A Gift for MetLife Hot

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One of my clients was recently able to make a significant gift to MetLife using a Guarantee Advantage UL policy. He paid a single premium of over $1.2 million for a $10 million policy with a lifetime guarantee. That gave MetLife a gift of at least $40,000, and it probably cost him much less than that.
Guarantee Advantage UL uses a shadow account design; the no-lapse guarantee is in effect as long as the Coverage Continuation Value is positive. During the first year, the no-lapse interest rate is zero, and the no-lapse cost of insurance rate is also zero. So you gain nothing by paying the premium early in the year rather than at the end of the year. The lifetime no-lapse guarantee will be satisfied either way.
For this policy, there is also a first-year minimum premium requirement of about $50,000, which can be paid in 12 monthly installments.
If we assume that MetLife’s expenses were 25% of the $1.2 million premium and that it could earn a 5% yield on the remaining 75%, it could earn over $46,000 by investing the accelerated premium during the year. And if my client could earn only 1% after tax in safe investments during the year, the early payment of about $1,150,000 cost him less than $12,000.
Life insurance agents often talk about leverage — “life insurance lets you pay estate taxes for just pennies on the dollar” — and here we have a good example of leverage.
Happy holidays.

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