With volatile financial markets, what products are clients using to fund their estate plans? In the life insurance market, the answer may be–and increasingly, is–equity index universal life insurance.
To see why, well take the temperature of todays estate planning clients–those who are either embarking on estate planning for the first time or coming into the office for a plan review.
When clients ask me, their attorney, whether they should take a risk in funding their estate plans, my response is simple: If you lose on the risk, can you stand the consequences? Because if you cant stand the consequences, then dont take the risk.
To reinforce this advice, I tell a story about something that happened to me a few years back. One of my fingers had become so infected, it had swollen to twice its normal size. The doctor said he would have to operate to clean out the infection; otherwise, I could lose the finger. “What are the chances of losing the finger if you take a less aggressive approach, and just use antibiotics?” I asked. He replied: “If it is your finger, the risk is 100%.”
The doctor could have been kidding me–as doctors sometimes do with lawyers–but I could tell by his facial expression that he was absolutely serious. What he was saying was, I could not afford to take that risk, unless I was willing to lose the finger if I was wrong.
The same goes for estate planning decisions made by clients–i.e., if you cant stand the heat, then get out of the kitchen.
If a client takes a risk and loses, we can usually make adjustments–as long as the client is alive. But, once the client dies, it may be impossible to make an adjustment. Many aspects of an estate plan become carved in stone at death.
The sufficiency of life insurance funding is, of course, one of those aspects.
When applied to estate planning, these ideas should lead clients to be conservative with their life insurance. The reason is simple: They cant afford to suffer the consequences, if the funding is insufficient for their estate planning needs. Otherwise, the fruits of their lifetime of labors could be lost to forced sales and estate and income taxes.
So, when it comes to choosing products, what choices are appropriate for estate planning needs?
During the go-go 1990s, some agents stuck to recommending traditional life products for estate planning purposes, and eschewed variable life products. They felt the variable products involved too much market risk. As the stock market continued its seemingly relentless expansion, customers started demanding equity-based products, so these agents sometimes were forced to reevaluate their own advice.
In the last few years, however, the marketplace has changed, as you well know, and so have client preferences. Now, clients want more certainty in their life insurance planning. And, they are willing to give up some market gains, in return for this certainty.