The "Whole" Truth on Estate Planning

Additionally, while dividends are not guaranteed, they can provide a resource which the policyholder can receive in cash, or use to purchase additional insurance to increase the policy’s death benefit and cash value, or to offset some or all of the future premiums due. This last point is not to be taken lightly. Few people — particularly retirees — want to be paying large insurance premiums forever.

Second, whole life is a great insurance planning vehicle to assure estate equalization between heirs, implement business continuity plans, and establish legacies for loved ones and favored charitable organizations. Again, whole life’s permanence makes a critical difference, giving policyholders assurance their wealth will flow to the next generation or fund another objective.

Third, used properly, whole life can provide flexibility to respond to future unforeseen circumstances. If the married insured owns his own policy and names his spouse as beneficiary, he will create flexibility and control that can respond to changing circumstances over time.

The policy owner enjoys certain rights, such as assigning ownership as collateral or borrowing money from the policy. If the policy is a non-direct recognition policy, the policy owner will still enjoy the benefit of the full dividend. Rather than “locking up” insurance in an irrevocable trust, this approach lets the second spouse receive life insurance proceeds “triple tax-free” — without gift, estate or income taxes — when the first spouse dies.

Result: The surviving spouse has greater flexibility and opportunity to plan for the remainder of his or her life. The proceeds could pay for long-term care, be used as a hedge against inflation, or be used to pay gift taxes to get assets out of the estate at the first death.

Conclusion

The premium for whole life insurance may seem higher at first glance when compared to other products. However, encouraging the prospective insurance buyer to look at his assets and liabilities, income and expenses with a “holistic” bird’s eye view can be illuminating and beneficial. The power, control, flexibility and long-term growth of whole life insurance will very often offset the upfront cost.

Barbara Treadwell, CFP, CLU, ChFC, is founder of Treadwell & Associates, LLC, (an office of the Cowan Financial Group, a general agency of the Massachusetts Mutual Life Insurance Co.), of New York and Savannah, Ga. You may e-mail her at .