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Policy Matters

Third Quarter 2019


The 1946 Goodman decision (U.S. Court of Appeals) dealt with the value for gift tax purposes of life insurance policies and provided the basis of the Unholy Trinity.

Here are some examples in which the parties had the best of intentions, but caused undesirable tax implications:

Policy owner: Business

Insured: Employee/Shareholder 

Beneficiary: Spouse or other third party

They want the business to pay for the coverage and the spouse to be beneficiary. But that will cause income tax liability on the death benefit. To ensure the spouse receives the death benefit tax efficiently (gift tax, estate tax, income tax), the policy owner should be the insured.

Policy owner: Grandparents

Insured: Child

Beneficiary: Grandchild

The grandparents want to be sure their grandchildren are taken care of. But again, having three parties to an insurance contract will cause negative tax implications. The grandparents want to control the premiums, but a better scenario would be for them to have their child (also the insured) be the owner. The grandparents can still pay the premiums.

Here is an example of a good policy set-up: 

Policy owner: Business

Insured: Employee/shareholder

Beneficiary: Business

This one is key person, a business insurance solution that reimburses the business for the loss of a valuable employee while funding the employee’s salary continuation plan at retirement.

In this videoColumbus Life’s Morgan Scott (Vice President, Advanced Markets) talks about why simple life insurance policy titles (owner, insured, beneficiary) are best.



Term Life Insurance | Low-Load Universal Life (Individual & Survivorship) | No Lapse Guaranteed Univeral Life (Individual & Survivorship) | Long Term Care Insurance | Disability Insurance | Critical Care Insurance | Low-Load Variable Annuity | Immediate and Fixed Annuities | Low-Load Variable Universal Life | Hybrid Life/LTCi | Hybrid Annuity/LTCi

(We recommend low-load permanent life insurance and annuities when possible)

(Not all policy types available in all states)

For a list of current providers, visit the Advisor Tools section of our website and click on "Insurance Companies We Work With".

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