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Life Insurance Simplified


Life insurance is a unique asset that can be used to solve some of life’s perplexing financial problems.  The following is a summary of some of the many ways to use it to save money and protect your family.

Pay death taxes and other estate settlement costs. These costs can vary from a low of 3 to 4% to over 35% of your estate. Federal estate taxes are due nine months after death.

Fund a business transfer. Business owners often agree to buy a deceased owner ‘s share from his or her estate after death. Life insurance provides some ready cash to finance the transaction.

Pay off a home mortgage. Many people would like to pass the family residence to their spouse or children free of any mortgage. Often a decreasing term policy is used, which decreases in face amount as the mortgage balances is paid down.

Protect a business from the loss of a key employee. Key employees are difficult to attract and retain. Their untimely death cause severe financial strain on the business.

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

Equalize inheritances. When the family business passes to children who are active in it, life insurance can give an equal amount to the other children.

Replace a charitable gift. Gifts of appreciated assets to a charitable remainder trust can provide income and estate tax benefits. Life insurance can be used to replace the value of the donated assets. Proceeds from life insurance policies can also be paid directly to a charity.

Accelerated death benefits. Federal tax law allows a terminally ill individual to receive the death benefits of a life insurance policy on his or her life income tax-free.  Such living benefits received prior to death can allow a person to pay medical bills or other expenses and maintain his or her dignity by not dying destitute.  If certain conditions are met, a chronically ill person may also receive accelerated death benefits free of federal income tax.

Create an Estate. Where time or other circumstances have kept the estate owner for accumulating sufficient assets to care for his or her loved ones, life insurance can create instant estate.

Other uses for life insurance can include funding college costs for children or grandchildren, to supplement retirement funds, and to establish an emergency reserve.

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