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February 14, 2014 at 11:19 PM
The age-old debate about which is better, term or whole life insurance, deserves to be retired. As financial advisors, our job is to upend myths that can prevent families from reaching true financial security. As I have said before, financial products are amoral, neither good nor bad. Their effectiveness is determined by how we use them solve problems and create opportunities.
I encourage you to consider the following scenarios in which life insurance can create compelling opportunities:
1. Annuity legacy maximization. As retirees age, circumstances can change. A growing number of retirees own annuities they will not need for retirement income. When asked how they intend to use that money, they typically say something along the lines of “We’ll probably just leave it to the kids.”
But what if the value of the annuity could be used to create a significantly larger bequest to the kids and grandkids? Or maybe a church or charity? If the owner of the annuity qualifies for life insurance, consider “turning on” the annuity’s income feature and using it to pay the premiums on a life insurance policy. Yes, the new income from the annuity will be taxable for the owner, but the significantly greater death benefit from the life insurance would likely be tax-free for beneficiaries.
By using this strategy properly (and consulting a tax pro before proceeding), a substantial amount of tax-advantaged wealth can be created using an under-utilized annuity in conjunction with a properly-designed life insurance policy.
