Transamerica Sunset Option Targets Estate Tax Sunset Uncertainty
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“The Sunset Provision creates so much uncertainty moving forward that we concluded that special consideration is necessary to support sound tax and estate planning efforts.”
So begins the explanation Transamerica Occidental Life Insurance Company is giving to new survivorship policyholders about an option it now offers with three survivorship policies–two universal life contracts and one variable universal life contract.
Available at no extra cost, this Sunset Option, as it is called, allows policyowners to make full surrenders of their in-force survivorship policies, with no surrender penalties, during the year 2010, if the repeal of federal estate taxes extends beyond Dec. 31, 2010.
This option is being offered in a letter the insurer is sending to owners of survivor policies issued June 7, 2001, or later. The letter has the weight of a policy endorsement, say executives.
The repeal to which the letter refers is the phaseout of estate taxes that will occur gradually over the next 10 years, until Dec. 31, 2010, under terms of the recently enacted Economic Growth and Tax Relief Reconciliation Act of 2001.
A sunset provision in the tax act will restore the original estate taxes, on Jan. 1, 2011.
The question many people have is whether Congress will restore, amend or abolish estate taxes in the interim, thus voiding the original sunset provision.
If estate tax repeal is extended, then people who buy survivorship policies today to cover their estate tax exposure may no longer need their policies, says Joel Seigle, senior vice president-life insurance and annuity products for Transamerica Insurance & Investment Group, a unit of the Los Angeles insurer.
Transamerica developed its Sunset Option to address that concern, he says.
The option does this by allowing policyowners who want to get out of their survivorship contracts, due to an extended repeal, to do so in year 2010–and under favorable circumstances (i.e., no surrender charges).
The two UL policies that now offer this option levy surrender charges for 20 years, he points out. And the VUL does so for 15 years.
Therefore, owners who make full surrenders in year 2010 can save a substantial amount of money, because they are free of several years of surrender charges they would otherwise have to pay.
To illustrate, Seigle gives this example: Assume a 70-year-old man, rated standard Table D nonsmoker, and a 67-year-old woman, rated preferred nonsmoker, buy a $3 million UL (TransSurvivor XL) this year.