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November 11, 2001 at 07:00 PM
John Hart, 66, and Mary, 64, need a last survivor life insurance policy with a $10 million death benefit for estate liquidity. The annual premium for the policy is $150,000 based on 10 annual payments to endow.
The Harts’ biggest liquid asset is their $2 million brokerage account, most of which contains mutual funds that have historically earned an average annual return of 10%.
Given the recent market volatility, the Harts are reluctant to convert any of their investment portfolio into cash, which would mean taking a loss and reducing their investments potential for growth. A sale of the assets within the portfolio could also result in an income tax liability for any gains the Harts may have enjoyed.
Knowing that the Harts need the life insurance policy to accomplish their wealth preservation goals, the couples broker recommends a premium financing arrangement. The financing arrangement makes sense as long as the Harts continue to earn more from their investment portfolio than they will have to pay in loan interest.
