Some Key Uses of Life Insurance

September 1st, 2021 by Legacy Wealth Planning

Have you ever thought about the important role life insurance can play in helping you manage a variety of important financial objectives? Let’s look at some “slice of life” hypothetical examples and you’ll see how life insurance can have broad applications.

Creating an “Instant Estate.” First, consider this scenario: A young married couple, Cheryl and John O’Neil, have just had their first baby. Cheryl, previously a full-time employee, has decided to reduce her work hours so she can devote most of her time to being with their new child. How would Cheryl manage financially if John, now the primary breadwinner, were to die unexpectedly?

Since most couples just starting out in life may not have had time to accumulate a lot of assets, life insurance can provide an instant estate, thereby helping assure that money will be available in the case of an untimely event, such as an early death. Based on the specific needs to be met, such an instant estate could help provide annual income for the surviving spouse, money to help pay the mortgage, and funds to help pay for a child’s education.

Funding a Buy-Sell Agreement. Next, let’s consider Joan Curtis and Bruce Fuller, two partners who have worked hard to build a successful electronics business. How could they protect their respective business interests should one of them die or wish to sell his or her share?

In this situation, the two partners could set up a buy-sell agreement funded with life insurance. Simply put, a buy-sell agreement establishes the conditions under which one partner would buy, and the other (or his/her heirs in the event of death) sell, his or her shares of the business. Because partners typically may have much of their personal wealth tied up in the business, life insurance can help provide the means (i.e., the cash) to accomplish this objective.

Protecting a Closely-Held Business. Finally, let’s consider Peter Clark, the owner of a closely-held business who wishes to keep his company in the family. How could the business be protected from potentially high estate taxes that might require selling it to raise the necessary cash?

With the use of an irrevocable life insurance trust (ILIT), Peter can prevent the policy proceeds from being included in his estate. The proceeds can then be used to help pay his estate tax bill without having to sell off assets.

While these hypothetical examples have been described in very basic terms, they demonstrate how life insurance can help provide protection in some key situations. By identifying your short- and long-term financial needs, a qualified insurance professional can help you develop a plan to help ensure money will be available to meet your objectives.

Important Disclosures

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

This material contains only general descriptions and is not a solicitation to sell any insurance product or security, nor is it intended as any financial or tax advice. For information about specific insurance needs or situations, contact your insurance agent. This article is intended to assist in educating you about insurance generally and not to provide personal service. They may not take into account your personal characteristics such as budget, assets, risk tolerance, family situation or activities which may affect the type of insurance that would be right for you. In addition, state insurance laws and insurance underwriting rules may affect available coverage and its costs. Guarantees are based on the claims paying ability of the issuing company. If you need more information or would like personal advice you should consult an insurance professional. You may also visit your state’s insurance department for more information.

This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.

LPL Financial Representatives offer access to Trust Services through The Private Trust Company N.A., an affiliate of LPL Financial.

This article was prepared by Liberty Publishing, Inc.


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