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Life Insurance Policy Selection and Design

What works best in various financial and estate-planning scenarios?

By Charles L. Ratner & Lawrence Brody

Clients routinely ask their estate planners basic questions about life insurance. Sometimes, the questions lend themselves to a quantifiable answer, such as the amount of insurance needed to replace a deceased’s earnings or preserve an estate from estate tax. But, often the questions aren’t about how much. They’re about what type of policy is appropriate for the need, how it should be designed and how it should be funded.

To be sure, there are no hard and fast rules that govern the selection and design of a policy in a given planning application. However, planners can develop a fairly intuitive approach to help the client determine whether the prescription is best filled with term insurance or some form of permanent policy, and if the latter, which type of policy offers the characteristics that are best aligned with the client’s objectives and circumstances.

We’ll discuss types of term insurance policies first and when term can be the appropriate choice. Then, we’ll look at permanent policies, which we will refer to as cash value policies, describing the various types that are available in the marketplace today and noting when each might be appropriate for a given application. Finally, we’ll consider several common scenarios in which planners can apply the principles and guidelines discussed.

NEXT: Term Insurance

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