Those who purchase adequatelife insurance to protect theirfamily against premature deathare wise breadwinners. Lifeinsurance is one of those products that issold to rather than sought out by thebuyer. No one wants to think about dyingbefore their time, but it does happen, soowning life insurance is an importantfinancial action step. There are severaltraditional situations that suggest lifeinsurance as a possible solution.
If children, a spouse, or other familymembers are dependent on you for theirfinancial support, life insurance may bean essential tool to include in yourfinances. Also, if your estate is largeenough to be taxable for estate tax purposes,then life insurance may be appropriate.For 2004, an estate of more than$1.5 million could be subject to estatetaxes. Be sure to include the life insuranceproceeds in this calculation, unlessit will not be included due to ownershipby an irrevocable life insurance trust.
There are many other uses of lifeinsurance as well. Many times, peoplesimply allow their life insurance tolapse by not paying premiums, or theywill cash the policies out for whatevercash value has accumulated in their policy.Before you make this decision, consideradditional possibilities.
Assume that you are paying $5000per year on a $250,000 universal life policythat you no longer need. If you aregiving at least that much each year to acharity or religious organization, youcould gift the policy to the charity andtake a tax deduction for future premiums.At your death, the charity receives thedeath benefit. If you have built up cashvalue, check to see how long they will payfuture premiums. In some cases, this maybe forever, and in other cases, the cashvalue may cover future premiums for afew years. You will receive a charitablededuction for the value.
There are numerous companies thatwill buy your life insurance for a lump-sumcash settlement—called a viatical settlement.How much the company willpay for your policy depends on your ageand health. Instead of simply allowingyour policy to lapse for no value, this maybe a more financially savvy strategy foryour situation. For more information,visit www.viatical.com.
Stewart H. Welch III, founder of
The Welch Group, has been rated
one of the nation's top financial
advisors by Money and Worth. He
is the coauthor of J.K. Lasser's New
Rules for Estate and Tax Planning
(John Wiley & Sons, Inc; 2002). He welcomes questions
or comments from readers at 800-709-7100 or
www.welchgroup.com. This article was reprinted
with permission from the Birmingham Post Herald.