As the end of the year approaches, advisors and their clients are facing a lot of uncertainty. The $5 million estate-tax exemption and 35 percent maximum estate-tax rate are set to expire in 2013, there will be a new tax on investments for high-income earners as part of the Affordable Care Act, and the political landscape is volatile.

While the tendency may be to wait for clarity, today's tax environment likely will not last; in fact, it is scheduled to change at the end of the year. Advisors need to be proactive and fully evaluate the opportunities currently available. They need to explore all options for their clients, including life insurance. This often-overlooked asset class can be used to meet multiple client needs, particularly in this uncertain environment.

If properly structured, typically through the use of a trust, life insurance proceeds can pass tax-free to heirs. It can also be used for income replacement, and succession planning for businesses, and riders can be added that also provide for long-term-care benefits. Life insurance is particularly effective as a tax-efficient vehicle for wealth accumulation, because it’s tax-deferred while it’s growing and the policyholder can borrow against the income-tax-free death benefit. In retirement, that allows for a retirement income stream that is also tax-free.

Despite the benefits, financial advisors often miss the opportunity to speak to their clients about the important role life insurance products can play, according to a survey conducted by Saybrus Partners, Inc. at the 2012 Financial Advisor Retirement Symposium. The survey found that more than half--56 percent--of financial advisors don’t speak regularly to their clients about life insurance.

Some may be focused solely on their core business or are unsure about how life insurance fits into a comprehensive plan. Others may not feel they know enough to advise their clients. Whatever the reason, many advisors have found that it’s helpful to partner with a life insurance specialist. The specialist can review the advisor’s book of business, meet with the advisor and his or her clients to help explain their options, advise them on the right policy, and help with the application and underwriting process.

Integrating life insurance into your clients’ financial plans

Creating the best plan for each client begins with an in-depth needs assessment and a tailored plan. In the current climate, high-net-worth clients, in particular, can often benefit from life insurance. With wealth transfer and wealth preservation among their top goals, minimizing taxes is a high priority and life insurance can be a very effective tool.

For example, qualified assets that they’re passing down to children and grandchildren could be taxed as ordinary income. As an option, they could employ a life insurance policy to begin transferring their assets out of a qualified plan.

While they would pay taxes while the money was being transitioned, they would ultimately leave a benefit for their family that would not be subject to income taxes. While it’s hard to predict income taxes rates beyond the changes pending for 2013, many people believe they are likely to rise, making it advantageous to plan now.

In addition, long-term care riders can help protect assets from the erosion of value for the long-term care of one of the spouses.

Whatever the scenario, life insurance isn’t a set-it-and-forget-it product, especially now when there are so many changes occurring. While advisors regularly review the performance of their clients’ stocks and other investments, they are much less likely to review life insurance policies. But clients’ policies may have been written years earlier and need to be reviewed and updated, particularly as interest rates fluctuate and tax and other laws continue to change.

In the current environment, integrating life insurance into a comprehensive financial plan is vitally important. With tax and gifting conditions now as favorable as they’ve been in a long time and just a few months left in the year, now could be the time to act. Integrating life insurance into a comprehensive financial plan can be a smart, timely move with long-term benefits for clients.

Kevin Kimbrough, CLU, is principal, National Sales, Saybrus. He manages Saybrus’ sales training and advanced planning teams, business development functions and external sales force. In this role, he is key in establishing new distribution partnerships for Saybrus, as well as relationship management of existing accounts for its assisted sales channel. He has been in the financial-services industry for over 16 years.

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(IRS Circular 230 Disclosure: Any information contained in this communication (including any attachments) is not intended to be used, and cannot be used, to avoid penalties imposed under the U. S. Internal Revenue Code. This communication was written to support the promotion or marketing of the transactions or matters addressed here. Individuals should seek independent tax advice based on their own circumstances.)