Life Insurance

Life Insurance, A Simple Tool - 5/27/08

INTRO: Life insurance is usually seen as a pretty basic financial tool to make sure your family has some money if you meet an untimely death. But it can do a lot more, to create an inheritance for kids, pay estate taxes, and protect your home or business.

1. MOST PEOPLE BUY LIFE INSURANCE WHEN THEY'RE YOUNG, TO PROTECT THE FAMILY IN CASE OF A PREMATURE DEATH. RIGHT?

A. Yes. But life insurance can work for us in many other ways.

2. WE'VE MADE A LIST OF PRACTICAL LIFE INSURANCE USES. FIRST IS: CREATE AN ESTATE.

A. 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. Let's say, for example, you have an adult disabled child. Life insurance may be the best way to ensure that child will have the money that's needed when you're no longer around.

3. NEXT ON THE LIST: IT CAN PAY ESTATE SETTLEMENT COSTS.

A. These costs can vary from a low of three to four percent to over 50 percent of the estate. Federal Estate Taxes are due nine months after death. Life insurance can provide the cash you'll need to pay death-related costs so that you won't have to sell stocks or real estate in a down market.

4. IT CAN ALSO FUND A BUSINESS TRANSFER.

A. 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. Without cash, you could wind up as a business partner with your late partner's spouse or kids, and that may not be good.

5. PAY OFF A HOME MORTGAGE.

A. Many people would like to pass the family residence to their spouse or children free of any mortgage. Life insurance is cheaper than mortgage insurance to accomplish that goal.

6. PROTECT A BUSINESS FROM THE LOSS OF A KEY EMPLOYEE.

A. Key employees are difficult to attract and retain. Their untimely death may cause a severe financial strain on the business, with a loss of income. Life insurance on that employee can protect the business until a replacement can be found.

7. IT CAN ALSO REPLACE A CHARITABLE gift.

A. Life insurance can be used to replace the value of donated assets. Let's say you are leaving $100,000 of appreciated stock to charity. You can purchase a $100,000 insurance policy to make sure your kids won't lose out

8. PAY OFF LOANS.

A. Personal or business loans can be paid off with insurance proceeds.

9. LIFE INSURANCE CAN EQUALIZE INHERITANCES.

A. When the family business passes to children who are active in it, or when the family home passes to one child who will live there, life insurance can give an equal amount to the other children.

10. ACCELERATE DEATH BENEFITS.

A. Federal tax law allows a terminally ill individual to receive the death benefits of a life insurance policy during his or her life income tax free.

11. IT CAN BE USED IN A COLLEGE FUND FOR CHILDREN OR GRANDCHILDREN.

A. Cash value increases in a policy on a minor's life (or the parent's life) can be used to fund college expenses.

12. AND FINALLY, LIFE INSURANCE CAN SUPPLEMENT RETIREMENT FUNDS.

A. Current insurance products provide competitive returns and may be a prudent way of accumulating additional funds for retirement.

B. Available cash values may also serve as an A emergency reserve,@ if needed, or a source of loans, since life policies frequently include features permitting borrowing against these cash values.

CLOSE: A life insurance policy has many uses.