Don't leave your children any money

With life insurance, clients gain tremendous leverage. For example, depending on their age, sex, and health, instead of leaving their kids $100,000, mom and dad could put that $100,000 into a life insurance policy and leave Johnny and Susie $200,000, $300,000, or even $500,000, income tax free.

If the policy is set up properly, the money can remain estate tax free as well. Take a look at this chart that explains top estate tax rates and estate tax exemption:

Note the unlimited estate tax exemption for anyone who died in 2010. Due to a quirk in the law, the estate tax was eliminated for that one year. George Steinbrenner's heirs were big beneficiaries — they could inherit the New York Yankees and the rest of his financial empire free from estate taxes.

I've been presenting in front of clients and advisors all around the country this year and one slide that tends to stand out and resonate the most with attendees is the "Don't live a just-in-case retirement" slide. Many seniors today are living a "just-in-case retirement" and not enjoying their Golden Years as much as they should be.

One of the key elements of this deals with leaving a legacy to children. Mom and dad live a diminished retirement because they want to leave something for Johnny and Susie. They don't spend their money, then what happens? They die. What happens to the money? It goes to Johnny and Susie, who then use it for the reason their parents were saving it for — a new boat, the country club, a cruise, etc. This paradox can potentially be solved with life insurance.

If your clients decide up front how much they want to leave Johnny and Susie, they can use the money from a life insurance benefit to go to the kids, estate and be income tax free. Again, this gives them the freedom to spend the rest.

My books and articles often reference "the optimal solution." "Optimal" may not always be the "best," but it means, "The best more often than anything else and it will never be the worst." With the power of life insurance, clients can spend pennies and leave dollars. This is the optimal way to leave a legacy to the kids. The baby boomer generation has been touted as a career-focused and workaholic generation. It is time for them to reap the benefits of their hard work.

Americans are widely underinsured and most have no idea of the benefits life insurance can offer. Make sure that clients understand how securing life insurance will give them peace of mind to spend their hard earned money.

Don't leave Johnny and Susie money, leave them life insurance. Hopefully, when the kids find out that they aren't getting any money, they will finally move out.

Tom Hegna is a senior education advisor for the Alliance for Lifetime Income. He's the author of Retirement Alpha: How Mortality Credits Improve Retirement Incomes, and he was the host of the public television series "Don't Worry, Retire Happy."