Method for combining loan with key employee life insurance

• US 5,966,693 A
• Filed: 05/07/1996
• Issued: 10/12/1999
• Est. Priority Date: 05/07/1996
• Status: Expired due to Fees

• Current Assignee: Money Accumulation Programs Incorporated
• Original Assignee: Money Accumulation Programs Incorporated
• Inventors: Burgess, Duane
• Primary Examiner(s): Voeltz, Emanuel Todd
• Assistant Examiner(s): Alvarez, Raquel
• Application Number:
  US08/643,966
• Time in Patent Office: 1,253 Days
• Field of Search: 705/4, 705/35, 705/30, 705/38, 705/1, 707/104
• US Class Current: 705/4
• CPC Class Codes: G06Q 10/1057 Benefits or employee welfare, e.g. insurance, holiday or retirement packages
• CPC Class Codes: G06Q 40/02 Banking, e.g. interest calculation or account maintenance credit or loans G06Q40/03
• CPC Class Codes: G06Q 40/03 Credit; Loans; Processing thereof
• CPC Class Codes: G06Q 40/08 Insurance
• CPC Class Codes: G06Q 40/10 Tax strategies
• CPC Class Codes: Y10S 707/99945 Object-oriented database structure processing
• CPC Class Codes: Y10S 707/99948 Application of database or data structure, e.g. distributed, multimedia, or image

Abstract

A leveraged whole or universal life insurance plan is administered using a computer processing method to ensure lender security, accumulation of value to an employee, and minimum tax exposure. The employer borrows in installments to partly cover insurance premiums on a policy owned by the employee, and pays interest on the loan for the life of the plan. The employee also pays part of the premiums, and collaterally assigns the policy as security for repayment of the loan. As the insurance policy appreciates in value, premiums decrease. The employee can pay down the loan and eventually eliminate premium payments, or can borrow against the policy for tax-free retirement income. The excess of the death benefit over any loan principal remaining upon the death of the employee is a tax-free payment to the employee'"'"'s beneficiaries. The computerized method includes storing parameters of insurance policies and loan agreements in a computer memory, over ranges of possible death benefits, cash values, loan principals, and incremental payments over a span of years. Employee factors are quantified and input to the computer processor, which is programmed to integrate the employee factors with the insurance and loan terms to select an integrated loan/insurance arrangement to schedule payments to meet maximum contributions and retirement and life expectancy expectations. The processor adjusts incremental payments from the employer and the employee to ensure sufficient collateral and to comply with tax regulations that are unfavorable to certain front-loaded payment schedules.

Claims

1. A method for computerized administration of leveraged split dollar life insurance coverage, by contributions of an employer and an employee to pay for a loan of insurance premiums, comprising the steps of:

defining at least one available insurance agreement for a life insurance policy to be owned by the employee, by storing data representing terms of the insurance agreement in a memory of a computer, the terms of the insurance agreement including a relationship of premium payments due in order to purchase life insurance over a predetermined term of at least seven years, in a range of values encompassing at least one of a predetermined death benefit range, a predetermined cash value range, and a predetermined premium payment range;

defining at least one available loan agreement to be taken by the employer, by storing data representing terms of the loan agreement in the memory of the computer, including principal and interest payments needed to pay off loans in predetermined principal amounts over said term of years for a principal amount over a loan principal range, the life insurance having a cash value available to pay off the loans and being collaterally assigned to the employer, the terms of the insurance agreement and of the loan agreement forming a set of constants defining insurance policies and loans over ranges of death benefits, cash values, loan principals and terms of years;

for at least one employee, defining at least two quantitative factors chosen from a desired death benefit amount, a desired contribution level of the employer and a desired contribution level of the employee;

processing by computerized data processing means the insurance agreement terms and the loan agreement terms stored in the memory, to equate a sum of the contribution levels of the employer and the employee with a particular loan principal such that said sum of contribution levels is sufficient to offset the principal and interest payments of the loan agreement, while calculating a plurality of incremental employer payments and employee payments over time; and

,

adjusting by said data processing means the contribution levels of the employer and the employee to determine actual employer payments and employee payments such that;

the actual employee payments include scheduled premiums in a calculated amount payable for at least seven years;

in at least a first three years of the term of years the actual employer payments include employer unscheduled premiums, and over the term of years the actual employer payments include all employer unscheduled premiums plus interest on the loan agreement;

no more than seventy percent of the sum of all scheduled and unscheduled premiums to be paid under the insurance agreement are paid during a first four years of the term of years from said scheduled and unscheduled premiums; and

,

after seven years of the term of years, the employee may terminate actual payments and use loans on the insurance policy to pay all or part of the scheduled premiums;

whereby, the actual employer and employee payments are sufficient to support a split dollar insurance policy owned by the employee and providing a tax-free death benefit to beneficiaries of the insurance policy equal to a difference between the death benefit and the loans on the insurance policy taken out by the employee.

2. The method for computerized administration of claim 1, further comprising integrating the insurance policy with a retirement program by adjusting the employer and employee contributions such that the loans on the insurance policy are in part used for retirement income to the employee, thereby reducing the difference between the death benefit and the loans on the insurance policy.

3. The method for computerized administration of claim 2, wherein said defining of the at least two quantitative factors includes storing data chosen from the set consisting of an age of the employee, a planned retirement age, a planned retirement duration, a minimum number of years for payment of scheduled premiums, a maximum incremental payment, an employee tax bracket, and at least one health factor affecting statistical longevity.

4. The method for computerized administration of claim 3, further comprising forecasting at least one of a rate of future economic return and future loan interest rates, and calculating from the quantitative factors a schedule of loans against the insurance policy available after the planned retirement age.

5. The method for computerized administration of claim 1, wherein at least part of the employee payments are obtained from bonuses to be paid by the employer.