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Helping to Put a Client’s Finances Back on Solid Ground

Custom Whole Life Helps Solve Cash Flow Dilemma

Debbie Clark, Dallas Office, knows why she is a life insurance agent. “When I was considering the career, I realized that while it never makes the pain of losing a loved one go away, life insurance can help people in their greatest time of need. No one needs the additional pain and suffering created by losing your home or financial security and life insurance can prevent that.”

A trained musician with a master’s degree from the University of North Texas, Debbie is the organist at Trinity Episcopal Church in Ft. Worth and provides piano lessons to local children. It was the death of one of her students, a nine-year old boy that spurred her to seek a new direction in her career and the lives of her partner and their four children.. ‘I always felt there was more I could do to benefit others. I wanted a company that matched well with my desire to serve… Selling life insurance for New York Life gives me that.”

Financial Challenges When a Parent Dies

Debbie’s commitment to helping others when they need it most shone through recently, as she assisted a client deal with some financial challenges compounded by the death of the client’s father.

The death of a parent can create financial complications, bringing up issues of inheritance, of estate taxes, of what to do with the family homestead; for Debbie’s client, it all happened a bit too close together—in a singular and nearly overwhelming array of choices, demands, and costs.

“My client was fortunate to be able to retire early, and she and her partner moved to Hawaii, in part because of the lifestyle, but also to be close to her aging father. She bought 13 acres of farm property and had planned on purchasing other property for investment purposes. Her dad passed away around the time of the real estate market crash.” Debbie recalls.

In addition, she had a substantial mortgage, two kids in private college (one in an Ivy League school) and a great deal of concern because although her monthly expenses hadn’t changed, everything else around her had.”

Cash Flow Problems

The greatest cost, though, the one that strained her budget the most, came from an unlikely source: life insurance, specifically policies she had purchased from another company. It’s no wonder that when a friend recommended Debbie to her, the woman made the call immediately.

“She had purchased four whole life policies from another company,” Debbie explains, “with the intent of doing some real estate kinds of buying and selling, using the cash value in the policies via policy loans to provide her with some personal cash flow while she purchased the properties.

“What she didn’t understand at the time, though, was that the company she bought the policies from uses direct recognition in calculating its policy dividends. Direct Recognition reduces dividends to reflect any outstanding loan against the policy. This means that while she could take loans from the cash value in the policies - which accrues interest and reduces cash value and death benefit, doing so would negatively impact the amount of any dividends the policies earned in the future, significantly reducing her cash flow over time.”

Originally, Debbie’s client had purchased four policies as a preventative measure, to ensure that when she withdrew money from one, the decrease in dividends and cash value wouldn’t affect the other three. Unfortunately, the financial crisis hit. This not only put a great strain on her cash flow, it also negatively impacted the primary purpose for buying these policies in the first place – death benefit. “The problem,” Debbie says, “is that non-guaranteed dividends are often used to offset the premiums, so reducing them, coupled with the loans against the cash value, could undermine her ability to pay those premiums later on.”

In short, the more Debbie’s client relied upon the policies to cover her current expenses, the less likely she would be able to afford the out of pocket premiums and the policies— leaving her and her family with potentially little or no financial security.

Making Life Simpler

“My first concern,” Debbie explains, “after reviewing the materials she sent me, was that she had a significant cash flow problem and we needed to alleviate that. Because it was a complex case with some complex issues that needed to be untangled, I called Brad Penny, our life consultant here in the West Central Zone, for additional expertise.”

The company’s life consultants are in-house policy experts who help policy owners get the most out of their policies, based on their needs, goals and unique financial situation. “We ran by a number of different options and compared how they would function; we were sending illustrations back and forth, trying to find a solution that would help stabilize her financially and restore her death benefit, one where she didn’t have to make these very substantial premium payments along with college tuition and maintenance for a farm and additional acres she couldn’t rent or sell, notes Debbie.”

The solution was a New York Life Custom Whole Life policy. Custom Whole Life (CWL) is a permanent life insurance that is designed to maximize the cash value accumulation in the policy. Its unique design allows policy owners to coordinate the paid-up date of their policy precisely with their personal financial goals and timetable, and access the policy’s cash value in the form of periodic payments via loans or withdrawals. These loans or withdrawals can be structured so that you can obtain the payments tax-free.

For this case CWL was the answer because it let the client determine how much premium she paid each year and for how long. And since New York Life Insurance Company does not use the direct recognition calculation, Debbie’s client will receive the same dividend, whether or not she had a policy loan, if dividend is declared. And Debbie’s client will be able to access that money through a series of payouts if she needs the additional funds or if her needs for life insurance decrease.

“All in all,” Debbie says, “it was a great win for her and I’m thankful that we were able to keep everything that she wanted.”

To learn more about New York Life Insurance Company, and the products we offer, please contact one of our agents today.

In Oregon, the Custom Whole Life policy form number is 208-50.27. All guarantees are based upon the claims paying ability of the issuer.

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