Targeting Your Alternative Investment

In Max, Alternative Investments are compared against Destiny® illustrations to show the advantages of choosing Destiny policy as an investment vehicle.

For the best comparison, an alternative investment should strive to reach the same investment goals as the policy it is being compared with.

Did you know Max’s Alternative Investment Calculator gives you the ability to target an income amount or a net estate value?
Thinking about your client’s investment goals will help you to discover the best way to illustrate the alternative investment.

For Example

Suppose you have just set-up a Destiny illustration for a client at 4% with a 50% tax rate. This client, 45, female, non-smoker, is interested in purchasing a policy for herself that will have $250,000 face amount and a cash value at maturity of $100,000. If there’s any extra value in the policy she wants it evenly paid to her as income between her 65th and 75th birthdays.

You’ve set-up the policy by selecting a “Level-net-of-tax withdrawals” solve, setting a face of $250,000, depositing $10,000 for 20 years, entering a $100,000 cash value at maturity, and setting the withdrawals start year to 20 and end year to 30.

Calculate and you should see you were able to illustrate $21,628 annual income for your client from age 65 to 75 and still meet her requirements for net estate value at maturity.

Let’s take a look at the alternative investment. We will use a 6% rate (2% more than our policy).

By default, the Alternative Investment Calculator is set-up to target an income amount of $0.00, hence no withdrawals have been illustrated in the alternative investment. As a result, the alternative investment’s net estate value at maturity, (year 55), is $778,778, but our policy’s total death benefit is only $350,000.

We could explain to the client that there is no income illustrated in the alternative investment and that that is why it has a greater net estate value at maturity, but why not show her a better comparison instead?

One approach is to target the same amount of income in the alternative investment as in the policy. In our example this means targeting an income amount of $21,628 from years 20 to 30. When we do this we see that the alternative investment’s net value at maturity is around $198,787, which is a much more comparable figure than $778,778, an apples to apples comparison.

But then you remember the net estate value at maturity seemed more important to your client than the income amount did. You believe the client would take less income to make sure the net estate value at maturity is closer to her goal of $350,000.

Try changing the alternative investment to target a net estate value of $350,000 and recalculate. Notice how the alternative investment now has a new income amount of about $15,989 instead of $21,628, and the net estate value at year 55 is $350,000.

Now you can show your client a real alternative, one where she could still achieve her investment goals, but would not have the advantage of the extra income that Destiny policy could provide.

Author: car health