Life Insurance

Death Benefit Uses for Life Insurance

• Create an estate: Where time or other circumstances have kept the estate owner from accumulating sufficient assets to care for his or her loved ones, life insurance can create an instant estate.
• Pay death taxes and other estate settlement costs: These costs can vary from a low of three to four percent to over 40 percent of the estate. Federal Estate Taxes are due nine months after death.
• Fund a business transfer: Business owners often agree to buy a deceased owner's share from his or her estate after death. Life insurance provides the ready cash to finance the transaction.
• Pay off a home mortgage: Many people would like to pass the family residence to their spouse or children free of any mortgage. Often a decreasing term policy is used, which decreases in face amount as the mortgage balance is paid down.
• Protect a business from the loss of a key employee: Key employees are difficult to attract and retain. Their untimely death may cause a severe financial strain on the business.
• Replace a charitable gift: Gifts of appreciated assets to a charitable remainder trust can provide income and estate tax benefits. Life insurance can be used to replace the value of the donated assets. Proceeds from life insurance policies can also be paid directly to a charity.
• Pay off loans: Personal or business loans can be paid off with insurance proceeds.
• Equalize inheritances: When the family business passes to children who are active in it, life insurance can give an equal amount to the other children.
• Accelerated death benefits: Federal tax law allows a "terminally ill" individual to receive the death benefits of a life insurance policy on his or her life income tax free. Such "living benefits", received prior to death, can allow a person to pay medical bills or other expenses and maintain his or her dignity by not dying destitute. If certain conditions are met, a "chronically ill" person may also receive accelerated death benefits free of federal income tax. Existing life insurance policies should be reviewed to verify that policy provisions allow for payment of such "accelerated death" benefits.

Other Uses for Life Insurance

While life insurance products are primarily used for death benefit protection, they are also used for long-term accumulation goals.

Available cash values may also serve as an "emergency reserve," if needed, or a source of loans, since life policies frequently include features permitting borrowing against these cash values.

• College fund for children or grandchildren: Cash value increases in a policy on a minor's life (or the parent's life) can be used to fund college expenses.
• Supplement retirement funds: Current insurance products provide competitive returns and are a prudent way of accumulating additional funds for retirement.

The Financial Planning Puzzle

Our financial lives often have many scattered pieces.

A coordinated financial plan provides a framework for achieving financial security.

The Need for Responsible Planning

What If You Were to Die Today?

Many individuals recognize the benefits of planning for the future. Such efforts often uncover problems and frequently provide the motivation to make needed changes. For the most part, the issues involved are positive and enjoyable (e.g., retirement, well-educated children).

However, planning for the unexpected - known as risk management - can be less pleasant. A key part of risk management is answering the question, "What if I were to die today?" Preparing for an untimely death is often referred to as "survivor benefit planning." A subset of estate planning, it addresses the need to keep one's family in their current world, financially.

Understandably, no one likes to contemplate his or her own demise. For some, death seems a distant,future event. Others are simply too "busy." Whatever the reason, delaying this part of planning can result in expensive, unintended, even tragic consequences.

Survivor Benefit Needs

The ultimate purpose of survivor benefit planning is twofold: (1) to ensure that the ongoing income needs of the survivor(s) are met, and (2) to provide for immediate lump-sum cash needs.

• Income needs: How much income will the survivors need, now and in the future,to cover the following:
  • Household living expenses: Will the family stay in the same house? Can they afford to? Do they want to? Will they have the option?
  • Additional childcare: Will there be a need for more help with young children?
  • Educational expenses: Will there be enough money for the children to go to college?
• Lump-sum needs: How much will the survivors need immediately and in cash? Consider the following:
  • Final expenses: More than the funeral, this includes unpaid medical bills, which, after a long illness, can be substantial.
  • Estate settlement costs: Probate expenses, attorney's fees, death taxes, etc.
  • Mortgage payoff and debt reduction: Will it be important to provide a paid-off house? Are there debts that should be retired?

One Final Question

If you died today, would your plan be ready?