(1) Life Insurance Reinforces a Spouse’s / Partner’s Financial Security and Lifestyle.
Most couples start their retirement believing they will have more than enough money to live a comfortable lifestyle. But, as the years pass, events beyond one’s control can erode investments and retirement plans. Several unexpected developments can put your financial security in jeopardy. Does anyone want to die and leave their surviving spouse or partner in a precarious financial position? Unfortunately, this happens all too often and can be prevented.
$$$ — Life Insurance on EACH spouse strengthens your financial position going forward. Remember you’re transferring wealth to each other.
(2) Life Insurance Replaces Spent, Reduced or Lost Assets.
What can cause your assets or retirement plans to change quickly?
We want to believe our assets are as solid as a rock and don’t realize how fragile assets can be and are subject to change. Consider recessions and inflation in a changing economy. What if we have higher than expected inflation and the future cost of living can’t be predicted with certainty? Retirement income may be spent at a faster rate if it can’t keep up with the cost of goods and services.
Consider dips in the stock market impacting investments. What if an extended downturn in the economy negatively impacts your investments and other assets? Or investments underperform relative to what was expected for a period of time? Or your 401 (k) looks like a 201 (k). Remember 2008 – 2009.
Didn’t the Rolling Stones sing about TIME IS ON YOUR SIDE? Yes, when you’re 18 years old. If time is not on your side, will you be able to emotionally handle these dips or will you sell in fear?
Consider falling real estate values or leveraged real estate properties in an economic downturn.
Consider unanticipated medical costs – such as a spouse or partner may be in an accident or experience an illness that requires EXPENSIVE LONG-TERM CARE SERVICES FOR A NUMBER OF YEARS. Covering these extra costs could significantly reduce retirement income.
Consider unexpected natural property disasters (earthquakes, tornadoes, floods, storms, blizzards, etc.) and how they can destroy homes and valuable possessions such as the recent wildfires in California 2018, or the devastation caused by Hurricane Henry in August 2017 or Hurricane Irma September 2017. What happens if you’re underinsured? Will you have the additional income to replace and rebuild the property lost?
$$$ — Life insurance in-force at the end of life simply replaces lost, spent or reduced assets.
(3) Life Insurance Provides An Efficient, Flexible Alternative To Bequests.
Many people have provisions in their wills to pay a lump sum of money to charitable concerns (e.g., colleges, religious organizations, social causes, etc.). They are called “bequests” and are part of many estate plans.
You have a favorable charitable concern and want to leave $500,000 to this cause. You must have $500,000 unspent at death before the bequest can be paid. Consequently, this sum of money should be off limits to retirement spending.
A $500,000 life insurance policy can be a flexible and attractive alternative to a bequest in your will and name the charitable concern to receive the death benefit. A life insurance policy eliminates the need to keep a “reserve” for the bequests because the life insurance death benefits will pay them. As long as there are funds to pay the premiums and the policy is in force, you don’t have to keep $500,000 in “reserve.”
You can feel free to spend these assets during retirement. The life insurance policy leverages premiums into a larger income tax-free death benefit creating an economically efficient way to distribute bequests. Note: there are other tax advantages of using life insurance for charitable reasons.
$$$ — Life Insurance Can Be a Flexible and Attractive Bequest to a Charitable Cause.
(4) Life Insurance Replaces Federal and State Taxes Paid On IRA or Retirement Plan Distributions.
Many have accumulated large percentages of their retirement savings in IRA’s (Non-Roth) or other tax-qualified retirement plans. Contributions were made with pretax dollars and the account earnings have grown income tax-deferred. Unfortunately, nearly every dollar distributed from the account will be subject to federal and or state taxes (depending on the state). As a result, the account balances on your monthly statement isn’t entirely yours to spend until these taxes have been paid. You can use the net after-tax distributions for life insurance advantages.
NOTE: See your tax advisor or accountant to understand the tax implications of your IRA or other retirement plans before you begin taking any distributions.
$$$ — Life Insurance Can Recover These Taxes. Policy death benefits can be paid to a surviving spouse or other family members to replace taxes paid on retirement accounts. Premiums can be paid by using part of the distributions left over after taxes are paid.
(5) Life Insurance Can Increase The Legacy Of a Traditional IRA or other Retirement Plans You Can Pass On To Your Spouse or Children.
Some of you will have traditional IRAs or other tax-qualified retirement plans you don’t intend on using. As part of your estate plan, you want your spouse or children to inherit these retirement accounts. Unfortunately, they will not receive the entire balance because the retirement accounts will be full taxable to them. They will only be able to spend what’s left after federal and or state taxes (depending on the state) have been paid.
NOTE: See your tax advisor or accountant to understand the tax implications of your IRA or other retirement plans before you begin taking any distributions.
$$$ — Life insurance depending on your age, health, and financial position allows you the ability to leverage all or part of your traditional IRA or other retirement plans into a tax-free inheritance for loved ones utilizing life insurance.
(6) Life Insurance Can Leverage Your Monthly Social Security Check If You Don’t Need It For Retirement Income.
$$$ — Maybe you don’t need your social security benefits during retirement. You can use these monthly benefit amounts to leverage them into a larger income tax-free death benefit for many different life insurance needs or financial concerns going forward.
(7) Life Insurance Is Considered The Great Equalizer And Can Leave Just The Right Inheritance.
You have children or grandchildren who you want to leave an inheritance, but believe if it is too large, and it may “spoil” or make them lazy. The problem is to decide how much is “just right” and then manage your estate plan so just this amount is passed on at death. This balancing act is difficult and can create a great emotional strain. What to do?
Life insurance can solve the problem of leaving just the right inheritance with the appropriate face amount to your children or grandchildren. At death, each child or grandchild receives their percentage of the life insurance policy paid quickly and free from income taxes. The ownership of the policy with proper planning can also be excluded from your estate and not subject to potential estate taxes. Lump sum proceeds or specified amounts paid out over a period of time can even be managed with proper estate planning.
Children often assume they will all be treated equally in their parents’ estate plans. They may expect all assets to be divided up and distributed in equal parts. But sometimes it may not make sense to divide a business, house, or a parcel of land into equal shares. From the parents’ perspective, and depending on the children’s personal situations, certain assets may make equal division unwise or impossible.
The only way to treat children equally when assets can’t be divided into equal shares is to use cash to make up the difference. Life insurance death benefits will efficiently create and provide the additional cash needed to make sure each child receives equal value from the estate even if the assets they actually receive are different.
Certain assets specified in advance and with proper estate planning can even be purchased by a designated beneficiary with the proceeds from a life insurance policy.
Remember you don’t have to manage your assets to leave an inheritance for your children or grandchildren; the life insurance policy will do that for you.
Here are a couple examples: Suppose husband and wife want to leave an inheritance of $500,000 to each of their four children. They can purchase a $2 million second-to-die life insurance policy and name each child a 25 percent beneficiary, or a widow or divorced spouse wants to leave $500,000 to each of his or her two children and purchases a $1,000,000 life insurance policy and names each child a 50 percent beneficiary.
$$$ — This approach utilizing life insurance can be used as a great equalizer while solving difficult estate planning issues.
(8) Life Insurance Prevents Family Conflicts.
An estate plan may accidentally create conflicts or bad feelings in the family after one’s death or divorce. Life insurance can provide additional dollars to reduce or avoid these potential problems.
Consider a second marriage where there is great potential for conflict between the new spouse and the children of the first marriage. The new spouse and children have different and competing financial interests. The new spouse wants financial security, and the children want their inheritance from their parent’s estate. Animosity and ill-will may develop if they have to wait until the new spouse dies. This is especially true if the new spouse is relatively young and has a long life expectancy.
$$$ — Life insurance can be used to provide the financial security the new spouse needs and allows the children to receive their inherited assets immediately, or the spouse receives inherited assets and the children receive the proceeds from a life insurance policy. As a result, a conflict between the spouse and children can be avoided or at least minimized with proper estate planning and life insurance.
People love their families! No one wants their estate plan to be the spark that starts a family feud. Life insurance death benefits can add flexibility so that everyone is treated fairly.
