You may have heard by now that 2010 may be a great year to die-at least from a federal estate tax standpoint, anyway. Estate taxes at the federal level have been dropping since Congress passed the Economic Growth and Tax Relief Reconciliation Act of 2001. This law increased the amount of assets that can be excluded from the tax from $1 million in 2002 to $3.5 million in 2009 (twice these amounts for couples; a tax rate of 45% applies to the amount exceeding the exclusion). In 2010 there is, unless Congress acts this year, no federal estate tax at all. It is repealed.
Your clients who may be avoiding an estate plan using survivorship life to fund potential tax liabilities may also have little reason to rejoice. Like many laws this one includes a sunset clause. These are good to garner votes from those opposing legislation in question. After the 2010 repeal, if nothing is done to change it, the applicable exclusion is $1 million in 2011, the 2002 level. If Congress acts within the first 9 months of 2010 it can change the law so that it is effective back to January 1 at whatever level is arrived at after House and Senate bills are reconciled. The House, in a close vote, already passed a bill that makes the both the estate tax and the $3.5 million exclusion permanent.
So as the federal tax looks like it will be around to stay in some form or other, it's fitting then that the first excerpt in 2010 from the Full Disclosure policy comparison software series covers survivorship life insurance. It's also good that the number of policies available for sale is expanding, even if not to the highs of 2005. This release features 4 more policies than the last Survivorship Life edition released. There are 35 SUL policies, including 7 indexed varieties (up from 32 last time, including 5 SIUL plans), and 13 SVL policies (an increase of one). The SWL universe remains the same. It will be interesting to see if the number of products in the Survivorship Life marketplace expands another 7%-8% in early 2010.
Full Disclosure surveys survivorship life insurers twice each year and tracks illustrated values and the benefits each brings to the marketplace. In addition to the contractual and qualitative data on each policy collected, we also look at how they are illustrating their products in the field. Policy data is current as of November 1, 2009. While these charts are only slices of the Full Disclosure database, they will give you an idea of how these products perform on an illustrated basis.
Three main charts feature illustrated values for whole, universal, indexed universal, and variable survivorship life products. These illustrated values are based on current interest or dividend crediting, expenses, and in the case of variable designs, a predetermined crediting rate. In addition to the main illustration tables, there is a chart featuring premiums for UL minimum long-term guarantee products. This increasingly popular use for flexible premium survivorship life insurance provides minimum annual premiums to age 121 with little or no cash value at maturity, but with low guaranteed annual premiums.
Full Disclosure applies the internal rate of return method to current illustrated accumulation values and current death benefits measured at policy durations 30 years dependent on age combination. The IRR of cash values rise over time, as the IRR for the death benefits fall. A careful analysis of the IRR measurements indicates which policies are designed (in an illustration at least) to build current cash values, guaranteed cash values, or death benefits. You will notice at the end of each chart (SVL & SUL), there are columns showing how the policy would have performed under an increasing death benefit option. The cash value of an increasing death benefit policy, while not listed, would be lower because of the added costs of insurance. The whole life policies have naturally rising death benefits due to the paid-up additions dividend option.
