20 Ways to Get Less Creative with Life Insurance

Written by Aaron Pinkston, Tue, Jan 12 2010

This is about life insurance basics, life insurance how to, easy life insurance

Recent Postings

Does Name Brand Life Insurance Matter?
Posted by Aaron Pinkston on Wed, Jul 07 2010
A Meaningful Legacy
Posted by Aaron Pinkston on Mon, Jul 05 2010
Doing Your Duty to Family
Posted by Aaron Pinkston on Mon, Jun 28 2010

Topics

I am on a lot of email lists from life insurance news sources and life insurance companies. Every once in a while, I get one company or news source that gets a bee in their bonnet about “creative uses of life insurance”. Inevitably, this is some kind of backwards flopping, over-stuffed, income-tax reducing scheme.

Yes, I understand how these work. I can usually tell which “advanced concept” they are pitching by reading the way they describe it. I like to play that game. But in my experience, this type of positioning confuses people about the true reason they need life insurance. Many of these schemes are often dangerous if implemented because life insurance is a long-term contract, but the loophole or tax benefits of the concept may change suddenly (Anybody remember how the most recent split-dollar rules changed things?).

So I’m asking, can we get less creative with life insurance?

Life insurance should always be use first and foremost for the death benefit. When you die, your family, business, or estate needs the immediate money for some purpose. That could be to:

Replace your income as a bread-winner.
Help replace the services of a non-income earning spouse or partner.
Pay for funeral service.
Pay off debts.
Pay for the high medical bills often associated with death.
Complete your mortgage if you cannot.
Make sure your partner or spouse has enough money to retire on, even if you don’t make it all the way to retirement.
Fund college expenses for your children if you die prematurely.
Help take care of a special needs child after you are gone.
Help offset the burden of state/province and federal estate taxes.
Maximize the after death transfer amount of a qualified retirement plan .
Fund a buy-sell agreement between business partners.
Give a business enough capital to pick up the pieces when a key person is no longer there.
Help retain a key employee.
Cover a loan on your business.
Make sure the children who do not get your business don’t get left out.
Make sure you can pay child support, whether you are there or not.
Equalize inheritances between children of a previous marriage.
Maximize donations and gifts through guaranteed death benefits.
Ensure the size of your contribution to children or nonprofits.

I’m sure there are lots of other non-creative ways to use life insurance, but this is just a start. What we don’t need in this day and age are more snake-oil salesmen claiming their elixir cures all ailments. We need more people who can focus on the basic problems people have and put their needs first. It’s time to be less creative with life insurance.