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The economic downturn has heightened the concern of readers of this column, when they already have existing life insurance, but their ability to continue premium payments is difficult. The same concern (high premium costs) confronts readers who need (or want) new policies.

Part I dealt with existing policies. This article (part II) explores “the how to” for new life insurance policies you need (or want). The trick is to acquire the desired death benefit amount, from top-rated insurance companies but pay substantially less in annual premiums (from inception to the day you die).

Once you learn how, it is an easy-to-do trick. We do it for readers of this column on a regular basis.

Depending on your age, health, your specific goals and the type of assets you own, the trick is successfully performed – every time – by selecting the right strategy or combination of strategies. Following are the five key strategies we use most often when a client buys new insurance. Unless otherwise indicated all policies are what is commonly called “permanent insurance”: have cash surrender value (CSV).

1. Financed insurance. You use cash, marketable securities (stocks and/or bonds) or real estate as collaterals for bank loans. The loans are used to pay your premiums (and interest on prior loans). For example, Joe (age 72) and his wife Mary (69) bought $5 million of second-to-die life insurance. The annual out-of-pocket premiums to be paid are only $16,500. Joe simply pledged $300,000 of his existing $1.6 million stock portfolio as collateral with the bank.

Normally, the premiums would be about $63,000 per year. The bank loans do not have to be repaid until both Joe and Mary have died.

This financed-insurance strategy is the best tax-advantaged opportunity (legally allowed) that I have ever seen or heard of in my 40-plus years as a tax practitioner. It is implemented in combination with an irrevocable life insurance trust (keeps insurance proceeds out of your, and your spouse’s taxable estate). You actually create tax-free wealth – millions of dollars – with minuscule out-of-pocket costs.

You must check it out.

2. Subtrust. If you have funds in a 401(k), profit-sharing plan, IRA or other qualified – plan, you can create a Subtrust. You will not pay any premiums. Instead, the Subtrust will pay all premiums. In effect, you have deducted your insurance premiums, and used the profits earned in the plan to pay your personal premium expense … all tax-free.

The subtrust strategy was covered in detail in last week’s article. In a nutshell: If you are married and have $300,000 or more in your qualified plans, you must check out a subtrust. Easy to do. Creates tax-free wealth in effect, turning the tax dollars you would have lost to the IRS into millions of dollars for your family (tax-free).

3. Family limited partnership (FLIP). You create your FLIP by transferring income producing property you own (for example stocks, bonds or real estate). A tax-free transfer. A FLIP has many estate planning advantages. The income of the FLIP is used to pay the insurance premiums. Your heirs will get the life insurance proceeds free of income and estate tax.

4. Defective trust. Such a trust is defective for income tax purposes (it is treated as if it does not even exist). But the trust is recognized for estate tax purposes, and like a FLIP, has many estate planning advantages. This time the property you own is sold (instead of transferred like a FLIP) to the defective trust. A tax-free sale. The income of the trust pays the policy premiums. And of course, the life insurance proceeds go to your kids or grandkids free of income tax and estate tax.

5. Combinations. The above strategies often are combined with term insurance and an irrevocable life insurance trust. More than one strategy – called a “combination” – may be used for the same client.

The above does not attempt to cover all of the possibilities for slashing your premiums when purchasing new life insurance policies. Nor does the above cover all of the rules and tax traps for those who attempt to use the strategies without professional help.

The purpose of the article is to show you some of the many possibilities for creativity when buying large amounts (say $2 million or more) of life insurance. Yes … I know, life insurance is a boring subject. But if you want to create tax-free wealth for your family, without getting hit with large premium costs, life-insurance (done right) is the best strategy for tax-saving fun.

Thinking of enriching your family, while beating up the IRS … legally? And would like to see how life insurance would work for your family? Or maybe you have existing policies and want to see how easy it is to increase your death benefit without paying more premiums.

Well, I have lined up the right professionals to analyze your situation and make recommendations. No obligations. So, if you want to join the Best-Insurance-For-My-Family-Club, please fax (847-674-5299) me your name and birthday (same for your spouse) along with all phone numbers (home, business, cell). Just write “Marco Insurance Club” at the top of the page. Call Irv (239-417-9732) if you have any questions.

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Irv Blackman, CPA and lawyer, is a retired founding partner of Blackman Kallick Bartelstein, LLP (CPAs) and Chairman Emeritus of the New Century Bank (both in Chicago). Contact Irv at 847-674-5295 or blackman@estatetaxsecrets.com. Web site www.taxsecretsofthewealthy.com.