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10 Uses Life Insurance


Life insurance is unique property.  It can create an estate with low premiums in comparison to the total death benefit.  It also enjoys many tax advantages.  Uses include:

1. Providing liquidity to pay death taxes and estate costs, thus avoiding the necessity of liquidating valuable assets to pay these expenses. Note that Federal Estate Taxes are due only 9 months after death.

2. Providing funds to pay off a mortgage at death.

3. Providing spouse insurance.  In making an insurance needs analysis, we often forget or underestimate the dollar value of work done in the home by both husband and wife. 

4. Providing funds for college education. Either at death or during life, policy cash values can help pay college costs.  Loans or withdrawals will reduce future death benefits.

5. Guaranteeing funds to repay loans or other debts owed by the decent.  Life insurance proceeds provide cash to pay estate obligations and help provide the survivors with a debt free start.

6. Supplementing retirement income needs.  The policy cash values can be used to supplement pensions, Social Security and other retirement income.

7. Providing funds for an orderly transfer of a business interest at death.  Business owners may have an agreement to buy the interest owned by a decedent, but lack the cash to pay for the decedent's share of the business.

8. Providing funds for a business at the death of a key employee.  Insurance proceeds can be used to recruit, hire and train a replacement.  The proceeds can also provide working capital to help offset financial losses due to the loss of the key person's services.

9. Providing funds for Charitable Giving.  Life insurance death benefits payable to an organized charity can help provide funds for the charity's work, and may provide tax benefits as well.

10. Helping equalize inheritances. For example, a decedent could leave a business interest to the children who are active in the business, and provide benefits of equal value to other children through insurance proceeds.


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Last modified: June 13, 2012