Life insurance is the only certain way to create “instant” capital. That capital, in turn, can be used by clients to solve a multiplicity of personal and business problems.
To understand how life insurance can, and should, be used (the planners’ imagination, creativity, and ethical perspectives are the only major boundaries limiting the scope of life insurance’s uses), you must first focus on the problems. Then, the planning team must match the products with the problems to be solved in the priority order the client assigns to those problems.
Only when the planner has started with and identified the need(s) and the client has expressed preference as to the order of needs should the planner attempt to formulate a strategy. Few clients can solve all their financially-oriented problems simultaneously. Resources must therefore be allocated to the tools or techniques which are most cost effective in solving these problems.
Continue reading to better understand six distinct problems a client’s family might face, and which can be solved with various type of live insurance. This text was excerpted from the 6th Edition of ”The Tools & Techniques of Life Insurance Planning” (2015, The National Underwriter Company).
Problem No. 1: Lack of liquidity
Not enough cash to pay death taxes, administrative costs, attorneys’ fees, appraisal fees, and other death-generated expenses as they fall due. (This is one of the major and most obvious reasons for life insurance.)
Problem. No 2: Improper disposition of assets
The wrong thing goes to the wrong person at the wrong time in the wrong manner. Many times the awesome responsibility of safeguarding, investing, and distributing the income from complex property or the task of running a business interest is thrust upon persons who are unable or unwilling to handle it. (Life insurance is often used as a substitute for such property, i.e., life insurance can be paid to or owned by a trust for the benefit of a beneficiary who cannot or should not manage a complex portfolio or run a business while the more competent, capable, and willing beneficiaries can be left securities or a business interest.)