The Neglected Life Insurance Audit

The Neglected Life Insurance Audit

When a 1035 Exchange Brings Value

While it’s a great idea for policy owners to get an audit of their life insurance coverage, these audits can be a requirement that trustees need to complete on a regular basis.

Let’s explore the case of an individual who asked Marcum Insurance Services for an audit of his policies to understand the process and outcomes of a quality audit.

James: Age 62 (Insured)
Jennifer: Age 61 (Beneficiary Spouse)
Children: 4

The Case Details

James owns a company that he wishes to keep in the family. The purpose of the life insurance policies he owns is to provide liquidity for estate taxes due and to provide an inheritance to his kids who are not actively participating in the business. John had an insurance agent who sold him the policies, but the agent was providing very little advice on how to best maintain them. He asked Marcum Insurance Services to step in and become the servicing agents on the policy to provide better ongoing service.

  Policy #1 Policy #2 Total New Policy
Policy Type Variable Universal Life Whole Policy   Variable Universal Life
Premium $10,485.00 $11,098.50   No Premium Required
Loan Outstanding   $50,000.00 $50,000.00 Eliminated
Death Benefit $1,500,000.00 $1,390.000.00 $2,890,000.00 $4,054,694.00
Guaranteed to Age 73 76   120

How we Proceeded

We moved the cash value from the two existing policies to a new policy, utilizing a tax-free exchange (Section 1035). The loan was taken from the cash value being transferred, leaving the client with a clean slate and no loans on the new policies.

Improvements Made

  • Loan of $50,000 eliminated by using existing cash value to pay it off.
  • Existing policies would require additional premiums to keep them in force to life expectancy.
  • No further premiums are required to be paid on new policies.
  • Death benefits are guaranteed to age 100. Existing policies were only guaranteed to age 73 and 76.
  • Death benefits were increased by $1,164,594 for no additional premiums.
  • We also noted that the policies were not in trust, an action the client thought the previous insurance broker already handled. We re-titled the policies in the name of the proper trusts.


Marcum’s Insurance Services team improved the overall health and effectiveness of the policies for no additional premium.

We also gained the trust of the client and are working on additional planning because there is a greater need for liquidity due to the size of the business and the estate taxes due.

Important Disclosure Information

Marcum Insurance Services, LLC is an affiliated insurance agency of Marcum Wealth, LLC. Marcum Wealth, LLC may recommend the services of certain affiliated and related entities, including Marcum, LLP and Marcum Insurance Services, LLC, which presents a conflict of interest in that the recommendation could be made on the basis of fees to be collected by such affiliated or related entity.

Securities offered through Valmark Securities, Inc. Member FINRA, SIPC. Advisory Services Offered through Marcum Wealth, a SEC registered Investment Advisor. Marcum Wealth and Marcum Insurance Services are separate from Valmark Securities, Inc.

The information presented here is for educational purpose only and is not intended to provide specific advice or recommendations for any individual nor does it take into account the particular investment objectives, financial situation, or needs of individual investors. Client names have been changed to protect confidentiality. The case study is for illustrative purposes only. Individual results may vary.

Past performance may not be indicative of future results. Different types of investments involve varying degrees of risk. Therefore, it should not be assumed that future performance of any specific investment or investment strategy or any non-investment related services, will be profitable, equal any historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.

Marcum is neither a law firm, nor a certified public accounting firm, and no portion of its services should be construed as legal or accounting advice. Moreover, you should not assume that any discussion or information contained in this document serves as the receipt of, or as a substitute for, personalized investment advice from Marcum.