Do you still need life insurance, even if the kids have grown?


Most people are aware of the importance of having life insurance when they are raising a family. The untimely death of the family bread winner, especially when children are young, can have devastating effects on how the remaining spouse is able to continue to raise and educate the children. It is a story that is repeated time and time again as attested by all the television commercials.

As time passes there is another series questions to arise. If my kids are now out of the house, my debts are under control, the house is paid off, and retirement is around the corner, why do I need the life insurance? Can’t I stop the premiums and spend the money on something else?

The short answer is yes. You’ve made it through the maze of life, you’re looking at the downhill slide and all things are good. Yet, as the infomercials exclaim, “But wait, there’s more!”

Let’s take a different look at life insurance, not as a safety net, but rather as a tool to help accomplish other things.  For instance, do you have charitable gifting in mind? Did you know you can buy life insurance and the premiums become tax deductible for charitable purposes? Under this scenario at your death the charity receives the death benefit. This allows you and the family to become a benefactor of the church, charity or foundation of your choice.

Another reason to have life insurance is for the tax benefits. If one of your objectives is to reduce your taxable income, then tax free distributions from life insurance may be a solution for you. Did you know that you could use life insurance to help defer income and then convert it into non-taxable income to help offset the 3.8% Medicare tax on investment income? Additionally, there are ways in which you can use life insurance to limit taxes on your social security benefits.

Since the estate tax in Ohio is no longer applicable and the federal estate tax has been eliminated on estates below $5 million, it would seem the use of life insurance for estate transfer costs isn’t as necessary as it once was. However, can you think of a more cost efficient way to shift wealth? Depending on your situation, there may be benefits to having an Irrevocable Life Insurance Trust (ILIT) to accomplish your family’s financial goal.

If you are the owner of a business then you may have already had a discussion regarding a funded buy/sell agreement as a way to assure a more appropriate exchange of value than might be provided by a probate court. If not, then why not consult with your advisor to discuss the advantages of a funded agreement? I just recently advised a client on the benefit of such an agreement as it relates to his family, now that he is experiencing some severe health issues.

Life insurance has moved a long way from the days of the agent stopping by the house to collect weekly premiums. There are many ways in which life insurance can be used as a tool within an overall financial plan. Ask you advisor how life insurance can help you accumulate money, save on taxes and generate a better return on your savings and investments.