Posts Tagged ‘Bill Boersma’

Life Insurance in Today’s Estate Tax World

March 22nd, 2018 No comments

What to do with existing policies
By Bill Boersma

As might be expected, I’m getting more calls lately from advisors, on behalf of their clients, asking what should be done about life insurance no longer needed for estate liquidity purposes.

I generally answer the same way every time; “Let’s evaluate the policy and then talk about options.”  Depending on the client situation, the first issues I discuss with the advisor is what happens when the current estate tax law sunsets, and does your client really want to bank on what the tax laws will be, 17, 28 or 42 years from today?  With life insurance, it seems many people will jump on a reason to walk away.

Your clients are big kids so if they decide to bail on a policy and that turns out to be a mistake, they can live with it.  However, it’s important that they’re making these decisions with all the data at hand they need to make an informed decision and not an emotional one.

An Objective Financial Analysis

With an in-force ledger in hand, I perform an internal rate of return (IRR) calculation to show them what they have.  Sometimes this is surprising, positively or negatively.  What I propose to provide is black and white information.  I’m going to stay agnostic relative to product style, carrier and IRR.  After all, let’s say the tax-free rate of return at actuarial life expectancy is 5 percent.  Who am I to say if that’s good or bad?  Someone who has most of his money in CDs and conservative investments might feel that’s a good use of money, while a business owner making 25 percent on her money might question why she’d ever distribute capital to fund such a vehicle.

I take the current cash surrender value and enter it as present value, the death benefit at life expectancy is future value, the number of years to life expectancy (or whatever duration is desired) and the premium payment. I calculate interest.  If the life insurance contract is one that’s designed to accumulate reasonable cash value, I also calculate the IRR on premium to future cash value so we can evaluate it as an accumulation vehicle.

Case Studies

Let’s take two recent files on my desk.  One was a relative new whole life contract.  My calculations show the IRR on premium to death benefit at life expectancy to be about 4 percent, while the IRR on cash value is two point something percent most of the time and tops out at 3 percent at age 90.  This client decided it wasn’t worth it and is going to exit the policy.

The next policy was a survivor guaranteed universal life (SGUL) on a 77-year-old couple.  It was put in force as a single pay and is guaranteed for life with no additional premiums.  Running the IRR numbers at 10, 15, 20 and 25 years, the IRR on current cash surrender value to guaranteed death benefit is 16.59 percent,10.78 percent, 7.98 percent and 6.33 percent respectively.  Mind you, that’s 87, 92, 97 and 102 years old.  At age 97, they’re looking at an 8 percent guaranteed, net, tax free return that’s a double digit tax equivalent return.  This is an unduplicable financial transaction.

Knowing the return of the transaction, the clients can now decide if there’s any useful reason to keep the contract in the absence of estate taxes.  If cash flow into a contract isn’t an issue, and it looks to be a good use of money, then the policy can be maintained as a part of a diversified estate portfolio or legacy planning or used for charitable purposes.

Tweaking Existing Contracts

Often I find many people failing to evaluate tweaking an existing contract.  If the policy needs premiums, what does the death benefit need to be reduced to for it to stay in force indefinitely with no more cash flow?  Is there a way to better use dividends or manage loans?  I’ve seen GUL contracts with little or no cash surrender value stay in force for a couple of decades with no premium paid, even when they were designed to assume premiums paid annually.


Assuming a decision is made to bail on the contract, please advise your client to not simply cash it in without further analysis.  For some, a life settlement may be a windfall.  There’s still a robust settlement market, and this potential increase in value should be evaluated if it’s in the cards.  Beyond that, virtually every contract is in a gain or a loss position.  If in a gain position, let’s evaluate ways to eliminate or mitigate the gain.  If it’s in a loss position, let’s evaluate ways to salvage the loss in the contract.  One would never take a loss on real estate or investments and not bother to share this with the accountant.  Why should life insurance be any different?

Once everything is evaluated, policy owners can take advantage of the most favorable opportunities or cut and run and put the funds into investments or dissolve the trust and distribute to the kids.  The freed up cash flow can be used for taking the grandkids to Disney or buying that boat your client has his eye on.

Life insurance should be evaluated like anything else before making decisions.  I’ll always be at a loss to understand why such a significant portion of the market chooses to treat it so differently than anything else.



Help Mitigate Life Insurance Fraud

February 6th, 2018 No comments

Three rules to remember for layering in a basic level of protections for your clients.

While there’s likely no way to ultimately ensure your clients won’t be victims of fraud, there are a few things to be done that may help prevent it, as well as assist in recovery efforts if they’re victims. For full post, click here…

Don’t Underrate Term Insurance

October 31st, 2017 1 comment

It can be a good, cheap solution for many clients.

A younger attorney asked me some time ago to get some term numbers for her clients. Her question was “Is this premium monthly or annual?” When I told her it was annual, her next comment was “Could you quote some term for me and my husband?”

Pretty much every statistic shows most people are meaningfully underinsured. Sure, this is easy to say when it’s someone else’s money you are spending, however, I don’t think most people understand just how cheap term insurance is. Yes, some people can’t get it, and some people just don’t have any money, but that isn’t the case in most situations. For full post, click here…

“Optimizing” Life Insurance

July 1st, 2015 No comments

I periodically peruse the web to see what other insurance professionals are writing about.  Sometimes I agree wholeheartedly and sometimes I just shake my head.

Recently I saw a piece where the author was warning about “Optimizing” an insurance portfolio.  I get exactly what he is saying.  His point is to beware of marketing and warn that a given advisor was likely promoting a specific idea.  I offer practically identical warnings regularly.  The subtext was that there is no objective “best” so how could one maximize or optimize planning.  This is true but something about it bothers me. Read more…

Taxation of Life Settlements

February 23rd, 2012 No comments

The life settlement market isn’t what it used to be but it’s not dead. We have negotiated a couple of life settlement transactions lately, so I have been reviewing IRS Revenue Rulings pertaining to gain. It’s been almost three years since the IRS provided guidance so I thought this would be a good time for a refresher.

Before these Rulings, Read more…

Life Insurance Premium Optimization

October 24th, 2011 1 comment

I continue to be amazed at the willingness of consumers in the market to put significant life insurance transactions in force with no outside analysis and no evident level of sophistication. Here is a very simple example.

Recently I was involved in some planning where the annual premium was $150,000 a year on a full pay basis for the desired death benefit. At least 99 out of 100 situations I get brought into involve a level premium scenario because when one hits the button on the computer, this is what comes out and little further thought or analysis is brought to the table.

In this situation we have a 77 year old individual and we played around with the premium flow. Read more…

Observations on Fee-Based Life Insurance Consulting

October 4th, 2011 No comments

As the founder and principal of Opportunity Concepts, LLC, a life insurance consulting and management practice, my days are filled working with policy owners and their advisors regarding many aspects of life insurance, from simple front-end, second opinions to in-depth, actuarially defensible analysis of portfolios of policies. This is the story of a “typical” engagement.

Clients and advisors seek me out for my fee-based approach to life insurance consulting. While there are great life insurance professionals who do a good job and bring tremendous value on a commission basis, some policy owners and advisors in the market have had experiences which leave them cynical. One answer is to pay a consultant for analysis and advice. Read more…

The Goodman Triangle

May 18th, 2011 No comments

I regularly get asked about the “Insurance Triangle”, what it is and how it plays into things.  This is a reference to the “Goodman Triangle” Goodman V. Commissioner, 156 F.2d 218

In this case Mrs. Goodman transferred five existing policies insuring her husband’s life to a Revocable life insurance trust.  Beneficiaries of the trust were her three children and her sister-in-law.  About a decade later her husband died and the trust became irrevocable.
Read more…

Blog on Hedging Your Bets by Richard Harris, Trusts & Estates, January 2011

February 23rd, 2011 1 comment

I was in Orlando at the Heckerling Conference when the January Issue of Trusts & Estates came out. Richard Harris came by to see me and made a comment on my piece in the magazine and let me know he had an article in the same issue that I might like to read. At my first opportunity I read it and then tracked him down and told him that I was upset by what he wrote. Why? Because I was in the process of writing essentially the same article and he beat me to it. Of course I had some fun with that but now I am relegated to commenting about his article which may actually be a bit easier than completing my own. Read more…

Bill Boersma in Trusts&Estates – Jan 2011!

January 13th, 2011 No comments

“Managing Life Insurance” by Bill Boersma

We are pleased to have an article by Bill Boersma included in this month’s “Trusts & Estates” issue.

“Managing Life insurance”, Ongoing Management is Vital to Ensure Policy Performance, is a relevant and thought-provoking piece you will want to read thoroughly.

If you are not a regular subscriber to “Trusts & Estates”, you may follow the link below to access the article in its entirety.