AboutWillard R. Brumbaugh, LUTCF, CSFP Expertise I can handle questions concerning life insurance, it`s tax implications, how to determine what is appropriate, and how it fits in one`s estate and retirement planning.
Experience For 2 1/2 years I was an expert on AskMe.com, where for most of that time I was ranked #1. I have been a moderator (instructor) for the Life Underwriters Training Council. I have been licensed since 1969.
Organizations I belong to: National Association of Insurance and Financial Advisors - California
and the Inland Empire Estate Planning Council.
I hold the professional designation of Life Underwriters Training Council Fellow.
Question QUESTION: I am interested in life insurance and the Bank on Yourself concept and am working with a life insurance agent at the moment.
However, I am being asked to fill out and sign a life insurance application as a "pre-approval" with an insurance company. I am told that this is to find out approval rating and that no policy will be issued until I decide.
At this point I am not yet fully committed to setting up a policy since I haven't seen or discussed what my policy would look like. I am somewhat suspicious of sending in this application. Can you please comment on this practice? Should I be concerned?
Thanks.
ANSWER: Dear Claude,
The BOY concept is a sound concept for the right people. However I believe that some of the agents that sell life insurance this way are not qualified to serve in a fully professional manner. For this reason I would like to talk to you directly.
I am in earnest to talk to you about this because I am currently working on a botched case that has cost the person I am helping $90,000. I am not saying that the agent that you are working with is working against your best interest. I am just saying that I want to be sure that I advise you appropriately.
Please call me at (888) 792-2379
Willard R. Brumbaugh, LUTCF
---------- FOLLOW-UP ----------
QUESTION: Thanks for your answer. I understand that not all agents are qualified to handle BOY. I have confidence in the abilities of this agent when it comes to BOY but am not so sure about the "pre-approval" process. Could you please advise me on this process?
Thanks!
Answer What makes BOY work is the accessibility of untaxed loans at a favorable interest rate. In order to maintain this advantage, the supporting life insurance policy cannot be allowed to become a Modified Endowment Contract.
Therefore funding must be limited. The problem arises when the insurance company establishes a death benefit based on high premiums over a seven year period, and the client discovers that he or she is unable to follow through. That is what happened with the person I refered to previously. To avoid this possibility one should not put all of his or her eggs up front into the life insurance basket.
Once a properly designed policy has been put into play, It is critical that the policy not be allowed to lapse. Otherwise one could be hit with significant taxes. For more on this see my article in the April 2009 InsuranceNewsNet Magazine. You can find a link to this magazine on my website www.willardbrumbaugh.com.
As for the procedure that this agent has proposed (a non-sale sale), if I were the agent involved, I would mark the application form "Inquiry" in order to prevent the issuing of a policy. If the agent will do this, you can feel better about his efforts.
