Lawyers And Accountants Need Help Understanding Cutting Edge Products
Many of our newer life insurance products are complicated and difficult for even insurance professionals to understand.
Those lawyers and accountants who are “trusted advisors” to purchasers of these products have an even greater difficulty understanding these products well enough to render intelligent advice to clients. The two of us seem to be receiving more and more inquiries from lawyers and accountants (and even from a few financial planners) about the technical elements of some of these new types of products.
The inquiries do not usually involve the tax treatment of insurance or annuities in general, but are more likely to be directed to the structure of the insurance products themselves and the treatment of the products themselves as “insurance” for tax purposes.
What Your Peers Are Reading
There seems to be an increased interest in large premium life insurance policies and annuity contracts. Many sales of these products reflect premiums well in excess of $1 million.
Obviously, a lawyer or accountant advising clients on such transactions wants to be sure the products being purchased qualify as insurance for tax purposes and meet all of the insurance standards that should apply.
Given that the subject of life insurance is rarely taught in law schools or accounting courses, most lawyers and accountants know little more about insurance than does the general public. When asked by their clients to advise on insurance, then, it is often easier to discourage their purchase than to expose that they are truly ignorant about life insurance and how it works.
As a result, most insurance professionals approach lawyers and accountants with a sense of dread–dread that the relationship will result in the death of yet another sale.
Questions that our legal and accounting callers ask run the gamut. Some questions concern the creation and validity of separate accounts. Others concern: protection of separate account assets from the claims of the creditors of the insurer and other policyholders in event of insurer insolvency; and protection of variable product premiums on their way into separate accounts.
Still others concern: protection of assets withdrawn from separate accounts as a result of death, loans or withdrawals; determination of adequate diversification of assets under the Internal Revenue Code; testing requirements for such diversification; and application of the concept of “investor control” of assets held in variable products.