Group Term Life vs Individual Term Life

[zetta]

We met with a will and trust lawyer yesterday, and I learned that there are ways that individual term life policies can be sheltered from estate taxes (in the "B" portion of a trust) that don't apply to group term life policies like you get from an employer. Anybody know more about this? How do I determine whether it's worth it to pay a higher premium for the estate to have a lower tax burden?

[disneysteve]

I can't specifically answer your question but I do feel it is better to have individual life insurance rather than depending on a policy provided through your employer. Why? What happens if you lose your job or voluntarily change employers? You lose your coverage. You would then find yourself shopping for individual coverage at an older age, possibly with medical issues that you didn't have earlier.

If your employer provides coverage as a standard benefit at little or no cost, certainly take it, but buy your own individual policy, too. Term is so cheap it isn't worth taking a chance.

[zetta]

The employer coverage is free. What I'm looking at is purchasing additional coverage. I can get "group term life" through a professional organization that is very cheap ($150 semiannually for $1M coverage), or I can shop around for "individual term life" that can be sheltered. How do I compare the cost of a higher premium vs paying $200k in estate taxes?

[MonkeyMama]

Zetta - I am not aware of the estate benefits of individual life. So no advice there.

I did want to point out something. What is the term on the "group term life?" I would be surprised if it was more than a 1-year term.

I am with Steve. It's probably important to get individual term life, regardless. You can get a 20-year term at a reasonable rate. If something happens you could become ineligible to renew your 1-year-term insurance, etc.

Term insurance is so cheap in general, I think it would be worth the cost. We are only talking a couple of hundred bucks a year.

On the flip side, if you can get a longer term through a group policy, I think the estate side is kind of moot. Estates are currently only taxed over $3.5 million. Would you need life insurance if your estate was worth that much? Wouldn't you drop it by then? I would hold off until the government decides on how they want to tax estates. It's kind of in limbo after 2010. But everything I heard is the minimum taxable estate will probably settle around $3.5 million. States can be another issue, but amazingly, California conforms with Federal estate law.

[zetta]

The lawyer said that he had heard that senators are leaning toward quietly letting the $3.5 M exclusion expire after 2010 because the government needs the tax money. So he is advising new clients to set up things with the assumption that the law will revert to the $1M exclusion in 2011, and we'll revisit it when Congress does.

[MonkeyMama]

Originally Posted by zetta

The lawyer said that he had heard that senators are leaning toward quietly letting the $3.5 M exclusion expire after 2010 because the government needs the tax money. So he is advising new clients to set up things with the assumption that the law will revert to the $1M exclusion in 2011, and we'll revisit it when Congress does.

I don't agree with this view, professionally.

But we will see! (I certainly wouldn't bet on anything, either way. )