A recent case and policy for a 38-year-old real estate agent, Diane, who has been married for 5 years. Diane’s concern and needs are to provide some protection for her husband if something were to happen to her; critical illness, disability or death. Diane’s budget is between $150-200. Diane is a non-smoker in GREAT health.

Me: “Diane let’s discuss the amount of coverage, death benefit and critical illness/disability before we get started.”

A simple rule of thumb to understand your life insurance coverage is DIME;

• D – Debt (unsecured, credit, cars, etc.)
• I – Income (replacement income to sustain family & lifestyle)
• M – Mortgage (pay off the mortgage)
• E – Education (any education required for the children)

$750,000 TOTAL COVERAGE – Because there are no children and both husband and wife are good earners, we decided on a 4X multiplier for income replacement, there was no substantial debt to factor into the coverage and the mortgage balance is $200,000.

We also discussed Diane’s situation and planning for their retirement. Diane was interested in learning more about the options.

SOLUTION #1 – Buy Term and Invest the Rest Strategy

Diane’s DIME Needs – Remember, Diane’s needs included critical illness living benefits (critical illness is very similar to disability). We found a policy (Ameritas) for $750K coverage and 20 years at $8 and 30 years at $84.88 per month.

Ultimately, Diane took into consideration that they are hoping to have children and decided that locking in the rate for the 30-year term would provide flexibility and peace-of-mind for their family when the children do arrive!

At this point, it’s IMPERATIVE to understand that the death benefit part has been accomplished. If your budget is $100 and only $22 has been allocated to life insurance, you can very easily use the “Buy term and invest the rest” strategy; it’s valid, it’s effective and in many cases it makes sense. The challenge becomes; “Invest in what?”

There are a number of options to consider at this point including qualified (pre-tax) and non-qualified (post-tax) options such as IRA’s, Roth IRA’s, Mutual Funds, Stocks/Bonds and much more.

SOLUTION #2 – Full IUL Strategy

IUL, or Indexed Universal Life, policies are permanent life insurance policies that are packaged with an annual renewable term policy and a side cash account. IUL’s receive favorable (incredible) tax treatment in the form of TAX-FREE gains. You can “stuff” money into an IUL up to a limit but you must maintain a proper amount of life insurance to keep the favorable tax treatment (we call this amount the limit of term and cash accumulation a “corridor”)

The challenge with an IUL is that while it will solve your death benefit needs when you have a needs like Diane did for $750,000 that if you consume too much of the IUL monthly premium for term insurance, you take away the cash accumulation power of the IUL.

If Diane wanted to use a full IUL for her death benefit and retirement income, she would either have to decrease her death benefit OR increase her premium. Diane was not willing to do either.

SOLUTION #3 – The “Split Ticket” Solution (IUL with Side Term)

A “Split Ticket” is a strategy used by insurance agents and companies to satisfy MULTIPLE NEEDS of an insurance policy. The strategy is to write multiple policies to maximize benefits and minimize costs, the complimentary policies maximize the benefits of an individual need.

EXAMPLES: Common split ticket strategies are for;

• Death Benefit & Long Term Care
• Death Benefit & Cash Accumulation
• Death Benefit & Disability Insurance
• Death Benefit & Critical Illness

NOTE: For a variety of reasons, many agents will NOT introduce of proposing split tickets to you, including; #1) agents typically make less commission on a split ticket; #2) lack of training or product knowledge.

The Split-Ticket was our winner, here is how we managed our split ticket.

• Term Insurance – $700K 10 Year Term at $22 per month
• IUL – $115 per month for $46K year one face value term with $74,000 cash value and $120,000 death benefit at age 67 – Diane stops paying premiums at age 67, the policy is “self-sustaining”.

Additional benefits of using a “Split Ticket” for Diane;

• Exploit the low cost of term for 30 years while Diane is still paying the mortgage and throughout her children’s early, teenage and college years.
• When the term expires, the death benefit from the IUL becomes the permanent life insurance, ensuring that final expenses and something are left behind for the children.
• Flexibility is built into the IUL policy to allow for future overfunding (additional premium dollar or additional lump sum payments) allow for more death benefit and more cash accumulation.

Summary & Takeaway – 38 Year Old Healthy Non-Smoking Realtor Asset Protection, Life Insurance, and Retirement Funding

Life insurance is asset protection by providing beneficiaries with a benefit that is passed along tax-free, secure from creditors and does not have to traverse probate.

Diane liked her options with the IUL however since she decided upon the $750K 30 year term at $84.88 per month, Diane felt it made more sense to “buy term and invest the rest” since the death benefit coverage was taken care of for 30 years. I could NOT AGREE MORE with this decision, any additional COI (cost-of-insurance) over that 30-year term is redundant. Diane’s goal is to invest in a Roth IRA and slowly build up her contributions until she is able to max out her Roth – EXCELLENT CHOICES DIANE.