Life insurance: Have Your Cake and Eat it, Too

Today, many retirees have enough income to live on, plus a small nest egg they’ve saved to pay for emergencies or leave to heirs if it’s not needed before death. The problem: The money in the nest egg is sitting in a low-interest account such as a certificate of deposit. That will reduce what is available for emergencies or what gets passed on to heirs.

What to do? Life insurance may be the answer. It usually is considered a way to provide for heirs in the event of one’s death, but there are many more creative uses, as indicated by the example below:

Take Jane Doe, who has $50,000 saved. She can buy a single-premium life insurance policy, which, when she dies, could provide her heirs with a lot more – maybe even as much as double the purchase amount. As well, her heirs could avoid probate and taxation.

On the other hand, Jane doesn’t want to tie up her nest egg in a life insurance policy in case she gets a terminal illness and can’t afford to pay for her medical expenses. Her solution: a single-premium life insurance policy with a built-in confinement and terminal-illness benefit. Policies such as these may accelerate the full death benefit to which the policyholder is entitled if he or she becomes ill. Some even offer a guaranteed surrender value no less than the money put into the policy.

In another example, retirees who want to make a contribution to a charitable organization without disinheriting their children put money into a single-premium life insurance policy, donating the dividend to charity and giving the death benefit to their children.

These are only two of many examples of the creative use of life insurance. Discuss them and others with your advisor who can help you decide which of these creative uses will work for you and your family.