Case Study One was an “ask” for a maximum death benefit at projected mortality and bundling the servicing costs associated with the structure, (capitalize and finance the interest payable) and retire the structure from excess funds within the structure at the mortality event. The “pay as little as possible” route. Note the Economic Benefit must be paid at AFR.
The key takeaways on this design are as follows:
This design utilizes a non-modified endowment contract thereby producing an estate tax free and income tax free death benefit of $171,952,080 in year 30 or age 79 (expected mortality) and a death benefit growing year over year to $463,720,956 at age 100 found in Column 12.
Cash accumulation and therefore ultimately cash surrender value as first utilized by the liquidity provider (95% of actual value) to determine collateral requirements is found in Column 8. Once the structure has retired the bonds, year 25, Column 4, the remaining cash value or cash surrender value of the life insurance contract, $65,329,448 is available to support continued growth in the death benefit or, as Case Study Three demonstrates, is available as an income tax-free loan to the owner.
The retirement of the debt associated with this design, found in Column 4, line 25, varies by design but it is the last entry, is extended in duration in order to optimize the growth in the life insurance contact.
This design illustrates two (2) bond issuances at year 1 and year 6, Column 1, that are inclusive of all costs associated with servicing the life insurance policy and related issuance expenses.
The AG-49, Actuarial Guidelines-49A and B, found in the highlighted yellow footer, limit the assumed interest rate of return on the life insurance contract. The rate is an arithmetic mean of the 25-year rolling average of the S&P 500 Index over a 65 year look back period.