A client of mine called today in response to a blog post I had written about the current state of estate preservation life insurance and exemption laws. After reviewing his situation I concurred with his estate attorney that he should look at acquiring a 2nd to die life insurance policy.
Remember that a second to die policy, also called a survivorship policy is designed specifically for the situation that estate taxes present. Upon the first death the entire estate is passed to the surviving spouse estate tax free along with the exemption from the deceased spouse (currently $5 million). So life insurance isn’t needed for estate taxes upon the first death. When the surviving spouse passes away the two exemptions combined are applied ($10 million today) and taxes on the estate value above that amount are due at the rate of 35%.
This particular client is a private pilot and he and his wife are in great health. Being a pilot I asked for 2nd to die quotes from AXA Equitable and Minnesota Life. The two proposals were disturbingly different in price and guarantees. AXA priced the $1.5 million dollar policy at $18,600 annually payable for life. The fact that they were out of the running on price alone was enough to turn to Minnesota Life, but in addition to price was the troubling guarantee that only lasted for 20 years.
I’ve been adamant for as long as this blog has allowed me to share my thoughts that there are two cases where permanent insurance, guaranteed lifetime permanent insurance, is the only prudent choice. Final expense life insurance and estate liquidity life insurance are two areas that, by the very nature of what they are covering, can’t fold before you die. The very thought of insuring two lives of extremely healthy people in their mid 60’s with a policy that is only guaranteed for 20 years is poorly thought out even if it was the best priced product. Mortality statistics would say that one of the two will live to their 90’s, if not both.
Minnesota Life proved once again that they may not be noisy, but they sure are good at what they do. For $2000 less per year they guarantee the death benefit to the youngest insured’s age of 120.
This is I believe going to continue to be a trend. More and more companies are finding ways to step back from lifetime guarantees, whether it is by simply not offering it, or repricing it out of the game or pulling it out of their conversion options.
Bottom line. Most universal life insurance in force today is not guaranteed to have a level premium and death benefit for life. Whether it is an individual policy or a 2nd to die policy, have your policy reviewed and explained to you. Make sure the guarantee is what you think it is. Don’t wait for the implosion that leaves you with one option, starting over.