Most of you know I'm not an Aviva fan, but they recently put on a Webinar on college planning that wasn't bad. The speaker explained one of the few situations where using cash-value life insurance (CVL) actually works for college planning.
The Aviva college-funding example
In the Aviva Webinar, the example was fairly simple: Grandma has $13,000 a year to gift to a grandchild (age two) to fund for his/her college funding. The father of the two year old is 35 years old.
Instead of having grandma fund a 529 plan for $13,000 a year, the assumption is that the money will be gifted to the parent who will, in turn, use the $13,000 annual gift to buy a CVL insurance policy at Aviva. The 35-year-old standard for underwriting parent will pay the $13,000 premium into the life policy each year until age 50. At age 50, the parent will borrow $25,000 tax-free from the policy each year for four years (this is when the two-year-old child will be in college).
Then the assumption is that the parent who owns the policy will allow the policy to accumulate cash and "max borrow" from the policy in retirement (from age 66-100).
For illustrative purposes, Aviva ran the illustration using the default rates (7.55 percent crediting on cash growth and a 6.5 percent loan rate). So, the illustration assumed a 1.05 percent positive variable loan rate.
In retirement, the parent could borrow $40,000 each year income tax free from the policy (again from ages 66-100).
What's wrong with the Aviva college funding example?
Well, nothing really, except, as you'll see, the amount borrowed from the policy is nowhere near what could be borrowed from revolutionary life. This funding example is one of the few that will work when using CVL for college planning. When a client overfunds the CVL policy both for college funding and for retirement planning, it can work out very well.
Also, whoever illustrated the Aviva policy for the Webinar did not "max-borrow" as was indicated in the Webinar; instead, they used the default settings which runs borrowing out until age 121. If the illustration was run until age 100 (as indicated in the Webinar), the max borrowing would have gone from $40,000 a year in retirement to $45,000. Just a little reminder as to why you don't want the home office running your illustrations.
College funding using revolutionary life
I ran the same example illustration using revolutionary life. How did the numbers turn out? There is no comparison.
I used the same crediting rate of 7.55 percent and a loan rate of 6.5 percent. The insured could remove the same $25,000 from when the child went to college for four years and then $83,805 out every year from age 66-100. That's almost double what could be removed from the Aviva EIUL/CVL policy.
I ran a much more conservative illustration using revolutionary life, and it still beat the "number one selling EIUL policy in the market." I ran one with a 7 percent crediting rate and a 7 percent loan rate (not a positive variable loan), and the insured could still remove more money than the Aviva policy ($52,000 vs. $45,000).
Why do advisors use Aviva instead of revolutionary life?
1) Most agents are still not familiar with revolutionary life
What can be learned from this article?
2) Habit -- Agents get in a routine of using a policy, and they just keep using it. They also sometimes continue selling a company's policy because they are trying to vest in a deferred compensation plan.
3) IMOs -- Most IMOs push products that get them the biggest overrides and transitioning to a different/better product will cost the IMO money.
1) College funding using life insurance can work using EIUL insurance.
2) You do not always receive the best information from an insurance company's home office.
3) There is no doubt that the best cash accumulating life insurance policy in the market is revolutionary life, and because of that, you should get licensed so you can offer it to your clients and to help you avoid lawsuits.
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