Planning Your Estate with Life Insurance
Building an estate can take years of diligent saving and investing. Once you have built up an estate, you’ll want to make sure that you preserve its value for your heirs. You can also add to or create a valuable estate by using life insurance.
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Premature death can result in financial difficulties for your survivors. By using life insurance to protect against this outcome, you can rest assured that your heirs will be cared for financially in your absence.
If you wish, you can also ensure that other financial goals are achieved. Because the premature death of a breadwinner could make college savings or mortgage repayment impossible, steps should be taken to prepare for these possibilities. Life insurance provides a cost-effective way to guard against the threat of interrupted financial goals.
A Case Study:
The following example illustrates the concept of estate creation.
Paul Pringle, a 40-year-old computer programmer, would like to begin a savings program. He and his wife, Pam, have two children, ages 10 and 8. He feels he can afford to save about $3,000 per year.
Estate Planning Using an IRA vs. Life Insurance
Among his options, he could choose to invest in a traditional IRA. His contributions would be fully deductible and would grow on a tax-deferred basis. This would help provide a respectable retirement nest egg. However, it would not be accessible for most other purposes without penalty before he turns 59 ½.
For the same annual amount, he could choose to purchase a whole life policy. He could choose a fixed premium, and his cash value would be allowed to grow tax-free just like in the IRA. Unlike IRA contributions, however, whole life policy contributions are generally not tax deductible.
We had heard about annuities and were investigating them for our IRAs. We also heard bad things about pushy brokers over the years. So when we went to the ImmediateAnnuities.com site we were skeptical about calling them. But whenever we called their staff was really friendly. They answered all our questions and one of their reps even told us that at our ages there was no advantage to buying the annuity with our IRAs. These guys are really honest!
Paul would have penalty-free access to the cash value through policy loans or withdrawals. And in the event of Paul’s premature death, his family would receive the policy proceeds free of income tax. The proceeds would help to maintain his family’s standard of living, and it could ensure a college education for both of their children.
In the unfortunate event that Paul dies prematurely, his policy would generate a significant amount of wealth. For a potentially low premium investment, Paul can create an estate that might take 20 to 30 years to accumulate in an IRA.
Life Insurance in Estate Planning: A Clear Advantage
The security provided by life insurance, combined with the opportunity to create an estate, makes this choice a logical one for many families. Consult an advisor to see how you can achieve financial security for your family.