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Katt & Company is a national fee-only life insurance advising firm. The June 2002 Forbes magazine, and a July 16, 2003 Wall Street Journal article, name Peter Katt as one of only four nationally recognized advisors. The Forbes article states that, "…advisers are well worth the money… These savants are working for no one but you…" For references please contact us. To Perm or Not To Perm, That is the Question Three reasons to take a another look at permanent life insurance over term alternatives. Life insurance is a very useful for large estates with difficult to market assets causing an estate tax liquidity problem. Clients with this liquidity issue and relative low cash flow should look to term insurance until cash flow allows them to acquire permanent insurance (or in lieu of term insurance low-load joint UL set up as surrogate term - see August 2007 Perspectives, Creative Analysis of Term Insurance). Then again, I have clients with adequate cash flow to cover the higher permanent insurance premiums who are inclined to avoid these higher premiums in favor of the term alternative. This is not a good idea for at least three reasons. First, permanent insurance levelizes the insurance costs in the late years because the cash value reduces the amount of coverage - self insurance if you will. This is done very efficiently due to the tax-free build-up of cash values. Self-insuring outside a policy doesn't have the same tax efficiency and is more expensive. Second, paying the initially higher levelized premiums encourages the full use of annual exclusion gifts each year. Term insurance then switched to permanent insurance means initially lower premiums and then much higher premiums. Indeed, when clients use term insurance I strongly recommend that they still make gifts to the trust of the full annual exclusions they are entitled to create a side-fund to pay the larger premiums when permanent insurance is substituted later. Of course the side-fund is fully taxable, which makes the point of the permanent insurance cash value efficiency. Finally, when permanent insurance is desired the insured(s) may not be in as good of health and could be stuck with converting the term insurance to permanent. This drastically limits the choices. Buying permanent sooner while in better health allows clients to choose from the full gambit of policy and company choices.
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