Life Insurance Review

Estate Planning and Life Insurance
Life Insurance Review Is An Important Part of Estate and Financial Planning

Updated By Philadelphia Tax, Estate and Probate Attorney, Steven J. Fromm on 12/28/2020

It is always prudent to review your life insurance policies. In addition, to the basic consideration of cost versus benefit, the following reasons and situations should trigger a review of your life insurance policy and the resulting review of your current estate plan.

Changes in Needs and Goals

Your reasons and need for an existing policy may have changed. You may have bought a policy when you were young to protect your family against an early death. Now you are older and the kids have gone to college or medical school and are out of the house and independent. However, if you have become successful and wealthy then you may need the life insurance for other reasons such as federal estate or state inheritance taxes.

Has Health of Insured Improved?

If your health has improved since the policy purchase, you may be able to purchase the same coverage at a lower cost. Changes in longevity and actuarial assumptions may change the costs involved so all the more reason to check this out.

Estate and Inheritance Tax Exposure

Depending on your life expectancy and what Congress does with the estate law, or if your assets are low enough or have decreased in value, you may no longer need the policy to pay federal estate taxes. With the federal estate tax exclusion now at $11,580,000 per person in 2020, it may be assumed federal estate taxes are no longer a consideration. But with looming deficits and uncertainty with Congressional direction (President Biden has talked about a $3,500,000 exemption), the decision to drop life insurance should be looked at very carefully.

Certain state have an inheritance tax that may be taken care of with life insurance. For example, Pennsylvania has an inheritance tax.  It imposes a 4.5% tax on lineal descendants, namely children and grandchildren.  So this tax must be taken into account before deciding to let a policy lapse or whether additional life insurance is needed.

Check Policy Design

Many older policies were designed to endow at age 100, which means the cash value would equal the death benefit. Today there are new policies that do not endow. If you want only a death benefit you could pay less premiums with a newer policy. However, all angles need to be looked at when it comes to plan design and this is often a very tough decision to give up an old policy for a new one.

Check Insurance Company Credit Quality

Requesting a financial report for the insurance company and obtain a current rating of its financial strength from the various rating services should be done periodically.

Consider 1035 Exchange For Policies with Significant Cash Value

Using this exchange can defer gain. However be sure to weigh other options such as surrender and buying a new policy. You need to run the numbers. A discussion with your estate planning attorney, CPA and your insurance professional is essential in this situation.

Check the Policy’s Projected Performance

A policy should have projections run on how it will perform based on life expectancy or beyond. These projections should be periodically checked against actual performance to minimize unpleasant or unaffordable surprises down the road.

Check Ownership

A policy owned by the insured would be part of his taxable estate under federal tax laws. State inheritance tax laws need to be checked to see if insurance is taxable or exempt. The question of whether such policies should be owned by others such as an irrevocable trust to keep it out of the taxable estate should be discussed with an experienced estate planning attorney.

Check Beneficiary Designations

This is very important since having old or incorrect beneficiary designations can wreak havoc with an estate plan. Remember that a will or trust will not supersede beneficiary designations.

Having an ex-spouse as a beneficiary can really complicate estate administration and in the worst case scenario result in an expensive and protracted law suit.

Having minor children as contingent beneficiaries is never a good idea.  The use of a living trust for the benefit of children is a far more prudent way to designate a contingent beneficiary.  This would be especially advantageous, if a wife is named primary beneficiary but the parents died in a simultaneous event.

Make Sure Your Insurance Agent is Independent

Ask the agent if he or she is product neutral. Do they use only one primary company or many. Captive agents cannot sell all products on the market, which may put them at a competitive disadvantage.


These are just some of the more important considerations when evaluating current insurance life policies. There are other issues that can and will arise with integrating life insurance into a comprehensive estate and financial plan that may require input and guidance from your estate attorney. Please contact us if you need objective and unbiased insight and guidance in this area.

Steve is an excellent corporate attorney who has a deep understanding of corporate law, taxes and estate planning. He’s been extremely helpful to me in keeping my many companies and business ventures organized, focused and squeaky clean. He’s very strong in estate planning and wealth preservation as well. Finally, his follow through is air tight and utterly dependable.Fred Marshall

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Philadelphia, PA 19102

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From their offices in Philadelphia, PA, the law firm of Steven J. Fromm & Associates, P.C. provides a full range of estate planning, probate and estate administration, tax, business and corporate legal services to clients throughout eastern Pennsylvania and the Delaware Valley, the Lehigh Valley Area, the Five-County Area, Bucks County, Delaware County, Montgomery County, Chester County, Philadelphia County, Berks County, Lehigh County, Lancaster County, York County, Harrisburg, Norristown, Doylestown, Media, West Chester, Allentown, Lancaster, and Reading.