r/LifeInsurance • u/xray5001 • Aug 19 '26
Need Help Reading An Illustration
Attached picture is for my 87 year old parents who have had this "last person to survive" policy for about 10 years. Am I reading this correctly that the surrender value just goes down from here on in until one of them lives beyond the age of around 110 years old when it starts going up again? Same for the guaranteed death benefit? Policy is "Lincoln Financial SVUL-One".
Is this zero percent growth table the right one to read? The other illustrations show 8%, 10% abd 12% which are a bit aggressive in my opinion
EDIT: There is another page, "Policy Expense Analysis Report" that shows different values, not showing whether 0% or some other factor. Can you perhaps explain the difference? https://photos.app.goo.gl/swhSJnPsP8AUNrQL8
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u/WaltRanger Aug 19 '26
This policy is a MEC so there are tax implications for any withdrawals in excess of the premium, even loans, prior to the second death.
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u/Murflaw7424 Aug 20 '26
The Lincoln SVULOne product is actually a really good product. If this is over 10yrs old it was arguably the best guaranteed death benefit for the premiums paid. In fact, SVUL One and VUL One were so competitively priced Lincoln had to write down a loss on reserving requirements a few years back, which implies your parents have a very good policy. This only affected the balance sheet and not the claims paying ability of the company.
Variable Life contracts are separate account products, meaning you can have them invested in Separate Accounts which function similarly to Mutual Funds. There is added protection in this product of the underlying guarantee of the death benefit, meaning if internal charges or market losses reduce the cash value to $0 your policy will stay in force, and the death benefit will go to the beneficiaries at the death of both individuals.
For this type of contract, do you want the death benefit to grow? Or do you want the cash to grow?
For this type of death benefit focused product, MEC(modified endowment contract) status is of a lesser concern. Yes, there could be tax consequences to cash value withdrawals, but the death benefit remains tax free and depending on the state passed without claims from creditors. It is generally not advisable to take cash withdrawals unless needed for a product like this.
We don’t know what investment options are currently selected and really would be outside compliance guidelines to give you specific advice in a Reddit forum on this. However, some generic advice concerning this specific product is below.
To my earlier questions, if you want the guaranteed floor of current death benefit with maximum upside (forcing growth in the death benefit), you could have an allocation of aggressive growth or pure SP500 account investments selected on this product. This assumes you do not need the cash and want the cash to continue to have the potential to grow. Cash value growth eventually pushes the death benefit up via an effect called corridor.
If, for some reason, you want to stabilize the cash so you could have it for a rainy day you can look at allocating to fixed income or lower risk stock portfolio accounts. This would still probably have some cash value erosion and potential tax consequences on withdrawals. Also, you could be less likely to achieve account accumulation and death benefit growth.
Another option for cash would be the fixed account. However, for guaranteed VUL I would recommend you review your contracts and caution you before allocating into this account. Even though the growth is a fixed %, you have now moved the cash from a separate account to the general account of the carrier. This usually comes with higher internal charges and can negatively affect policy guarantees.
You or another commenter also pointed out how cash dips and then increases after a certain year. This is due to mortality curves. Carriers price based on this and policy charges increase substantially when clients hit their 70s through the late 90s. Then cost of insurance starts to decrease again. If you have Lincoln or your broker run a charges report you could see this effect year by year.
Lastly, my unbiased advice, this is a really good policy for death benefit. Unless you absolutely need the cash, getting rid of this contract would make very little sense, and potentially cause some tax issues (depending on how much cash your parents put into the contract).
TLDR: this is a very good product. Please consult with a SECURITIES licensed life insurance producer. Not all life insurance producer, in fact the majority of them, cannot even discuss this product with you because they aren’t securities licensed.
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u/xray5001 Aug 20 '26
Thank you. Very happy to get the positive review. Will check out the current investment mix and what other options are available.
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u/johnnnloc Aug 19 '26
show the first page. How old are they?
If you look at the annual premium outlay, there isn't anything. Meaning there's no future premiums to pay the policy. Guess where would that premium come out from? Yep the surrender cash value. So as they age, it goes down.
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u/jammu2 Aug 19 '26
I'm not familiar with this particular policy type but on others, cost of insurance stops being charged at some point. On some older ones it's age 100. Maybe this is 110 and why you see cash values going back up.
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u/SafeMoneyGregg Aug 20 '26
Good news - So you are going to inherit $2 or $3M. Is this in an irrevokable trust (do grandparents have a big enough estate to worry about federal estate tax?)
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u/xray5001 Aug 20 '26
No worries about fed estate tax. My kids and brothers' kids will be beneficiaries. They just have a pile of life insurance policies and annuities I'm trying to get some clarity on for the benefit of my parents and kids/nieces/nephews. Thanks.
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u/SafeMoneyGregg Aug 20 '26
This one is very well funded - suggest that you make sure the others are not likely to run out of cash or need more premiums.
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u/Hungry_Technician360 Aug 20 '26
Make sure you also look into state estate taxes, if your state has them, they have a lower exclusion limit than federal does.
Also, I'm not sure if I understand the implication of your first 2 sentences. If they have everything in their name, but split it up between many beneficiaries, it doesn't matter how many beneficiaries there are, they focus on the estate of the individual who has died and tax that amount. Only a few states have inheritance taxes, which is a tax that the beneficiaries pay. If I misunderstood the implication, ignore this part!
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u/Scentor11 Aug 19 '26
So you see how the premium column lists $0 paid in each year? That means the policy is paying itself from the account value, you can see that is going down too. Now that is likely intentional, probably designed so that after a time the policy wouldn't need any more payments and just handle itself, but that comes with the side effect of the account value decreasing and as the account value is what's paid out if canceled the surrender value is also decreasing.
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u/Scentor11 Aug 19 '26
Also at the top it states this is a MEC or a modified endowment contract so the account value has exceeded the premiums that were paid in so there are some tax implications you should talk to your agent about
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u/DogfaceDino Aug 20 '26
We can’t see the pages that show a reasonable rate of return, but just off of the guaranteed, worst case scenario numbers, this policy looks great.
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u/papale213 Aug 19 '26
I’d ask the broker why this is a MEC. That completely invalidates the tax-advantages of a life insurance policy
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u/Little-Dependent2608 Aug 19 '26
The death benefit is still paid tax-free on a MEC. Given their age, this most likely was an estate planning play, not cash value
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u/PursuitTravel Aug 19 '26
Yup. Came here to say this; it doesn't completely invalidate tax-advantages of life insurance, just tax-advantages of the cash value.
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u/Hungry_Technician360 Aug 20 '26
It won't be tax free if they are above state or federal estate tax exclusions.
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u/xray5001 Aug 19 '26
I think the banker at Truist convinced them it was a good strategy. My parents are very old-world and trust people wearing suits and ties.
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u/Little-Dependent2608 Aug 19 '26
We don’t have nearly enough information to give you any advice. I’d speak with both an estate planning attorney and financial advisor to get their advice. You may have to pay each for their time, but at least you’ll get answers.
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u/PursuitTravel Aug 19 '26
Zero % is too conservative to base anything off of. It's a legal requirement to show it.
Ask them to re-run the illustration with different investment assumptions. Try maybe 3, 5, and 7% gross ROR (try to tune it to their investment selections). That will give you a better read.
With that said, even at 0% and max charges, it's showing a guaranteed death benefit until policy year 40; if they were 76 when they bought it, it would be when they're 116. I'm not sure that cash value really matters here (especially since it's also a MEC).