What’s new? Pay the first modal premium with 1035 exchange funds!

Coverpath is very excited to offer customers and advisors additional flexibility with 1035 exchanges by enabling them to have the first modal premium paid from 1035 funds while providing advisors maximum flexibility throughout the process. Read on to find out how this new feature works!

How does it work?

When preparing a quote or starting an application for a client, advisors can now include a 1035 exchange where the funds are either transferred to ALIR or used to pay the first premium. Here’s a breakdown of the two options:

Option 1: Transfer 1035 Funds to ALIR (Don’t pay the premium with 1035 funds)

Coverpath will issue the policy with ALIR and the client will pay the first premium out of pocket. Once the funds come in via the 1035 exchange, Coverpath will add them to the ALIR. If the funds are different from what was quoted and applied for, Coverpath will send the client a revised illustration and policy specification page to demonstrate the changes that resulted from the transfer of funds.

Option 2: Pay premium with 1035 funds (NEW!)

For premium payment with a 1035 exchange, Coverpath will hold a policy before issue. The advisor and customer will review the underwriting decision and both approve it (without issuing the policy). Then, Covepath will perform the 1035 exchange and when the funds arrive, the customer will accept the offer, we will use the funds from the 1035 exchange to pay the first modal premium, and the client’s policy will go in force.  If there are any excess funds from the 1035, those excess funds will go toward ALIR. The advisor can make amendments after the funds arrive, or before they arrive giving them space to account for client decision changes or funds arriving higher or lower than expected. 

FAQ: 

What about TLIC? 

Clients who use 1035 funds to pay the initial premium can still accept or decline TLIC. If they accept the TLIC offer, Coverpath will refund their TLIC premium when the policy is issued. If the client’s 1035 transfer amount does not fully cover the premium, they’ll have to pay out of pocket because Coverpath does not use the TLIC premium to pay the first premium.  

What if it takes a long time for funds to arrive? 

Advisors and clients can use 1035 transfer funds to pay the first modal premium for 6 months after the application is signed. However, after that time, the policy will be cancelled because the underwriting decision is no longer valid. Advisors can issue the policy without paying the first modal premium with 1035 funds as a way to get up to 6 months of additional time. The client can also reapply as soon as the funds arrive. Digital operations is standing by to help advisors handle longer waits for fund arrival. 

What if the 1035 funds are more or less than the initial premium?

If the 1035 funds are less than or equal to the premium Coverpath will charge the client the difference when the policy is issued. In the event funds come in higher than expected, the client will also get ALIR placed on the policy to be used as overflow. 

What are the current limitations?

Coverpath won’t support a 1035 exchange with a loan, but you can pay off loans before the 1035 exchange is processed.

Give Us Your Feedback!

Have an idea to improve a feature on Coverpath? We want to hear from you! To provide feedback or request new features, go to the “What’s Ahead” section on hub.coverpath.com and click the “Send General Feedback” button.

Insurance products on the Coverpath platform are issued by Massachusetts Mutual life Insurance Company (MassMutual), Springfield, MA 01111-0001.  Not all products are available in all states.  State variations may apply. 

For Financial Professional Use Only