(Continued)

Many uses
For Ari Kolker, life insurance is being used to provide a stream of income later in his life. But this isn’t the only way a whole life policy can provide a benefit before someone dies. There are other types of living benefits.

Some are relatively new, and some have been around for years. Among the newer uses of life insurance are accelerated death benefits, viatical settlements and life settlements. But these are typically after-the-fact arrangements, after an insurance policy is bought for its death benefit.

Some of the traditional uses of life insurance are more proactive in their approaches to problem solving. They include funding buy/sell agreements, paying estate taxes and providing money for education.

Now let’s take a look at some of the other things a life insurance policy can do apart from providing a family death benefit.

Some of the business uses of life insurance are:

Buy/Sell Agreements—Life insurance can fund an agreement between two or more partners in a business that stipulates that when one of the partners dies, the death benefit goes to purchasing the deceased partner’s interest in the business.

Credit line coverage—Life insurance can help secure a line of credit for a business by being a solid business asset that can be used as collateral for a loan.

Keyperson coverage—Life insurance will protect a business from monetary losses caused by the death of a key executive or employee.

Employee benefit—Group life insurance is a valuable benefit a business can use to attract quality employees.

Debt coverage—A sole proprietor of a business can use life insurance to cover his debts when he dies.

“I don’t believe in constraining life insurance. I believe in flexibility, and that’s what insurance does for families, provides them with the flexibility to do what’s best when a member of the family dies.” —Gus comiskey Jr., clu

Some of the personal uses of life insurance are:

Burial expenses—Life insurance will pay for funeral expenses and benefits can be assigned directly to the funeral home.

Mortgage and debt protection—Life insurance can pay off a mortgage, credit cards, a student loan and other personal debt.

Education—The cash value in a life insurance policy can provide funds for a college education.

Charitable giving—Life insurance can fund a donation to, or an annuity for a charity, church, foundation or nonprofit organization.

Estate creation—Buying a whole life insurance policy gives the insured an instant estate and makes him worth a lot more money.

Estate taxes—Life insurance can be used to pay estate taxes when taxes are due.

Inheritance equalization—If the son inherits the family’s $2 million mansion, what does the daughter get of equal value? How about a $2 million death benefit from a life insurance policy? This gives both children an equal inheritance.

Survivor income—Life insurance can provide a lifetime income to a widow or widower when the spouse dies. It’s instant security.

Children’s insurance—Life insurance on a child not only guarantees a death benefit; it also ensures that the child will be guaranteed insurable for future life insurance coverage.

Be careful
If a review of this list makes life insurance look like a cure-all for individual financial problems, take another look and realize that just because insurance can be the answer to a problem, it doesn’t mean it’s always the best answer. Gus Comiskey Jr., CLU, 62, is president-elect of the Association for Advanced Life Underwriting and a financial advisor with Clark Consulting in Houston. He says that life insurance in almost all cases is a financial vehicle that is best reserved to give families and businesses flexibility when someone dies. It’s not a one-size-fits-all tool.

“I don’t believe in constraining life insurance,” says Comiskey, who has been in the insurance business for 40 years. “I believe in flexibility, and that’s what insurance does for families—provides them with the flexibility to do what’s best when a member of the family dies.”

Comiskey says that tying a policy down to accomplish a specific goal is not the best thing to do. Rather, breadwinners and key businesspeople should buy insurance as a death benefit and let the beneficiaries and their advisors decide what's best to do with the money after the insured dies.

There are other alternatives to using life insurance cash value as a funding means, he says. Withdrawing a policy’s cash value to pay for college “is fine as a means of last resort,” he says, “but you’ve got 529 plans for that sort of thing. They are better than using life insurance.”
Another example: “Don’t tie life insurance to debt,” he says. “Don’t use it as collateral for a loan. That’s not the true purpose of life insurance. Instead, insurance should be there to give the family or business tax-free money; then the beneficiary can decide on how much to pay which creditor. At all times, try to preserve the flexibility that life insurance provides.”

“I had no idea that you could get a benefit out of a life insurance policy before you died. I was definitely surprised.” —Ari Kolker

Reason to buy
Whether it is providing flexibility as a death benefit or a way to fund a financial plan, you can look at life insurance as a sort of Swiss army knife, providing the right tool to accomplish the financial goal. And most people don’t realize how flexible it is.

“Most people are surprised when they find out all the things insurance can do,” Mark Olson says. “It’s not what they expect. But the knowledge that financial advisors have is often 100 percent the reason why people buy life insurance. If it weren’t for us, they wouldn’t know what it can do.”

“Mark was the major influence in our buying life insurance to fund our early retirement,” Ari Kolker says. “He opened my eyes to the possibilities. There’s a major level of trust between the two of us. He’s helping us achieve our most important financial goal—to let me enjoy life with my wife and my two precious children.”

Page 1 | 2

This Month

Expert to Expert

Lighter Side of Life

Making the Transition

Managing Money

ViewPoint

Top     LEGAL NOTICES     Contact Webmaster    

Change/Renew NAIFA Membership     Get Advisor Today: Join NAIFA

© Advisor Today 2003. All Rights Reserved.