Perspecta Investment Loan Program with Standard Life (6152)

Perspecta Investment Loan Program
What you should know
What you should know about the ILP
As previously mentioned, ILP is designed to
provide High Net Worth individuals with the
benefits of life insurance coverage along with
the potential of using the cash surrender value
of the contract as a pool to borrow funds for
investment purposes.
The ILP requires deposits of at least $50,000 in
the first contract year. Once the policy has been
issued and $50,000 has been deposited, the
policy owner is eligible to borrow up to 90% of
the policy’s cash value.
The increase in cash surrender value (either
coming from subsequent deposits or reduced
surrender charges) will entitle the policy owner
to borrow additional amounts. The cumulative
policy loans cannot exceed 90% of the policy’s
cash surrender value. In some cases, in order to
keep the policy in force, the maximum loan may
be lower.
Why Policy Loans?
In addition to ILP and similar arrangements,
there are other options available to clients who
wish to access the values in their UL policies.
These arrangements are collectively known as
“leveraging” concepts and are a combination
of a collateral loan from a financial institution
coupled with an assignment of a UL contract.
While these arrangements offer an alternative, the
major differences between ILP and leveraging are
as follows:
1. Leveraged loans are fully underwritten loans
by the lending institution. As such, they are
subject to, and based on, the credit worthiness
of the client and form a part of the client’s
credit rating. Policy loans are not subject to
financial underwriting when they are taken
out. When the UL policy is applied for, all
underwriting is conducted at that time. Once
the policy is issued, the ILP is granted to the
policy owner. There is no underwriting and
the loan does not form part of the client’s
credit history.
2. Policy loans are most beneficial for newly
issued contracts with borrowing occurring
during the early policy years. A good rule of
thumb is the first seven policy years for policies
that are funded at or near the maximum for
exempt test purposes. This is due to the ability
to borrow up to the Adjusted Cost Basis (ACB)
of the contract without these borrowings being
a taxable disposition. After that period there
will be tax considerations. It may be better to
consider “leveraging” for contracts that have
been in force for a number of years.
Know Your Client
This program is designed to allow the immediate
borrowing of a large portion, 90%, of the cash
surrender value of the contract as soon as the
required minimum deposit is received and the
funds clear the policy owner’s bank. As such, this
program could lend itself to money laundering
activity. In order to protect Standard Life and
the advisor from this activity we will require
the advisor to complete a “Know Your Client”
form (PC 6168). This form must be attached to
the application along with the Perspecta ILP
illustration for the client.
Commission Notes
Loan repayments and interest payments are not
considered deposits into the policy, and therefore
do not generate commissions.
In any policy year, additional deposits subsequent
to a policy loan are not commissionable up to the
amount of the outstanding loan.
Refer to Schedule A for the details.
Standard Life 8