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The connection between estate taxes and taking out a life insurance policy

While a slow economy and tough financial times may not leave much extra money around to commit to life insurance, it actually may be the reason that there is no better time to make such a commitment.

While a slow economy and tough financial times may not leave much extra money around to commit to life insurance, it actually may be the reason that there is no better time to make such a commitment.

According to Chicago Sun-Times personal finance columnist Terry Savage, The potential loophole is lies in estate taxes, which tax the right to transfer property and belongings at the time of one's death, and are currently at an all time low.

However, there has been a recent increase in clamoring for Congress to address estate taxes and consider raising them.

"If estate taxes do increase, then properly titled life insurance can provide cash to pay any estate taxes due upon death," Savage said, before adding that the title to the policy is held by "an irrevocable insurance trust, not by the insured," and therefore keeps it separate from the taxable estate.

Many wealthy individuals recognizing the opportunity have taken out life insurance policies to hold off any rise in estate taxes. However, with the recent increase in those expensive policies and insurance companies looking to reclaim their reserve funding after being hit hard by the recession, Savage also warned that anyone taking out life insurances policies at the moment may have to face increased premiums of up to 15 percent.

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Posted: August 06, 2009