Jack Nachtrab
Life Insurance Consultant

Many clients save for retirement in qualified plans that defer taxation until the funds are withdrawn.  These qualified plans require distributions (RMD’s) to be taken starting at age 72, whether the client wants them or not.  A common recommendation for clients who don’t need or want these RMD’s is to use them to fund a life insurance policy to help pay the taxes on the remaining inherited IRA balance.  One issue with this plan is that getting life insurance at the age of 72 is much less cost effective than getting it at a younger age. But how does the client pay for the coverage before the RMD’s start coming in?

With a Step Premium Concept on a policy with a guaranteed death benefit, clients can underfund a Guaranteed UL or Guaranteed Indexed UL in the early years of the policy and step up the premium later when RMD’s kick in.   Once the client reaches age 72 and begins to draw RMD’s, the premium steps up and the RMD is used to fund the step up in premium. This plan gives the client the flexibility to get coverage at a younger age, pay lower premium while saving for retirement, and then use the RMD dollars to fund the higher premium later.  This can be a great way to ensure your clients get the permanent coverage they need in place with better pricing and easier underwriting.

This strategy can also be used on term conversions to ease clients into paying for permanent coverage.

If you have clients in their 60’s who will need to take RMD’s in retirement, give us a call and ask about a Step Premium design policy.