Hi, I recently talked to a friend also an insurance agent. He touched on legacy planning and mentions that a policy he has is able to multiply my parent's money by ten folds. Can anyone clarify this?

Hi anon,

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Multiplying by 10x is close to impossible if your parents are already in their 50s (which is probably the case), especially if the policy is on their life. The only way that might feasibly work is a leverage life insurance policy that only pays on death, with a minimum death benefit; but your parents will have to service the interest on the leverage (bank loan) in PERPETUITY. That might not be the sort of cash outflow they want in retirement.

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Of course, without the details of the plan that is being proposed, I can't give you a definitive answer. I might be wrong, but I doubt it.

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I have a client who was sold a USD $1M policy by a bank, premium was USD$300K, loan was USD$216K and he only had to pay ~USD$84K (that was funded by more financing, but I won't get into that). He was 59 years old. Upon death, after accounting for the loan, his USD$84K will 'become' USD$784K. So 10x is possible, but if you factor interest costs, then the true cost of the policy is higher and the returns will be lower than 10x. And that's if he dies before age 85. After 85, the death benefit is lower.

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As a side note, he regretted it because of the interest servicing.

Actually, no harm talking to him to find out more. there should be no obligations or coercion to buy anything if you are not comfortable. even if you sign, you can always freelook within 14 days, assuming he is a legit agent working for a legit insurance company.

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if i am not wrong, the policy is an ILP and the plan is to pledge the policy as a collateral for a loan to invest. there are definately many risks to this, one of which is the interest rate will change. 10x sounds far fetch. one of the best investor Warren Buffett took 10 years to reach 1000% share price returns.

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just on the surface, i am very skeptical. usually any good deals will be reserved for high networth clients. retailers are left with scrapes and lousy deals.

if you still want to talk to him, find out as much as you can about the policy, eg underlying funds/stocks/ETF/holdings, costs, fees, policy structure, benefit illustrations, who are the counter parties, etc. then you can post a new question here again to let the community help you out.

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hope this helps.