

With capital gains rates at near historic lows, now may be a good time to reposition some of your client’s portfolio.  Selling a portion of concentrated stock and using the proceeds to purchase cash value life insurance may be a good alternative to help ensure a certain level of wealth transfer.  By moving a portion of the gain from the sale of their stock into life insurance, your clients can:

• Provide an income-tax-free life insurance benefit for their family
• Provide a specific sum of money for wealth transfer, regardless of what happens in the market
• Potentially accumulate tax-deferred cash value

Strategy in action

• Mary and John are 55 years old and on track with their retirement savings. 
• Six years ago, they bought stock in Acme, a medical tech company, and its value has skyrocketed to $500,000, representing a quarter of their portfolio.
• They need life insurance and want to diversify their portfolio further.
• They sell their Acme stock for $500,000, pay $94,000 in capital gains and over the next five years, pay premiums of $81,200 into an indexed universal life insurance policy. That will give them a life insurance benefit to pass, income-tax-free, to their family, of $1,250,000 – significantly more than passing the stock itself and with much less risk.

¹ Includes 3.8% Medicare Surcharge tax.

The policy premium and death benefit amounts used for this case are intended only to help demonstrate the planning concept discussed and not to promote any specific product. The values are broadly representative of rates that would apply for a policy of this type and size for the insured’s health and the ages noted in the example. To determine how this approach might work for a client, individual illustrations based on their own individual age and underwriting class, containing both guaranteed charges and guaranteed interest rates as well as other important information, should be prepared.