Life insurance is a useful tool to cover estate taxes when an estate tax is likely and a client may not have the liquid assets to cover it. Many clients own real estate, interests in a family business, or other illiquid assets which the client may wish to preserve for future generations rather than sell to pay taxes.
Enter life insurance.
But a problem is arising. Clients have been able to depend on the the interest earned on life insurance plans to pay the annual premiums. According to a blog post by Professor Paul L. Caron over at TaxProf Blog, the recent downturn in interest rates have decreased the amounts earned which may cause the policy owner to be liable for the premium. As the Wall Street Journal article (which Professor Carton cites) states, the prospect of lapsed policies due to unpaid premiums is very real and such lapses are expected to increase.
One of the many reasons I appreciate belonging to the Estate and Tax Planning Council of Eastern Connecticut and having talented and knowledgable insurance people available for help on issues such as this.
