As clients re-evaluate the need for their insurance, one of the things they must take into consideration is the increase in the federal estate exemption, which has risen to about $11 million for individuals and about $22 million for couples. Recent research suggests that those families who are no longer subject to the federal estate tax are significantly dropping, lowering or converting their life insurance coverage. 

Some individuals and families will keep the life policies in place anyway, even if they no longer need them to pay the taxes. But more often than not, they will likely want to drop or modify the policies, and the result will be money they need to have professionally managed.

In our experience, the needs and wants analysis can often take a good amount of time. It becomes a process of thinking through an array of issues, life insurance being just one component.

Comparative Analysis

We’re making the situation and comparative analyses different for pedagogical reasons. In reality, they overlap.

A comparative analysis takes into account the goals and objectives of the family or individual. There are three choices to make:

• Keep the status quo: In this case, a client can keep the existing policies as they are, and, if necessary, continue paying the premiums. Very often this is not the preferred choice, but it’s sometimes necessary because other factors come into play, such as the back-end charges clients might have to pay for leaving policies behind.

• Exit the policies: A client can surrender his or her life insurance policies and take the cash value. Some clients can also pursue a life settlement agreement, in which they sell a policy to a third party.

• Restructure the life insurance policies: At times, the best answer for clients is to take an existing policy and lower the death benefit while making sure it is all paid up. Other times, it is wise to convert the current policies into other types of policies. These days, private placement life insurance and private placement variable annuities are extremely attractive alternatives for wealthy clients.

By showing clients the different scenarios, you can help them make well-informed decisions about what to do with unneeded life insurance. The final step is taking action.