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.  Let’s talk about some of the purposes of Life Insurance.

This is a unique asset. Because of its potential high yield and tax-favored benefits, it can be used to solve some of life’s perplexing financial problems.

DEATH BENEFIT USES

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 3-4% to over 50% 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 Charitable Remainder Trusts 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: The Health Insurance Portability and Accountability Act of 1996 changed federal tax law to allow 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 commonly used for long-term accumulation goals.

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.

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.

If you would like to have a review of your current life insurance needs, give us a call.  We will do a personal analysis for you.