5 life insurance plans every financial advisor should know

Love them or hate them, Section 79 plans allow a deduction of the first $50,000 of group term insurance. However, the regulations allow deductions which in many cases will exceed this cost. In some cases, up to 100 percent down to 66 percent of the policy costs are deductible.

2. The 412(e)(3) plan 

There is really no such creature as a 412(e)(3) plan. This is a defined benefit plan funded exclusively with annuity and insurance contracts. Life insurance is only an incidental benefit of the plan. 

Incidental benefit is 100 times the monthly earnings or no more than 50 percent of the account in a whole life contract. But, be careful; the IRS, now on audit, has deemed any plan that does not follow the 100-times-monthly-earnings rule and has more than $100,000 over this amount to be “excess insurance” subject to the “listed transaction” rules (see Situation 2 of Rev. Rul. 2004-20). 

1. Private placement life 

One of the best-kept secrets in tax planning has been private placement life insurance, which makes it possible for an investor to capture returns tax-free. The appeal of private placement life insurance is that the investment options can be tailored to a high-end client’s needs and the cost of insurance per dollar of coverage is much reduced. The tax-free buildup takes place inside a policy where the investor controls the investments.