FREQUENTLY ASKED QUESTIONS
HOW DOES RISING INTEREST RATES EFFECT THE PLAN?
A common concern when leveraging assets is interest rate volatility. To rigorously assess the product's resilience, we've subjected it to a 1980s interest rate simulation – the most extreme rate environment in recent U.S. history. Typically, rising rates benefit the product. However, we understand that a sudden, sharp increase could temporarily challenge rate performance. This stringent test ensures the product can withstand even the most adverse conditions. Interest rates peaked at a staggering 16.88% in the 1980's. Any IUL product failing this test is immediately rejected. While no model is perfect, we're confident that it would take an unprecedented economic downturn, far surpassing the 1980s, to jeopardize the loan.
WHY DO BANKS LIKE TO LEND TO THIS PROGRAM?
Unlike traditional assets like property, IUL* insurance policy cash value offers lenders an exceptionally secure foundation for loans. Our program’s unique structure significantly mitigates lender risk, enabling consistent lending through economic downturns. Despite negotiating competitive interest rates, the inherent low risk of default ensures substantial profitability for lenders.
DO I NEED TO APPLY FOR THE LOAN?
No. There's no need for a loan application or underwriting process. This commercial loan is extended to a Master Trust, bypassing traditional lending procedures. Your IUL policy serves as the sole security for the loan. There's no other asset required.
DO I NEED TO MAKE INTEREST PAYMENTS?
No. Interest on the loan is compounded and added to the principal balance. Repayment of both the principal and accumulated interest is projected to occur around the 15th year.
HOW IS THE COMMERCIAL LOAN REPAID? WHEN DOES THE LENDER GET THEIR MONEY BACK?
The commercial loan is projected to be repaid in approximately 15 years through a combination of withdrawals and loans from your IUL policy. However, it's important to note that policy performance can impact this timeline, potentially delaying repayment.
WHAT HAPPENS AFTER THE BANK IS PAID BACK?
Upon full loan repayment, the lender will release the policy assignment. You'll then have unrestricted access to your policy's cash value through withdrawals or policy loans.
WHAT DETERMINES THE CASH ACCUMULATION VALUE IN THE POLICY?
Your policy's cash value growth is linked to a popular stock market index but doesn't directly invest in it. Typically, your cash value mirrors the index's performance. However, growth is capped at a predetermined rate, determined by prevailing interest rates. For instance, if the index rises 8% but the cap is 10%, your cash value grows by 8%. If the index gains 15%, your cash value still grows by the 10% cap. Importantly, your cash value is protected from market downturns; if the index declines, your cash value remains unchanged.
WHAT ARE THE QUALIFICATION REQUIREMENTS OF THE PLAN?
While the life insurance carrier chosen may add their own qualification requirements, the following are the program requirements:
Client Income: Greater than $100,000 per year if corporately sponsored, $200,000 if individually funded.
Age at Plan Inception: 18 to 65.
Health: Normal to good health (possible exception for younger than 50, impaired health clients).
WHAT IS MY COMMITMENT?
A TOTAL of five (5) minimum annual contribution of $20,000, plus a $1,350 trust fee, is required. Some clients will choose to contribute more.
To initiate the plan, you must complete a life insurance application (potentially subject to medical underwriting), execute necessary trust documents, and make an initial contribution. Payments repeat annually for five years.
Please note that altering the plan's structure could result in insufficient cash growth to cover future premiums. In such cases, supplemental contributions may be necessary. This will be discussed with your agent in more detail.
WHY DO I NEED A TRUST?
To safeguard the loan, lenders require your IUL policy to be held within a bankruptcy-protected trust. This trust structure also provides added protection for your assets by shielding them from probate proceedings. The $1350 annual fee discussed in the prior question is to create maintain and service the plan for the 10 to 15 years its managed. Fee is only in first five years.
COULD I LOSE ALL MY MONEY?
While it is possible, it is highly unlikely. The strategy has been stress-tested under extreme conditions to minimize risks. However, like all investments, some level of risk remains. The success of the strategy depends on the stability of the issuing company and index performance. In the worst-case scenario, you would only lose your contributions to the plan, but no more. In a 1 to 1demo we show you all the details. To break this strategy something worse then our stress tests indicate.
The information provided in these FAQs is for educational purposes only. Ray Alkalai is not offering legal, tax, investment, insurance, or any other professional advice. These FAQs are not intended to replace such advice. Results are not guaranteed, and individual outcomes may vary. Readers should consult with their own professional advisors.
*IUL - Indexed Universal Life Insurance Policy
Leverage For Retirement
NIW and KaiZen is a registered trademark of the NIW Corp of Texas and Ray Alkalai is an authorized representative.