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.