Historically life insurance used in estate planning has revolved around the issue of estate taxes, with the irrevocable life insurance trust being the stop gap to keep the government from draining off half the value in fairly liquid estates and sometimes completely gutting estates with very low liquidity.
With the downturn in the economy over the past year, the value of many estates that were borderline taxable has fallen to the point where some are considering whether estate protection is needed. Another thing that has pushed on that already leaning tree is the fact that congress appears to be seriously poised to lock in the estate tax exemption at next year’s already legislated level of $3.5 million.
Before you bag that life insurance there may be a few things you want to consider. First of course is the fact that economic downturns historically don’t last and value lost will likely be regained. And, while the new exemption limits may seem temptingly high enough to consider foregoing protection, a turn around in real estate and investments, coupled with a few right choices can put your estate right back in the governments hip pocket.
Another thing to consider for those estates that were borderline taxable at the lower exemption limits and seem safely padded if the exemption goes to $3.5 million, is the idea of keeping that irrevocable life insurance trust in place as a wealth preservation tool. It could be that extra million or two that makes your estate “economy proof” should you happen to suffer more losses or die during an economic slowdown.
Bottom line. That in force life insurance has value to your estate in several ways and they should all be considered before any firm decision is made to lapse something that may have huge value down the road.
August 18th, 2008
I am a graduate of Dave Ramsey’s Financial Peace University and a firm believer in his financial guidance and yes, his thoughts on life insurance. I believe that both his passionate belief that people should have life insurance and that for almost everyone it should be term insurance are right on track. But, after careful study I don’t understand his endorsement of Zander Life Insurance as the only agency in the country that a person ought to go to.
This past week I was talking to client about his insurance quotes and he mentioned that he was going to compare our quotes with Zander. That’ s fair. If I can’t earn the business, I don’t deserve it. So we pulled up Zander on the computer and ran quotes for him. While based on his personal health information there will be some adjustment, for comparison sake he wanted to run the quotes at preferred plus. His birthday is 1/23/49 and he wanted a quote for $500,000 of 10 year term.
Zander has an easy to use quote engine and we soon had a spreadsheet of quotes, zander-instant-quotes_files.We discussed these quotes and I explained why it was important to have access to a wide variety of companies due to the underwriting foibles of each company.
We than ran quotes on the Hinerman Group website and found a bit of a disturbing difference, hinerman-group-get-a-quote.
Please note Dave’s comments at the top of Zander’s quotes. And please note that while our websites agree on the best company at that rate class, Savings Bank Life, Zander has skipped over 5 companies in between Savings Bank and their second best quote, Transamerica. Did they skip them because they are not “top notch” as Dave suggests? I don’t think so. The missing 5 are all comparably rated to SBLI and Transamerica.
Is it because those 5 offer inferior underwriting? Again, I’m not seeing that. In fact, if you are 5′10 and weigh 202 pounds, you will not get that rate from Savings Bank Life, but you will from Prudential Financial (Pruco). Dave talks about pre-existing conditions. Weight is the most common rate changer in the life insurance business.
Bottom line. Agencies delete certain companies from their quote engines generally to drive their customers in the direction they want. I don’t understand Zander’s logic but I know from having a quote engine that you don’t accidentally leave companies out. There appears to me to be some reason that Zander wants to have a larger gap between the first and second best quotes than actually exists. What’s up with that kind action Dave?
August 18th, 2008
