Using Life Insurance to Create a Legacy
As parents, grandparents, and great-grandparents, we often try to think beyond today to help our children have a better future. Life insurance is to protect and assure that future. The heartsease that life insurance offers young and old can come in many forms. For example, before my children were born, over twenty-five years ago, their great-grandparents took out life insurance policies on themselves. At the time, the death benefits were intended for their children. A lot of time went by, and circumstances changed. When my children were born, their great-grandparents designated the death benefit to be used for the benefit of my children. As the fate of time passed, my children’s great-grandparents passed away. The death benefit from the life insurance policy they purchased long ago paid for my children’s first car and some of their college education. It was their way to pass a legacy from the labors of their life to a future generation.
It is simple to pick apart the strategy of using life insurance to create an inheritance. It would be easy to say that using stocks, IRA’s, real estate or even passing on a business could be a better way to pass on an estate. One school of thought is that the only type of life insurance to buy is term life insurance. There are numerous financial experts that would agree that there are far better ways to pass on an estate to children than through life insurance.
However, there is one thing that the financial experts miss. Using permanent life insurance to pass on an inheritance is simple, cost efficient and can be guaranteed. If you have a large estate, you do need to investigate using trust, limited partnerships, and many other estate planning techniques to pass your estate on to your family. However, for most parents, grandparents, or great-grandparents that just love their children and want to help them financially in the future, owning life insurance is an easy, proven method.
How to create a legacy plan
There are two ways to create a legacy plan. Life insurance can be purchased for the express purpose of leaving an inheritance. Or life insurance can be repurposed later in life. It can be set up to protect more immediate financial obligations like paying a mortgage or a business loan. Once that need is completed, keep the life insurance and change the beneficiary. The best life insurance to use when creating a legacy plan is permanent life insurance. If the intent is to have a life insurance for 30 years or more, whole life insurance is the best vehicle. Here is why.
The best life insurance to use for a legacy plan
Whole life insurance is the only financial instrument that does have a guaranteed cost established in the beginning, a guaranteed cash value and a guaranteed death benefit. Most other types of life insurance can have the pure cost of life insurance within the policy increase in the future. That is a problem that many universal life insurance owners are facing now, and it is resulting in increases in premiums. Legacy plans are designed to be a guarantee for the future. The only way to get that guarantee is to use a life insurance product that has a guaranteed death benefit and a guaranteed cash value.
Whole life insurance is not the best life insurance product to use for many people. If you have a family and financial obligations you may need the most immediate value for you can get. You can find prices on those types of policies for young families here and for seniors on this page. Term life insurance offers the most immediate value, however over the long term whole life offers better-guaranteed benefits. Many people end up buying both types of life insurance. Had my children’s great grandparents bought only term life insurance, their intent of leaving a future legacy may have never been accomplished. Continuing to pay term life insurance premium into your 80’s and 90’s becomes far too expensive. Even the premium on guaranteed issue whole life insurance purchased later in life is less expensive than term life insurance in your 80’s and 90’s.
Despite the guarantees, there are some advisors in the popular media that would disagree. Buy term and invest the difference they say. When you get older, you will not need life insurance. On paper that looks like sound advice, however, there are two complications not taken into consideration with that strategy. First, the buy term and invest the difference strategy involves making multiple decisions without a guaranteed result. Some people are looking for something that is simple and easy to understand. And second, things in life happen. If you need more life insurance in the future, you might have to pay much higher rates to get coverage.
Whole life insurance is easy, low obligation, low maintenance and guaranteed to be there in the future. So, which one sounds like a plan that would give the best peace of mind?
To learn more about using life insurance to create a family legacy, start a conversation by Facebook Messenger, email or phone at 713-320-6124
Posted by: Van Richards