Trouble for Estate Plans with Life Insurance Policies

The market shock of 2008 set an adverse chain of events in motion in some variable life insurance policies, and the damage is starting to surface. Insurance policies used for estate planning purposes are frequently held in ILITs with trustees who don’t closely monitor the performance of the policy investments. If the trustee simply collects the checks and pays the premiums, the trustee may not realize that the policy is in trouble until it’s too late.

Once the cash value hits zero, the insurance company will send a notice requiring more money within 30-60 days to keep the policy alive. If enough time has passed, it is very difficult to come up with the cash to save the policy, and someone who has paid for a policy for years may lose the full cash value and the death benefit.

Edward F. Koren, of Holland & Knight, says that estate advisors should be sure to work with a very good insurance agent “who deals with insurance every day.”

Arden Dale, Trouble for Insurance Policies in Estate Plans, W.S.J., Apr. 4, 2011.

Special thanks to Jim Hillhouse (WealthCounsel) for bringing this to my attention.