Life Insurance Alternatives
December 17, 2012 
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Life insurance, in its simplest form, has been around for many generations. When I say simplest form, I mean a tax-free death benefit. I am quite certain that the majority of Americans believe that a tax-free death benefit is the sole purpose of life insurance. In fact, I would be willing to bet that the majority of the population treats life insurance as a burden, or a cost that you are forced to pay (similar to car insurance). However, over the years, life insurance has morphed into a retirement and estate planning vehicle that serves multiple roles besides just a death benefit. We like to call them Life Insurance Alternatives.
Some of the main alternative ways to use Life Insurance include bequeathing assets, wealth replacement, pension replacement, and income for college. But there are numerous more that we will cover in a future blog.
We have all heard heartbreaking stories of families that had to give up land, farms, and second homes upon the passing of their parents because they couldn’t afford the tax liability that came with it. Or perhaps one of the beneficiaries couldn’t afford it and forced the full sale of the beloved family property. Regardless of the situation, it could have been avoided with life insurance. Life insurance can serve as a way to “bequeath” money to your beneficiaries to ensure that your legacy and your beloved property can remain intact.
Similarly, another life insurance strategy is putting life insurance into a trust (which gives you the ability to specify how the payout is used) to make sure your spouse and/or beneficiaries whole on wealth replacement. This is another way that prevents your spouse or beneficiaries from having to sell assets, stocks, etc just to make ends meet. Let’s assume you have 3 beneficiaries of which all have different jobs and background. Two of the three have great jobs, can afford the estate taxes that they are going to be faced with, and truly want to keep the nice land, homes, etc that they will be inheriting. On the other hand, the 3rd beneficiary is in debt, has maxed out credit cards, and has no aspiration to keep those family properties. With life insurance inside of an estate, you could spell out exactly how the death benefit should be allocated to avoid having your land and legacy be sold and lost due to one careless beneficiary.
The financial collapse of 2008 was devastating to millions of Americans. One of the most common retirement issues that we hear is from boomer retirees is that they are just trying to make sure that they pass away with no money left in the bank. Meaning that their biggest fear is outliving their money and now they would rather last right up until the day the money is all gone versus passing along a large inheritance. Life insurance can work miracles in this instance by giving the retirees beneficiaries an inheritance and also (depending on the type of life insurance they purchase) can potentially provide some cash flow in the way of a tax-free loan against the life insurance while they are still alive.
Stay tuned for more life insurance alternatives. Don’t forget to check out the “Truth About Life Insurance” series.
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