Built with margin

Illustration

How a plan built with margin holds when the policy delivers less

The plan is underwritten with room to spare. Here is one household’s plan with the policy paying 10% less than illustrated. The mortgage is still paid in full.

Policy cash, 10% lower: $416,250a year, projected
Mortgage, years 16–30: $407,649a year
From them, years 16–30: $0 projectedthe mortgage is still paid in full

The plan as illustrated

They commit $2,500,000 at purchase and pay $20,333.33 a month for fifteen years. As illustrated, the policy then provides $462,500 a year, enough to fund the $407,649 mortgage payment with $54,851 to spare.

If the policy pays 10% less

Policy cash is $416,250 a year. The mortgage needs $407,649. It is still paid in full from the policy, with $8,601 a year left over. The household pays nothing more.

Why there is room

The plan was not drawn to the dollar. Each case is modeled on a conservative profile, across many market paths, and the policy contribution is sized so that projected cash stands above the payment it has to make.

What happens every year

Policy values, the bank loan and the collateral are reviewed against the plan each year. A policy running behind its illustration is seen long before year sixteen, while there is time to adjust.

What they saw before signing

The carrier illustration, the financing terms, and the plan at more than one level of policy cash, reviewed with their CPA.

The numbers

Line by line

Illustration

MeasureTraditional mortgageFamily Office Mortgage

At purchase

Down payment$1,000,000$1,000,000

Policy contribution—$1,500,000

Total committed$1,000,000$2,500,000

Years 1 to 15

Monthly mortgage paymentProgram: interest only$24,239.79$20,333.33

Mortgage balance at year 15$2,854,195$4,000,000

Years 16 to 30

Monthly mortgage paymentProgram: principal and interest over 15 years$24,239.79$33,970.76

Projected policy cash, per year—$416,250

What you pay, per month$24,239.79$0 projected

Projected cash left over, per year—$8,601

Year 31 onward

Mortgage paymentsNoneNone

Projected policy cash, per year, through year 62—$416,250

Quoted remaining death benefit—$3,250,000

The whole picture, through year 62

Total you put in$9,726,325$6,160,000

Mortgage payments made by the policy, projected—$6,114,737

Projected policy cash paid to you, years 16 to 62—$13,449,013

Cash received, less cash put in−$9,726,325+$7,289,013 projected

Illustration. Both cases assume a 6.1% mortgage note rate, a 20% down payment, and no investment of money kept or saved. The program’s projected policy cash is a quoted figure scaled to the policy contribution; it is not derived by this model and is not guaranteed. The base case assumes no further personal premiums, financing interest or bank-exit payments. Property taxes, home insurance, maintenance, closing and advisory costs and tax effects are excluded.

How each line is calculated

Traditional payment. Principal × r ÷ (1 − (1 + r)⁻³⁶⁰), where r is the annual rate divided by 12.
Program, years 1 to 15. Principal × r. Interest only; the balance stays at $4,000,000.
Program, years 16 to 30. The full $4,000,000 amortized over the remaining 180 months, which is why the payment is 67% higher than in the first fifteen years.
Projected policy cash. $370,000 a year on a $1,200,000 contribution in the reference case, scaled in proportion. It covers 102% of the later mortgage payment as illustrated.
Total you put in. Initial capital plus every mortgage payment not funded by projected policy cash.

Their cash position, year by year

Everything paid in, less projected policy cash received.

+$7.29M−$9.73MEvenYear 45

Family Office Mortgage, projected Traditional mortgage

Try it with your numbers

Find out if it is open to you.

Three ranges tell you where you stand against the published criteria. If you meet them, Kent Chesley will speak with you personally.

Prefer to talk? Call him directly at 949-293-8686.