We have been providing life insurance solutions for over 30 years to help our clients and their families. Life insurance is important for the obvious reason of protecting assets and providing for your family members in the event of death, but what may be less well known is that life insurance can also play an important role in financial planning.
How can life insurance help my financial planning?
Life insurance is a uniquely useful planning tool, particularly in the areas of estate planning, wealth management/transfer and business continuity because it does three things that no other planning tool can do as well: Leverage, Liquidity and Wealth Replacement.
Leverage: Life insurance significantly leverages personal wealth (or a business' bottom line). A small premium payment can generate a vastly disproportionate amount of income-generating capital. Similarly, life insurance can provide indemnification to a business for the loss of a key employee, funding for buy-sell arrangements or financing for deferred compensation agreements.
Liquidity: Life insurance can guarantee that when crushing taxes, debts and other demands for cash or income occur (at a person's death, for example), the needed capital will be available almost instantly and cost effectively - without unnecessary “slippage” or “erosion” - at the very time it is most needed. Through properly arranged life insurance, death of the insured (the event that creates the need for capital in large amounts) triggers the payment of proceeds to satisfy that need.
Wealth Replacement: Life insurance is the perfect wealth replacement vehicle. For instance, the ability to make current gifts to charity and replace all or a significant portion of the after-tax wealth that would have gone to a beneficiary adds a whole new dimension to planning. Likewise, a person who knows they can assure the financial security of a child (or other relative or loved one) through wealth replacement with life insurance may feel more secure in taking greater financial risks in return for greater financial rewards when opportunities arise or may be more comfortable about using more of their wealth for their own current needs or desires.
The Three Questions
Of course, as important as life insurance can be, it is not a panacea and is not always the best tool for the job. Every member of the planning team is bound by professional ethics to consider all of the reasonable alternatives for each case. In determining which combination of tools and techniques is most appropriate for a given client's planning strategy, our team members collaborate to thoroughly answer the following three questions:
- Which approach will result in the highest present value of capital and income for your family (or business) as a whole?
- Which tool or combination of tools will satisfy the targeted need at the lowest present value in terms of financial, psychological and other costs?
- Which tool or technique is most likely to actually achieve your personal and business objectives?
Whatever the specific strategy we recommend, we will always measure our success by the long term success of our clients and how well we help them to achieve their goals.
As always, please feel free to email or call regarding any questions on this or any other aspect of your financial security.
Fixed Insurance products and services offered through Investmark Advisory Group or CES Insurance Agency