Published on May 12th, 2014
How much life insurance should I buy? What type of life insurance is best? These are common questions. It is a question I am sometimes asked and a topic I often bring up.* Life insurance and annuity products can be used to satisfy important needs. Life insurance can be used to help provide for young families should one or both parents die suddenly. Under those circumstances the death benefit is invested and the income from the investments is available for the survivors care. This is a common and well known use of life insurance, but it has many other uses.
Life insurance can provide cash for “Succession Planning”. Partners in business and real estate have a common interest in their venture. While alive, partners can work out an exit strategy if one partner wants to retire. Each partner wants their family protected in the event of their death, particularly sudden death. After all, the family of a suddenly deceased partner may have very different interests and needs from the surviving partner. The surviving partner generally wants to buy out the family of their deceased partner so that they can move forward without complications. Succession planning involves developing a quality “buy-sell” shareholder or partner agreement that addresses the concerns of each party in life, and in the event of death or disability. Insurance can be used to provide cash toward the purchase price of any buy out.
Life insurance is used in Estate Planning. Some estates have real estate or business assets and little cash. In these cases the cash from insurance proceeds can be used to help assure that all beneficiaries receive total gifts of equal value – even though they may receive real estate or other properties of unequal value. Similarly life insurance proceeds can be used in Estate Planning to allow one or more children to buy out the interest of their siblings in real property they inherit together. Ultimately while one can often Estate Plan to reduce or eliminate estate taxes, it is not always possible to eliminate all estate taxes. If an estate is illiquid, life insurance can be used to help pay estate taxes, avoiding the need for the family to sell or mortgage assets to raise cash. This is helpful in many cases, but crucial where estates do not have sufficient cash.
Generally, investment, insurance, Tax, Succession, and Estate Plans are easily integrated. All products – term insurance, whole life in its many forms (universal, variable, and traditional) – all have their place in insurance planning. They can and should be used in combination to provide the appropriate benefits, for the appropriate purposes, at the lowest possible combined cost.
Before you make any changes to your insurance or annuity policies, be sure to update your Estate Plan and/or Elder Law plan so the insurance structure compliments the planning.
* Please note we do not sell life insurance, or accept or receive commissions on life insurance.
Other Articles by Category: Estate Planning, Estate Taxes, Life Insurance
The content in this document is provided for informational purposes only, and should not be construed as legal advice or an offer to perform services on this subject matter. Contact Visci & Associates to schedule a consultation at our offices in New York and New Jersey.