Immediate and Deferred Gifts in One Plan
Using the Life Income Strategy (LIS)
Scenario: A donor wants to make an immediate gift (and perhaps a planned gift)
to a favorite charity. The donor does not want to reduce or deplete his or her
financial resources or net worth.
The donor has a $100,000 Certificate of Deposit (CD) at a local bank earning 0.5%
interest. The donor's lifestyle is not dependent on the CD.
The donor is shown that both the donor and the charity can benefit from using
the Life Income Strategy developed by the MAF Companies and the Penn Mutual
Insurance Company.
Step one
The donor transfers the $100,000 to a special Penn Mutual indexed life policy.
Historic returns on this policy are 7.07% for the last ten years and 7.73% for the
last twenty years.
The donor now benefits by:
a) The $100,000 is now earning a much higher rate.
b) The policy has a two percent guaranteed minimum rate even in down
markets. The policy has a twelve percent cap on earnings.
c) The donor is in control and can cash out ofthe policy at any time.
d) Depending on the donor's age, the life insurance benefit is typically two
to four times the $100,000 deposit
Step two
Beginning in year two the donor can borrow up to forty percent of the initial
premium. This transaction is a loan from Penn Mutual secured by the policy death
benefit. This special loan does not affect the initial $100,000 which continues to
earn the annual yield on the entire amount.
The donor withdraws $40,000 and donates this amount to the favorite charity.
The situation now is:
a) The donor has made a $40,000 tax deductible gift to charity.
b) The donor still has $100,000 earning interest in the policy.
c) The donor still has a substantial life insurance benefit.
In addition, if the donor names the charity as the beneficiary of the life
insurance policy, an attractive deferred planned gift is also created.
Important point. If the proposed donor did not take advantage of this strategy
and merely kept his CD as is at 0.5%, the value of the CD would have grown to
$105,639, roughly the same as the net policy cash value as the life policy in ten
years after repaying the policy loan, but he would not have made the $40,000
charitable contribution. The plan works for any dollar amount starting at $10,000.
There is no upper limit
Summary
A person can, simply by rearranging certain financial assets, create an attractive
immediate charitable gift while maintaining control of that asset.
Questions and Answers
Why Penn Mutual and what are their ratings?
Penn Mutual has two special riders that make Strategy #1 exceptional - the cash
value rider and the forty percent loan rider. Penn Mutual is the second oldest
insurance company in America. Penn Mutual's ratings are: A+ Superior by A.M.
Best, Aa3 Excellent by Moody's and AA Strong by S & P.
Who developed this strategy?
MAF Companies (formerly known as Medical Arts Financial) based near Chicago,
is a major national firm whose mission is to financially support nonprofit
organizations in their fundraising efforts
Explain the riders that make this Penn Mutual policy special?
One policy rider is the Cash Value Rider that allows the cash value to come very
close to or exceed the premium paid even in the first year. The other special rider
is the 40% loan feature that allows a policy cash distribution of up to 40% of the
premium starting at the beginning of the second policy year.
What is the policy interest rate assumption being used and why?
For most illustrations, the 20 year actual historical return is used along with a
lower assumed return. Historic returns indicate that there is a 94.4% chance of
obtaining a 7.0% return and a 99.4% chance of obtaining a 6.5% return over a
twenty year period.
Is the 40% loan from Penn Mutual ever repaid?
This depends on a few factors such as the insured's age, medical rating, policy
yield, etc. If not repaid out of the policy's cash value, it is repaid out of the policy's
death benefit
What is the exit strategy?
There are many exit options. One is to maintain the policy until death and have the death
benefit paid to the policy beneficiaries (charity, family, etc.). The death benefit is usually
several times the initial premium(s) and grows with time. Another option is to surrender
the policy for its cash surrender value at any point.
A third option is to use part of the policy cash value to repay Penn Mutual its loan
so there is no loan and interest burden on the policy values. All options can easily
be illustrated.
"Interested in learning more about this program? Feel free to post your questions or comments here. Or you may directly email me now." --Karl Ohrman, President
( This document is not an offer to sell life insurance or make representations about your organization's ability to
take advantage of this strategy. It is merely a summary description of a program oï¬ered by the MAF Companies
and the Penn Mutual Insurance Company.)