James Gandolfini’s estate tax and the role of life insurance

James_Gandolfini

James Gandolfini, actor extraordinaire of The Sopranos, who died recently of a heart attack at age 51 apparently has left his heirs subject to a sizable estate tax.  Tax experts noted that they will likely end up owing a significant amount partly due to his residing in New York.  State estate taxes vary considerably depending on which state you reside in.

I was struck by this comment in one analysis as to the very practical role of life insurance in estate planning.

At a minimum, an irrevocable trust should have been set up for Mr. Gandolfini to use to pay insurance premiums toward a life insurance policy that would have covered expected estate taxes, Mr. Wolfe said.

Gandolfini did set up a $7 million life policy for his son in a irrevocable life insurance trust (ILIT).  To give the benefit of doubt, he may of set up others. Life insurance is not required to be in the public domain of probate. One lesson to come out of this is to add life insurance regularly especially when remarrying and having children.  Insurability, the ability to obtain coverage, can be an issue when adding life insurance later in life. Fully underwritten life insurance involves a blood test, and depending on age and coverage amount, an EKG and medical records. In Gandolfini’s case at his age in the absence of identifiable heart disease his rate classification probably would have depended almost entirely on his weight according to the carrier’s build chart.

Estate planning with minor children makes term life insurance an option.  There’s 10, 15, 20, 25 or 30 year term depending on the age of the child and how far it is prudent to carry the coverage out.  Term is inexpensive and conversion allows on to exchange the term into a permanent policy without proof of insurabilty during the term period.

For permanent life insurance the first and foremost estate planning tool is Guaranteed No-Lapse Universal Life locking in coverage to age 120 or beyond.   For other situations and goals the options include current assumption Universal Life, Indexed UL or on the upper cash value and benefit end a Whole Life plan.

AIG pays back TARP funds and its effect on American General Life Insurance Company

I saw one of AIG’s “Thank You America” commercials this weekend, and that’s how I found out that AIG had paid back in full their TARP bail out money.  That’s good news for American General Life Insurance Company.  I’ve been an agent for American General for over a decade, well before they were acquired by AIG back in 2001.

American General’s independent ratings have declined since AIG’s liquidity crisis 2008 and now have stabilized.  2008 exposed the ratings system to be very flawed, and since the rating system has not been reformed, it is a tenuous means to judge a carrier.  From a life insurance agent’s point of view, to recommend a carrier is in part observing a life insurance company’s price and product changes, underwriting practices and rules for term conversion. It’s also telling how much interest they are crediting on current policy holder’s permanent plans.

There is also a distinction between recommending a life product that’s guaranteed, and those that are non guaranteed, that depend on crediting interest to the policy for cash value.  A guaranteed no-lapse universal life, G-UL, is very straight forward, as opposed to a performance based product like indexed universal life, IUL, or a traditional UL.  Term or return of premium term has a guaranteed level rate for a fixed period of time, but conversion options to a permanent plan without evidence of insurability is another key consideration, especially since so many people run into health problems in the 10, 20 or 30 years after their policy is taken out.

I will take a wait and see approach to American General.   They can prove their worth by proportionately crediting of their UL policy holders and expanding conversion options.