What's more, death benefits can sometimes be tapped early. "Many policies can be issued today with a rider allowing you to access up to 90% of the death benefit during your lifetime" for qualified long-term care expenses, for instance, said Daroff.
He also pointed out that a life insurance death benefit "can be used to fund a Roth conversion at the death of a spouse," or by anyone who has advance warning of their death. "During your lifetime, the cash value operates like a Roth."
Life insurance may be a poor substitute for equities, but when compared to cash or fixed-income assets it can be a good alternative. "Banks pay very little interest on cash, and the interest is currently taxable," noted Daroff. "But insurance companies pay much higher interest on cash value, and it is tax-deferred or tax-free.”
Some wealthy clients who live in high-tax states might even find that the tax overhaul enhances a permanent life insurance policy's tax-deferral feature.
Still, for clients who opt to jettison their life insurance policies, there are several options. One is to sell the policy to a third party in a "life settlement," in which the owner typically receives more than the policy's cash surrender value but less than its face value or death benefit.
Alternatively, clients could do a 1035 tax-free exchange to another insurance policy or annuity, "if the cash value is greater than the premiums paid," said Daroff.