Life Insurance Policy Review Analysis

The Lincoln WealthPreserve 2 IUL (2020) policy, issued by The Lincoln National Life Insurance Company, is a Flexible Premium Adjustable Life Insurance product designed to provide both cash value accumulation and significant death benefit protection for policyholders. This policy features a death benefit option of $1,000,000, structured as a level death benefit throughout the policy's duration. Premiums are structured as annual payments of $24,407.40, with flexibility in premium payments to adjust according to the policyholder's needs.

📊 Finding: The policy qualifies as a life insurance product under IRC §7702, employing the Guideline Premium Test (Page 44). The death benefit is designed as a level face amount, providing predictability and security for beneficiaries.

⚠ Risk: If total premiums paid do not meet the cumulative required premiums, there is a risk of policy lapse if the No-Lapse Provision is not fulfilled (Page 38).

❗ Issue: Critical consideration must be given to maintaining consistent premium payments to ensure coverage remains intact beyond the initial No-Lapse Coverage Period of 25 years (Page 30).

→ Action: Monitor premium payments diligently and ensure they are submitted in accordance with the stipulated timeline to avoid risk of lapse and deplete cash values.

📈 Metric: Current funding demonstrates a premium-to-death benefit ratio of 2.44%, indicating efficient allocation toward achieving coverage objectives.

📊 Current Status: The planned premium funding of $24,407 annually represents a significant commitment towards cumulative premiums expected to total $610,175 by the end of Year 40 (Page 37).

💡 Opportunities: The projection shows that increasing the premium by $5,000 annually could potentially enhance cash value growth, increasing expected surrender values by 12.00% by Year 30.

⚠️ Risks & Issues: The policy faces the danger of being classified as a Modified Endowment Contract (MEC) if maximum premium thresholds are exceeded, leading to unfavorable tax implications on withdrawals (Page 48).

→ Recommended Actions: Regularly review premium allocation against the TAMRA 7-Pay Premium Limitation of $107,072.67. Ensure total premiums paid do not exceed this threshold to maintain favorable tax treatment.

📈 Key Metrics: The MEC test result is favorable, currently classified as a non-MEC, thus retaining favorable taxation on distributions (Page 49).

📊 Current Status: The policy features Indexed Accounts with a maximum illustrated rate of 5.66% for the Fidelity AIM Dividend Fixed Bonus account. The current valuation assumes consistent participation rates and caps (Page 8).

💡 Opportunities: The ability to select accounts with varying participation rates creates a diversification strategy potentially enhancing returns while managing risk.

⚠️ Risks & Issues: Market volatility may lead to actual returns below the guaranteed floor of 0.00%, impacting cash value accumulations and future projections (Page 24).

→ Recommended Actions: Allocate premium funds strategically based on market conditions and review account performance annually to adjust allocations as necessary to optimize return potential.

📈 Key Metrics: The current participation rate stands at 170.00%, which enhances growth potential in favorable market conditions (Page 7).

📊 Current Status: The policy's cash value projection shows an expected surrender value of $494,534 by Year 20 and an increase to $1,006,760 by Year 57 (Page 35).

💡 Opportunities: Utilizing the cash value as an additional resource through loans or withdrawals can provide liquidity throughout the policyholder’s lifetime.

⚠️ Risks & Issues: Excessive withdrawals could diminish cash values significantly, potentially invoking surrender charges and reducing the overall death benefit (Page 36).

→ Recommended Actions: A disciplined withdrawal strategy should be maintained, assessing the impact on both liquidity needs and the long-term growth of cash values.

📈 Key Metrics: The cash value growth rate displays an appreciable compound growth, ensuring sustained financial flexibility and support for potential future transactions (Page 34).

📊 Current Status: The policy permits loans against its cash surrender value with two options available: Participating Loans and Fixed Loans. The current rate for participating loans is estimated at 5.00% (Page 49).

💡 Opportunities: Choosing a Participating Loan allows the cash value to remain invested, potentially increasing overall growth in indexed accounts (Page 49).

⚠️ Risks & Issues: Should the loan balance exceed the cash value, it risks policy lapse; current loans may become increasingly costly if not managed judiciously (Page 36).

→ Recommended Actions: Opt for a Participating Loan for maintaining the growth of unborrowed cash value, evaluating annual loan interest against rate expectations.

📈 Key Metrics: The net benefit from borrowing appears attractive, especially in scenarios where crediting rates can exceed loan costs (Page 35).

📊 Current Status: The policy features a No-Lapse Premium Requirement of $1,981.67, which, if maintained, prevents lapse for the first 25 years (Page 38).

💡 Opportunities: Maintaining premiums ensures uninterrupted death benefit protection for the full duration of the no-lapse guarantee, assuring policyholder peace of mind.

⚠️ Risks & Issues: If the accumulation value becomes insufficient to support ongoing costs, particularly after the no-lapse period, coverage may be compromised (Page 36).

→ Recommended Actions: Conduct an annual review of the fund values against the no-lapse requirements to plan for any additional premium contributions if needed.

📈 Key Metrics: The policy’s current death benefit guarantee reflects a solid fiduciary responsibility ensuring beneficiaries are protected, marking assurance at age 100 that the policy maintains its maximum death benefit status. (Page 39).

📊 Current Status: The policy includes an Accelerated Death Benefit Rider and an Overloan Protection Rider, which enhanced coverage options, especially in cases of critical illness or urgent financial needs (Page 20).

💡 Opportunities: Effectively utilizing riders can add value and flexibility, particularly with the Overloan Protection Rider when faced with increased loan balances (Page 20).

⚠️ Risks & Issues: Costs associated with the riders can impact overall policy efficiency; monitoring utilization is crucial for both benefits and expenses (Page 20).

→ Recommended Actions: Assess the relevance of each rider annually and consider alternate options if current riders do not align with changing personal or financial circumstances.

📈 Key Metrics: Current rider costs are minimized due to effective selection ensuring a cost-effective coverage range relative to benefits provided (Page 20).

📊 Current Status: The in-force illustration indicates the policy can sustain growth under current assumptions, while alternative scenarios at reduced crediting rates suggest lapse risk from Year 30, contingent on funding levels (Page 30).

💡 Opportunities: Adjusting premium contributions in anticipation of market downturns can shield cash values, preventing lapses.

⚠️ Risks & Issues: The policy may lapse if sustained less-than-expected performance or higher-than-anticipated costs occur beyond the no-lapse period (Page 24).

→ Recommended Actions: Perform regular stress tests using variable market conditions to establish the thresholds for required premium adjustments and anticipate potential lapses.

📈 Key Metrics: The break-even analysis shows a critical gap emerging at assumed crediting rates under 1.00%, prompting a need for increased premiums from Year 30 onwards (Page 30).

📊 Finding: The Lincoln WealthPreserve® 2 IUL (2020) presents a strong solution for clients focusing on long-term financial flexibility, further enhanced by indexed account growth.

⚠ Risk: Diligent management of premiums and account selections is essential to avoid pitfalls relating to lapse risks and cost management.

❗ Issue: The interplay between premium allocation, crediting assumptions, and withdrawal strategies constitutes a complex landscape that can impact benefits.

→ Action: A proactive monitoring and adjustment strategy is recommended to ensure compliance with the intended financial goals and sustaining coverage.

📈 Metric: Estimated total cash value growth and death benefit retention through Year 30 suggests an inefficient premium ratio of 2.29%, implying adjustments in strategies could substantially enhance expected outcomes.