Ask the Experts!
The professionals at Advanced Underwriting Consultants (AUC) answer the tax and technical questions posed by producers. Here’s the question of the day.
Question: What are some of the most common mistakes clients make with regard to life insurance?
Answer: We published some in a prior post. Here are a few more:
- THE WRONG OWNERSHIP WAS CHOSEN FOR THE PROBLEM TO BE SOLVED. Most people choose to own their life insurance policies personally. That can be a mistake in certain business situations, or where there’s a family estate tax problem.
- THE OWNERSHIP CHOSEN CREATES AN INCOME TAX PROBLEM. Sometimes having a policy owned by a third party can create an unintended income tax problem.
- SECTION 101(J) REQUIREMENTS HAVE BEEN NEGLECTED FOR A BUSINESS POLICY. Five years ago, Congress created new rules for business-related life policies. Many have failed to comply with those rules.
- BUY-SELL FUNDING POLICIES HAVE NOT BEEN PROPERLY REVIEWED. Business owners sometimes use life insurance to help make sure the business will continue after an owner’s death. Even where a plan has been put in place, failure to update it can have disastrous consequences for the owners and their families.
- POLICIES HAVE NOT BEEN REVIEWED AFTER DIVORCE (OR OTHER LIFE EVENT). People sometimes forget to remove an ex-spouse as beneficiary under a life insurance policy. They also sometimes forget that their divorce papers require them to use existing life insurance policies in certain ways.
Have a question for the professionals at AUC? Feel welcome to submit it by email. We may post your question and the answer as the question of the day.