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Case Study 2

An Asset with a Lasting Legacy.

Hedge against market fluctuations with life insurance.


“How do I maximize the legacy for my children?”
Joanne Rogers is 60 years old. She is a widow with a total financial portfolio of $6,000,000 (50% income producing, 50% appreciation). While Joanne feels she could earn a 7% rate of return on her investments over the next 25 years, she is concerned that poor market performance could leave her children with far less of a legacy than she planned.

A 7% return on Joanne’s investments would indeed provide her with excellent income, but what about after taxes? Based on a blended tax rate, that assumes a 35% ordinary income tax rate, a 20% capital gains rate, and a constant 50/50 income/appreciation portfolio allocation, Joanne would only receive an after-tax rate of return of 5.08%. Furthermore, if Joanne’s investments only yielded a 5% gross return, then her assets would only deliver 3.63% after taxes. At this rate of return, Joanne’s beneficiaries would receive far less over a 25-year period.

Life insurance offers a solution (1)
With the help of Diversified’s experts, Joanne’s financial professional suggests that she take $60,000 per year (1% of her accessible assets) and use the funds to purchase a Universal Life policy. At Joanne’s age and underwriting class, the $60K annual premium provides a death benefit of $4,750,000. Joanne also has the option to own the policy outright, purchase it in an Irrevocable Life Insurance Trust, or purchase it in her husband’s credit shelter trust that he created before his death. The potential results for Joanne’s beneficiaries, after a period of 28 years, are outlined below:

7% avg. investment growth 5% avg. investment growth
Joanne’s portfolio: $23,995,755 $16,261,420
Portfolio less premiums: $20,269,836 $13,328,069
Adjusted portfolio + death benefit: $25,019,836 $18,078,069
Difference with life insurance: $ 1,024,081 $ 1,816,649
IRR3 w/ life insurance upon death: 5.23% 4.02%

By directing a small amount of her net worth into life insurance, Joanne adds a stabilizing element to the money transferred to her family. Life insurance offers an additional safeguard against risk of loss, or investment under performance. While the insurance policy is not actually insuring Joanne’s portfolio, the death benefit could be used to offset losses that might occur. In effect, Joanne transfers the risk of payment from her own investment performance to the insurance carrier to assure an inheritance for her children, her main goal.

Getting results for your clients
While hypothetical, the above example serves as a good illustration of how Diversified can help you build a valuable plan for clients like Joanne Rogers. On a risk adjusted basis, life insurance is an incredible tool for passing wealth. Talk to us about today’s leading policies and programs that may offer your clients important tax advantages, stability, and a lasting legacy.


1 This is a hypothetical example intended to demonstrate how this plan would work conceptually and does not
represent any specific product. For planning and estimates using a specific product, please contact our offices.
This example also assumes the existence of an insurable interest. The ability to purchase life insurance is
conditioned on financial and medical underwriting.

2 Life expectancy based on the 2001 Commissioners Standard Ordinary Mortality Table.

3 Internal Rate of Return (IRR)


For Financial Professional Use Only. Not For Use with, or Distribution to, the General Public