There are many reasons for buying life insurance. Among them are income replacement of the wage earner, debt payoff at death, funding college education in the event of premature death, business buyout obligations, and so on.
Life insurance as a means of passing an estate began to fade from the financial landscape during the last secular bull market that began in 1980. Level premium and guaranteed whole-life policies were replaced with policies with variable premiums, and cash values which were interest rate sensitive or tied to the ever-rising equities markets. Much of this was in response to consumer demand for policies that emphasized living benefits as opposed to just death benefits. Policy equity could be tapped for retirement income when death benefits were no longer needed or to fund other future lump sum needs. Life insurance as an estate transfer device generated more yawns than excitement. Throughout the next thirty years, permanent life insurance was seen as a necessary evil mainly for those with estates large enough to need the cash from insurance to pay estate taxes.
Today, with the lackluster returns from the financial markets, and estate taxes only affecting estates over $10 million (for married couples, $5 million for individuals) it might be time to rethink the role that permanent life insurance can play as a pure wealth transfer device.
Consider Rudy and Sandra. They are 58 and 56 respectively, and have savings and investments of $500,000. They have four children aged 22, 26, 29, and 30. As part of the sandwich generation, both of their parents are still living, but neither set of parents is financially well-off so a future inheritance is unlikely. Their children are not dependent on them, but they face financial pressures that their parents did not have, and Rudy and Sandra are concerned about their future. Rudy and Sandra would like to leave the bulk of their assets to their children at their death. However, based on what they need in retirement, there is a possibility that they will deplete their funds before they die, leaving nothing for their children. Rudy had plenty of life insurance when the children were younger, but he cancelled it after they left home.
Based on their current age and health status, Rudy or Sandra could purchase $500,000 of affordable level premium guaranteed whole life insurance that can ensure an inheritance for their children even if they consume all of their portfolio assets during retirement. If their children later become financially independent and the insurance is no longer needed for wealth transfer, they can access the guaranteed cash value which has grown independently of the financial markets.
Walt Disney World is a great vacation spot and a wonderful way to spend the holidays. Walt Disney passed in 1966 at the age of 65. He left behind two daughters and 10 grandchildren. One of his two daughters, Sharon Mae Disney, had married and then divorced a real estate developer named Bill Lund. Lund was the man who located and helped select Orlando, Florida as the site for Disney World. Sharon and Bill had twins, born in 1970, named Michelle and Brad. Sharon created trusts to pass on her share of the Disney fortune to her three children (her other child was from a prior marriage). Under the trusts, the twins were entitled to substantial distributions. How substantial? In additional to yearly distributions of around one million dollars, they can each receive larger amounts, every 5 years, of approximately $20 million. However, the larger payments would only be made if the trustees determined that the beneficiary was competent to handle the money. Before Sharon died, she selected her ex-husband, Bill, as one of the co-trustees for the twins.
