Aug 1, 2010 12:00 PM

Help clients make sure their policies still fulfill their intended purpose in a cost-effective way

By Robert H. Yunich

Once issued, a life insurance policy can remain in effect for decades. During this time, the original owner's goal and objectives may have changed, or a need for additional insurance or changes to the policy may have arisen. Too often, insurance policies are forgotten and the policies, as well as related documentation, aren't periodically reviewed. To ensure that the life insurance policy is fulfilling its intended purpose in a cost-effective way, estate-planning advisers (including trusts and estates attorneys, as well as financial and tax advisers) should follow a review process consisting of fact gathering, analysis and evaluation and recommendation of appropriate changes to the life insurance policy or remedial action to correct any deficiencies that have been discovered. While the process is similar for life insurance policies in a business setting, the scope of this article is limited to individual and trust-owned policies.

Initially, the adviser should compile an inventory of all in-force life insurance policies. The adviser should note (1) the name of the issuing insurance company; (2) the issue date and effective date (if different); (3) the names of the owner(s), the names of the insured (including their health ratings); (4) the names of the beneficiaries; (4) the type of insurance policy (that is, term, universal or whole life); (5) a description of any riders; (6) the current death benefit; and (7) the annual premium and modal premium (if different). For life insurance policies that are owned by an irrevocable life insurance trust (ILIT), the adviser should get and review a copy of the trust instrument. At the same time, the adviser should request in-force illustrations for each in-force policy. The in-force illustration will show a projection of future premiums, cash values and death benefits based on the current dividend scale (whole life) or current interest rates and current costs of insurance (universal life). For variable universal life policies, the in-force illustration will be based on a hypothetical earnings rate such as 8 percent and current (plus guaranteed maximum) cost of insurance. The adviser should also review the file containing the original application and illustration, if available.

Topics of Interest

Estate Tax	Donor Advised Funds
GSTs	Family Offices
Private Foundations	Life Insurance
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Topics of Interest

Estate Tax	Donor Advised Funds
GSTs	Family Offices
Private Foundations	Life Insurance
2010 Tax Act News	Industry Trends Surveys

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