Why is Cash Value Life Insurance Valuable & Suitable in an ...

Why is Whole Life Insurance Valuable & Suitable in an Irrevocable Trust?

1) "Real life happens." One parent may die, and the surviving spouse may decide not to continue funding the trust. Or the cognitive abilities of a surviving spouse might deteriorate such that a premium might be missed. With whole life, if there are enough cash values, the policy can keep coverage in force automatically via Automatic Premium Loan. In the "no lapse universal life" policy there is a likelihood that the policy will have little or no cash values, and a missed premium could result in a lapse of coverage.

2) What if the Federal Estate tax is repealed, or the exemptions are increased, or the client's estate shrinks? What if the client has a change of mind on strategy? If so, a policy with cash value provides an asset to distribute to beneficiaries or redeploy within the trust. The "no lapse universal life " policy will likely have little or no cash values.

3) What if the insurance company's financial strength deteriorates and a client wishes to make a change of insurance carrier? If the existing policy has no cash value, there is no cash value to exchange for a new policy (making the exchange economically unattractive). Depending on age and health of the insured(s) at that time, this could cause premiums to double or triple over what was being paid previously. With whole life, there may be a large asset to exchange, keeping the premiums for a new policy practical.

4) How old will children be when their parents are 90? Life expectancy for one parent in a couple now in their mid-50s is mid 90s. Client can provide the trustee with the ability to make distributions to their children while they the parents are alive---from policy cash values. A "no lapse universal life" policy provides a death benefit only. Donors may never see their children benefit from the premium gifts.

5) The death benefit provided by a Whole Life policy is likely to increase over time through the payment of dividends (which are not guaranteed). If term insurance blending is done, the client may have the ability to convert the term insurance and subsequently grow the death benefit. This may be doubly attractive if the insured clients become uninsurable and place an even higher value on the insurance. Some whole life contracts offer the client an ability to pay additional premium so that the legacy benefit can grow.

6) Under a survivorship whole life policy, if one insured dies "early," some policies increase the cash values, which helps create an earlier "premium offset" or increases the legacy benefit.

Because of all of the above potential benefits and flexibility, any extra premium paid for whole life provides an excellent rate of return.

Why is Cash Value Life Insurance Valuable & Suitable in an ILIT-rev.docx

GEAR #2014-14605 Exp 11/16

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