What can you do in order to protect yourself? The most common and probably smart answer would be, buy life insurance policy for the main purpose of estate planning and estate protection. You'll purchase a large amount of life insurance based on your net worth and you will place it in a trust outside of your estate. the action of having your life insurance policy being issue into a ILIT or also known as Irrevocable Life Insurance Trust is to separate the life insurance death benefit from your estate in order to eliminate taxation
Now, the first question would be how to pay the high life insurance policy premiums? The first option would be to pay it out of your pocket each year by taking money out of your savings to furnish the payment on the policy's premium. In some cases you'll have to break savings programs that you kept for a rainy day or even to sell some real estate. The second option would be to finance the premium via a bank or premium finance company. Life insurance companies recognized the need of life insurance for estate planning and approved few companies to finance these types of deals.
Carrier approved premium finance program is a great tool to ease the expanse of paying the high premiums on a life insurance policy. The idea behind the carrier approved premium finance program is that the premium will be paid by a bank for a period that is agreed in advance. it can be for a period of 2 years to a life time. Once the loan is due, all premium paid so far plus interest and other fees will be paid back to the bank. in case the insured will pass away before the loan is mature, all death benefit will be paid to the beneficiaries less the amount paid so far for the premiums.
In order to initiate premium finance transaction, the insured must be qualified not only by the insurance company, but also by the Life Insurance Premium Finance Company. When it comes to the Life Insurance Company, the insured must be healthy at a standard rate or better and proof his/ her medical and financial status. When it comes to the Premium Finance Company their evaluation will be based on age, life expectancy, health situation and financial status. The Premium Finance Company will also require some collateral to secure the loan.
in conclusion, all senior citizen with a high net worth of lets say $2,000,000 should look into estate protection alternative and should think about getting a new Life Insurance Policy to cover all estate tax when they pass away.