why permanent life insurance will never go out of style

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financial planners as a very efficient and useful component of estateplanning.

Why P ermanent Life Insurance Will Never Go Out of Style

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October 10, 2007

SOURCE: InsuranceNewsNet, Inc.

If consumers go by price, simplicity and ease, term insurance would winthe Term vs. Perm Debate that has been going on for decades. What’s notto love about term insurance?

Term insurance premiums have become very affordable thanks to the

highly competitive market. For example, a $100,000 20-year level premiumterm policy may cost as little as $150 per year or a total of $3,000.

Term insurance products also offer consumers something permanentinsurance can’t: the convenience of shopping for and buying a policy anyday and time through the Internet. One online term insurance quoteprovider claims a database of complete information on hundreds of policyvariations from top insurance companies. Once a product has beenselected, the online processing of some term insurance policy can becompleted in just 15 minutes.

Can permanent insurance products compete or are they destined forextinction?

Some experts believe permanent life insurance is here to stay because itprovides solutions for complex situations term insurance cannot meet. Onesuch circumstance involves estate planning.

The role of permanent insurance in estate planning is something terminsurance can never duplicate. Permanent insurance is widely viewed by

of 4Why Permanent Life Insurance Will Never Go Out of Style - 10/10/2007 - insurancenews...

2/21/2008http://www.insurancenewsnet.com/article.asp?a=top_news&id=86801



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Dick and Jane die in 2011 when the estate tax was reinstated, as is with nochanges, after its temporary repeal in 2010. Dick died first and lefteverything to Jane and no estate taxes were triggered. When Jane died

Through an irrevocable life insurance trust (ILIT), permanent life insurancereduces the impact of estate and gift taxes. The ILIT becomes thebeneficiary of a permanent life insurance. Because the death benefitproceeds belong to the ILIT and not the insured, it increases the size of theestate without increasing estate taxes. The death benefit can also be usedbe used to pay off tax obligations. In addition, permanent life insurance,

through the ILIT provides liquidity without selling non-liquid estate assets.

Some may argue that the role of permanent life insurance may soon begreatly diminished if the lawmakers decide to permanently abolish estatetax in 2011. But the fate of this bill remains uncertain.

Previous efforts to do away with the estate tax have all failed. Its repeal isexpected to deprave the federal government of about $1 trillion over 10years yet it benefits only a very small portion of the population according tothose who argue against its abolition.

Still others are predicting that, even if the estate tax is not repealedpermanently, its post-2010 bite would be so greatly reduced that special

tax shields would no longer be necessary. But CBS News reported thatthree of the leading presidential candidates from the Democratic Partypromised to raise the estate tax under their watch.

As such many financial planners believe that the best defense against theestate tax is to assume that it will be a permanent fixture rather than hopingfor the best and doing nothing to protect estates.

For example, Dick and Jane, a married couple, have a net estate of $2million broken down into the following:

Real estate valued at $500,000

Personal property valued at $150,000

Miscellaneous cash and investment accounts valued at $350,000

IRA accounts valued at $1,000,000

Instead of purchasing a permanent life insurance for the purpose ofestablishing an ILIT, the couple relied on wills leaving all assets to thesurviving spouse or children.





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,estate. The estate tax bill on the other $1 million is $435,000.

Since the late couple’s miscellaneous investment accounts is only$350,000, the heirs need to raise $85,000 within nine months after theirmother’s death. The tax-deferred IRA accounts can cover the cost of theentire estate tax bill but this would produce an income tax event. Realestate can be sold to generate additional funds necessary but given thelimited time the heirs have, they may have to settle for less than the optimal

market price.

Supposed Dick and Jane both owned life insurance valued at $500,000each. Without estate planning, the policies would add $1,000,000 in theestate and an additional $500,000 in estate taxes for the heirs to pay.

Dick and Jane could have invested in permanent life insurance andestablished two ILITs that divide the $2 million estate into two trusts of $1million each. At Dick’s death, his trust could have claimed the $1 millionexemption. At Jane’s death, her trust could use her $1 million exemption.That would leave the heirs with zero estate tax due and no complicatedfinancial decisions to make.

If Dick and Jane had transferred their life insurance policies to the ILIT atleast three years before their deaths, the insurance proceeds would not beconsidered part of their estate and save the heirs $500,000.00 in taxes. Bymaking the ILIT the beneficiary of their policy and their children thebeneficiary of the ILIT, the heirs get an additional $950,000.

Until providers can make a term insurance product that can duplicate thoseresults – and unless the permanent repeal of the estate tax has beenguaranteed – permanent life insurance will always have a place in thisworld where nothing is certain but death and taxes.

© Entire contents copyright 2007 by InsuranceNewsNet.com, Inc. Allrights reserved. No part of this article may be reprinted without theexpressed written consent from InsuranceNewsNet.com.

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2/21/2008http://www insurancenewsnet com/article asp?a=top news&id=86801

why permanent life insurance will never go out of style

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