Insurance in terminating MPP plan

[kwalified]

there are a few policies in a terminating plan, a couple participants have significant CSV north of $300K. If they do not have the funds to buy the policy and it is their desire to keep the coverage, is the only option to take out a loan on the policy?

thank you.

[rcline46]

Distribute the policies. taxable income on the value in excess of PS 58 costs paid. No loans.

[ETA Consulting LLC]

There is an "OPTION" to take out a policy loan and to scale the value of the policy down before you distribute the policy in a taxable distribution. The policy owner may have to begin to pay the premiums at a quicker rate, but this will avoid some of the tax hit from distributing the entire policy.

Good Luck!

[kwalified]

There is an "OPTION" to take out a policy loan and to scale the value of the policy down before you distribute the policy in a taxable distribution. The policy owner may have to begin to pay the premiums at a quicker rate, but this will avoid some of the tax hit from distributing the entire policy.

Good Luck!

when you say "scale the value of the policy down" are you referring to the CSV or face amount? I'm thinking CSV

[ETA Consulting LLC]

Ultimately, the policy is going to be distributed at the greater of the PERC amount or the CSV. When you have to trustee take out a policy loan and place the cash in the trust, you can rollover the cash and distribute the policy at the deflated value. Keep in mind, this is NOT a springing cash value issue [[as spring cash value dealt with artificial surrender charges that reduced the CSV that were never intended to be paid]]. Here, you're actually taking cash out of the policy through a policy loan (thereby reducing the CSV, and the FMV).

Good Luck!