Death and taxes are an absolute. We know that life insurance settles the death part, but there also ways to use it for the taxes part. In fact, there are other unusual ways to take advantage of this very affordable insurance product.
Funding your Legacy
Let’s use, for example, Lisa and Fred, who own a beautiful cabin that
overlooks a lake in a mountain setting that’s worth about $300,000.
While discussing how their three children would share this marvelous
asset, they begin to realize that their two daughters could care less
about the cabin in the woods while their son goes there at every
opportunity. Rather than forcing the kids to sell it and split the
proceeds, they simply purchase enough term life insurance with the
daughters as equal beneficiaries which allows them to even-out the
legacy. Using this strategy effectively allows Fred and Lisa to turn the
cabin and the death benefit into liquid assets that can be split
equally among their children.
Using life insurance is no secret to financial planners. Simply put,
an investor can purchase a policy that will be used to cover the estate
taxes on their holdings. This use of the death benefit will prevent
beneficiaries from having to take the time needed for selling off a part
of the investments left to them during the grieving process or when
they may be in an unfavorable position to sell just to satisfy their tax
liability. Typically, your financial planner will recommend that you
put the life insurance policy in a trust that will allow you to leave
instructions as to how the payout should be used.
College Cost Participation
Many grandparents want to participate in tuition costs for their grandchildren. The problem that typically presents itself is that the grandparents don’t have the time or funds to offer their desired portion of tuition costs between the birth of their grandchildren and their high school years. By purchasing affordable term life insurance, the grandparents will gain peace of mind knowing that when they die, the death benefit will be sufficient to cover the costs of education for their grandchildren.
Capital for a Grandchild’s Business Startup
Similar to the College Cost Participation idea, grandparents may also
purchase affordable term life insurance so the death benefit would go
to specific grandchildren that have shown a sincere interest in starting
a business. If the grandparent does not feel comfortable with offering
retirement funds for a business startup, they can simply designate the
death benefit from their life insurance to be used as capital for a
grandchild’s business startup.
It’s very interesting when you consider the many uses of life insurance and how it can solve the numerous riddles associated with financial planning. Today’s financial planners are becoming very creative with using insurance as a way to balance investment risk, not just risk to life and limb. Whether your goal is to replace income, create a legacy, or participate in the typical costs of assuring a great education for your grandchildren, term life insurance is considered an effective and affordable way to reach these goals.