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Financial Planning > Trusts and Estates > Estate Planning

How SVUL Hybrids Offset Estate Planning Risks

By James Desrocher

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Clients intending to leave a legacy to children and grandchildren have a need for estate planning. They want to avoid the bite of estate taxes in order to leave as much as possible for their beneficiaries.

As a result, a common part of affluent clients’ estate plans is a survivorship life insurance policy, used to cover the bulk of estate taxes.

Helping clients choose the right type of policy is an important step in the estate planning process. Certain clients prefer the security of the guaranteed premiums and death benefits associated with fixed products, while others prefer variable products for the potential lower costs and death benefit growth.

Why can’t they have both? Thanks to the development of hybrid survivorship variable universal life (SVUL) insurance products, they can.

Today, a majority of clients choose a fixed product for their estate planning needs. Driven largely by the recent volatility in the stock market, these clients enjoy the comfort provided by the guarantees associated with fixed products. Many times, the price they pay for this comfort is limited cash value growth opportunity.

But, without cash value growth, there is no opportunity for premium savings or death benefit growth. The risk with not having death benefit growth potential is ending up with a life policy that has not kept pace with a growing estate.

In the past, clients wanting the upside potential of variable policies were forced to do so without the protection of lifetime no-lapse guarantees. But the recent volatility experienced in the stock market has forced many to reconsider the attractiveness of taking on investment risk in their life insurance policy.

Today, with a hybrid SVUL product, clients still can enjoy the potential for cash value growth while letting the insurance company share the investment risk. And, guaranteed death benefits sometimes are offered in these products at an additional charge.

The costs and value of risk protection should always be weighed against each client’s personal needs. But, since the hybrid SVUL product includes lifetime guarantees, similar to the ones found with fixed products, clients enjoy the security of knowing the death benefit is guaranteed regardless of investment performance.

Like traditional SVUL policies, a hybrid SVUL offers fund selections run by the industry’s top fund managers. And, since a policy to be used in estate planning is usually owned by a trust, it is helpful to have access to a fund of funds to minimize trust management issues.

[A "fund of funds" is typically managed by an institutional money manager; therefore, it can offer reassurance that the one responsible for choosing funds, and their allocations, from a variety of fund options is someone with knowledge and experience.]

Having access not only to top investment managers but also to top asset allocation managers is helpful in managing investment risk while seeking long-term growth potential.

With hybrid SVULs, clients now can get a combination of the best features of fixed and variable products: no-lapse guarantees providing premium and death benefit protection, and cash value growth potential through professional management.

This allows clients to know in advance exactly what their premium and death benefit will be in the worst scenarios while understanding that if their investment performance is good, the resulting cash value provides tremendous flexibility in the future.

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