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No insurance resource would be complete without a helpful menu of terms and concepts. This information-rich list will help you make sense of the solutions you are considering.
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Charges added to standard class when health issues exist that, in the eyes of the insurance company, require a higher premium. Most insurance companies will offer policies with table ratings up to Table 12.
Also known as a will trust, it involves retention of ownership until death when property is passed to a trust through a will. Testamentary trusts are driven more by the needs of the beneficiaries (particularly young beneficiaries) than by tax implications.
A rider available with Disability insurance policies. Allows the insured to continue receiving disability benefits if totally disabled in "Your Occupation" but working in another occupation.
A legal arrangement in which one party transfers property to another who holds the legal title and manages the trust property for the benefit of others. Trusts are effective estate planning tools, supplying elements not obtainable through a direct gift. Income, estate, and gift tax savings can also be realized through the use of trusts. They can eliminate the need for guardianship of property; provide a life income for family members, with the principal of the trust distributed to charity; protect assets from creditors. Trustees assume all control over the assets of the trust. The grantor relinquishes all control to the trustee.
Underwriting for a life insurance policy may begin before an Irrevocable Life Insurance Trust (ILIT) has been completed, signed, and dated. This enables financial advisors to make alternative arrangements in case the proposed insured is uninsurable, and enables the lawyer, insured, and trustee to finalize the trust details. After the ILIT has been signed, a new application is completed and signed by both the proposed insured and the trustee as owner/applicant. It must be dated after the date of the trust; otherwise, if the insured dies within three years of the policy issue date, the death benefit proceeds could be included in the taxable estate. This is referred to as the "three year anticipation of death" or the "three year look-back." The policy will be issued with the trust as owner and beneficiary of the policy. This process should take less than 30 days; otherwise, the insurance company may request additional requirements or a new exam.
The person who receives the legal title and manages the property and has a fiduciary responsibility to act in accordance with the law and provisions of the trust instrument. The grantor places confidence in the trustee to act solely on the beneficiary's behalf. When possible, the trustee of the insurance trust should be the original applicant and owner of the insurance.