Cheap Dollars to Replace Estate Taxes? Survivorship Term Insurance

The fact is some people just have a taxable estate - particularly here in New Jersey where a married couple with assets in excess of $1,350,000 ($675,000 estate tax exemption x 2) will pay a New Jersey estate tax before the assets go to their children.  One way to "replace" these lost dollars is through life insurance - specifically "survivorship" or "second-to-die" life insurance that pays dollars when the second spouse dies - normally the time the estate taxes are due.  The theory is that if you have an anticipated $500,000 estate tax bill, and you purchase $500,000 of second-to-die insurance, then you have only paid pennies on the dollar because the total premiums paid are less than the total death benefit / estate taxes due.  

Many families are familiar with this concept as their financial planner, insurance agent, accountant or attorney might have brought it to their attention.  Some common concerns of clients are the cost of the second-to-die insurance, and the fact that they don't know what the future may bring and they may not need the insurance (if you are getting insurance purely to replace estate tax dollars, and the estate tax is eliminated, then the reason for the insurance is no longer there).

One possible "bridge the gap" solution that was recently brought to my attention is survivorship or second-to-die term insurance, as opposed to permanent insurance.  Term insurance expires at some point in the future, so there may be a lower premium at the beginning.  Apparently these polices also allow you to "convert" to permanent insurance in the future. In an uncertain estate tax world this type of product may allow you to take a "wait and see" approach to estate tax planning and may be worthwhile to discuss with your professional advisers.

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