It’s impossible to predict if and how estate taxes could change under a new president and Congress, but for 2016, at least, married clients with joint estates under $10.9 million still fall under the taxable threshold. States’ estate taxes are another story, of course, and can still require planning.
The liquidity that life insurance provides to help with estate expenses was a key motivation for the product’s use. So, are higher net worth clients dropping their life coverage as the potential impact of estate taxes diminishes? Probably not, although they may be valuing the policies from a different perspective.
Stephanie Sherman, CFP, financial planner with Prudential Advisors in Rockaway, New Jersey, notes that her clients are taking more of a long-term view with their life insurance than they were eight or nine years ago. The typical reasons for a life insurance purchase were to pay off debts and provide for survivors, she notes. While those classic reasons are still important, clients are focusing more on permanent life’s value in hedging against the potential costs of longevity. Consequently, the primary life insurance products that she is using have the lifetime guarantees as a component of the product structure.
“We’re seeing that people want to age in place,” she says. “They’d like to stay in their homes; they don’t want to have to make changes. Where we live, here in the Northeast, real estate taxes alone could be a fortune and to maintain the house, you might not be able to do so unless you have sufficient assets. If you need to be depleting assets because somebody gets very sick toward the end or has a long-term illness, the life insurance can simply do what it’s supposed to do: replenish and provide liquidity in a time of need.”
Sherman explains that some policyholders are expanding their coverage benefits by adding chronic illness or long-term care riders to their permanent policies. Dave Minich, CFP, CLU, vice president with Applied Financial Concepts Inc. in Richfield, Ohio, is also seeing increased usage of combination life policies. The coverage is attractive to insureds because it eliminates the perceived “use-it-or-lose-it” risk with traditional long-term care coverage.
If they don’t use a combination policy’s long-term care benefit, “having the assurance that a death benefit will be paid is attractive to them because they know they are at least getting something for their money,” he notes. The level premiums for combination life coverage are also attractive, he adds.