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How Modified Endowment Contracts Can Help Your Clients | Selling Life & Annuities - YouTube
Channel: Gordon Marketing
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hi randy pearson vice president of life
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and annuities for board marketing and
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welcome to another episode of selling
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life and annuities
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today with me i've got craig mira our
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regional vice president in charge of
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life insurance and we're going to be
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talking about
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mechs modified endowment contracts and
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why sometimes
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they're not necessarily a bad thing stay
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tuned
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[Music]
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all right craig modified endowment
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contracts in the world of life insurance
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i'm sure a lot of advisors
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if they're familiar with mex they think
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immediately
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bad thing right so what exactly is a
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mech can you explain that to the to the
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agents watching this video
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sure so the the mech guidelines or the
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7702 guidelines were put in place in the
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mid 80s
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it was defined by congress on how they
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were going to define a life insurance
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contract
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put minimum death benefits in regards to
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the premium
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while still keeping everything tax-free
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okay so the modified endowment contract
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rules uh stipulated by congress
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what are the effects on death benefit i
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mean what are the limits i mean how
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can you in layman's terms describe that
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to the agents
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sure so in layman's terms you can think
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of uh if we have a 45 year old male
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and he's paying 10 000 a year into a
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life insurance policy
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the minimum amount of death benefit we
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can dial in let's just call that
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750 000 as long as we are at that 750 or
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higher
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then we have not violated the met
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corridor and we have a tax-free
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death benefit as well as tax-free
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accumulation as well
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all right so describe for agents then in
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what types of scenarios
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sales scenarios would it be uh
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opportunistic
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or a good planning strategy to to
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intentionally
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create a mech well there's really two
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scenarios the first of which
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is a short pay if we have that 65 year
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old and he has
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assets the family has assets and they
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just want to
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pay it in a shorter period say they want
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to pay in a lump sum
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or over the course of three years to buy
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a million dollars a death benefit
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we can pay that in a long summer three
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years get the money out of the client's
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pocket have it can be completely paid up
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and intentionally make it a mech now
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even though we made it a mech the death
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benefit is still
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going to be tax free all right very good
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so really it's a it's a from a planning
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standpoint
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illustration standpoint it's about
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fitting the product
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to satisfy the client's objectives both
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from a deathbed from a life insurance
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standpoint
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but also from a funding standpoint
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exactly any instances
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now can we create a mech with all
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permanent life insurance policies say
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whole life or
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iul or ul within any chassis so
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we went over the first scenario the
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second scenario would be an accumulation
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design
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that we intentionally made mech as well
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and right now with rates being where
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they're at i'm seeing a lot of
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intentionally designed mechs on the
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accumulation side as well
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if we have that 62 year old that's
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looking for immediate income we can pour
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and let's just call it 500
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000 into an accumulation focused iul a
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whole life design
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and turn on income in year two now
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that's going to have tax ramifications
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the accumulation uh as well as the
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income pulling out
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will be taxed just like an annuity but
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we're going to have higher
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upside potential within that life
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insurance contract and then
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your death benefit is still going to be
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100 tax free
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even though we created a mech so in
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comparing a life insurance
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contract specifically designed as a mec
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i think you really just kind of said the
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words in
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your last statement that we're in
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essence creating a an annuity look alike
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yeah right
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and and then from a tax standpoint the
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funds coming out
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as i recall in some of my recent
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readings it uh it's treated as a lifo
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last in first out right
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so important things to keep in mind and
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i think
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you just mentioned also iul's
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understanding that in today's
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world and with some of the very
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competitive iul products that we have
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out there
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we've got higher caps great return
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possibilities uh additional bells and
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whistles that frequently you're not
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going to see
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in an annuity product and from a tax
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standpoint if they're treated almost
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identically
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as long as the expenses within the life
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insurance contract
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are reasonable i would imagine that in
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many instances
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a well-designed mech might be a better
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solution than a life
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than an annuity contract it can be and
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it's a case-by-case scenario
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it's something that everyone on our team
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myself
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brady ray jim can help you go out and
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design
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and find if a mac versus a non-neck may
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be a possible solution for your client
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yeah you just took my last question so
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my last question was going to be how
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does an agent get an illustration
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or discuss a case so i will and you just
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told them but i will reiterate the fact
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that one of the great things about
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gourd marketing right now we've taken
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the opportunity during this
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this coved pandemic to dramatically
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improve the quality of our marketers at
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gourd marketing
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and the number of marketers that we have
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available to assist advisors
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so if you're watching this video and
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you'd like help
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better understanding how to properly
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design life insurance
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cases for your scenarios and you just
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simply need help from an education
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standpoint an illustration standpoint
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don't hesitate to reach out to craig or
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any of the other
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number of life insurance marketers that
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we have working on the team
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we've reached the end of this segment
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run out of time so i would ask however
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if you're watching this video please do
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me a favor and click subscribe
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at the bottom of the video and also the
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notification bell so that when we roll
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out
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new content that might have a positive
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impact on your sales practices
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that you'll be notified but with that
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thank you craig for participating great
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information
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and thank you for watching agents out
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there happy selling we'll see you next
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time
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