Trouble For Self-Paying Insurance Policies?

"Using life insurance to cover the death tax is common practice," reports Arden Dale in the WSJ, "but the strategy is blowing up some estate plans now."

Problems stem largely from expectations about how well investments in a policy will perform. A policy may have been set up to self-pay premiums, based on the notion that investments will beat the interest rate used. Money then builds up and pays the premiums automatically.

But if interest rates decline over time, trouble can occur. The owner may not be aware that the policy is taking out internal loans to keep up with the premium payments.

I haven't the foggiest idea of how this "perpetual motion" approach to life insurance works. Few people do, according to Dale. The possibly endangered policies "are complicated enough that an estate planner or attorney may not feel comfortable vetting them."