Thursday, November 20, 2008

Creative Uses of Life Insurance

Life Insurance is the least expensive and most flexible way to resolve a host of challenges faced by individuals doing their estate planning. Life insurance can be used to do the following:
  • Pay taxes due at the death of the insured.
  • Replace income no longer available at the death of the insured.
  • Pay off the personal or business debts of the insured.
  • Ensure the surviving spouse has sufficient income for the remainder of his or her life, especially where the bulk of the insured's estate is the personal residence or other assets that are difficult to liquidate or that do not generate income.
  • Ensure that children will receive something, when everything else is going to the surviving spouse. Some people want to give everything to a spouse, but are afraid the spouse will remarry and the new spouse will eventually take everything, cutting out the children of the original marriage. Insurance can easily resolve this problem.
  • Estate Equalization. A person may have a business he wants to give to one son. But what about the other son? Insurance solves the problem.
  • Ensure long-term care. I am not talking about long-term care policies, but rather using traditional life insurance policies that can be accessed during the insured's life for any reason.
  • Provide funds to charities or that nephew or some favorite cause, and still have the bulk of your assets go to the traditional heirs such as children.
  • Transferring money to the insured's business partner to be used by the partner to pay the insured's family for the insured's interests in the business. This makes the surviving business partner happy, because it keeps the insured's spouse or family out of the business. And it makes the insured's family happy, because they are receiving the value of the insured's interest in the business without dealing with the insured's business partner. (A Buy-Sell Agreement.)
  • Transfer money to a business to cover the costs of getting someone to replace the insured at the insured's death. (Key Employee Indemnification.)
  • Reimburse a business for benefits paid to key employees (Recapture of Deferred Compensation Costs.)

There are numerous other creative uses of life insurance or life insurance in combination with annuities and other options that make life insurance the most efficient, least expensive way to resolve a host of challenges.

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