Life Insurance: A Buyer’s Guide

Our clients know we handle financial planning and money management, but not all clients know we are independent life (and long-term care) insurance brokers as well. There have been clients who bought life insurance or LTC insurance through agents not knowing they could have chosen the same insurance company through PCA. We are also able to shop for you through approximately 40 A-rated companies.

There are many reasons to own life insurance, some you are familiar with and some you may not be aware of. Aside from my company PCA, I value my life insurance more than any other financial asset, so I’ll begin with a list of the reasons Dawn and I own the life insurance we do:

  • If I die, Dawn and my children will not have any financial stress, and they will be able to continue our current lifestyle absent a really cool dude.
  • The odds of me dying at some point are really good … so that tax-free benefit payable at my death is guaranteed and not influenced by the stock market or interest rates. No other financial asset or strategy can do what life insurance does. It is truly unique in providing a large amount of cash efficiently.
  • Knowing I have a substantial inheritance for those I love, whether I pass away tomorrow or at age 100, allows Dawn and I the freedom to spend our savings and investments on our lifestyle while alive. We aren’t worried about preserving principal. We will be spending principal knowing the life insurance is a big fat bag of tax-free cash if we ever run out of principal.
  • I own three types of life insurance: term life, whole life and indexed universal life. They have different benefits and limitations, but the tax-free death benefit is provided by all life insurance. The whole life and indexed universal life policies provide Dawn and I with tax-free cash while alive as well, without pre-59 ½ IRS penalties.
  • Life insurance cash value is protected from creditors. As a business owner, this protection is important to my financial planning.

Here are other reasons people own life insurance:

  • Because life insurance is liquid cash when someone dies, it is a great strategy for:
    • Paying estate taxes
    • Paying income taxes on inherited IRAs distributions
    • Buying out or selling a business
    • Keeping a business in the family
  • If a client is in a high income tax bracket, they likely cannot contribute to a tax-free Roth IRA. The tax-free growth of life insurance’s cash value is a particular benefit to wealthy households.
  • Retired healthy people use life insurance to pass on more wealth without market risk or uncertainty.
  • It provides cash to pay off a mortgage and other debts.
  • Life insurance guarantees an education funding for children if a parent dies.
  • The death benefit can often be used for long-term care expenses while the insured is alive.
  • It just feels good to have the security and guarantees of life insurance similar to other types of insurance.

This list probably doesn’t exhaust all the reasons people choose to own life insurance, and I’d love to hear your reasons if they are not listed!

One of the more puzzling aspects of my 25-plus year career has been seeing and listening to the strong negative bias and emotion towards life insurance. Candidly, I find it to be so strange. It is as if people are stuck on what the name is (life insurance) instead of what policies actually do in coordination with other aspects of a financial plan. As a fiduciary representing the best interest of my clients, I don’t give a hoot about product, strategy or company names; my mission and due diligence is focused on meeting the outcomes a client wants from their plan. I certainly understand the hesitancy to contemplate your earthly demise. However, life insurance is the only insurance you will ever own that is guaranteed to pay off.

A life insurance policy, unlike other types of insurance, will work exactly as planned. You are either dead or alive. There is no interpretation of fault or condition. Unless you commit fraud, the policy is a contract guaranteed to pay out tax-free cash.

In financial planning, few elements are guaranteed. Leveraging the certainty of death against your assets can be a very efficient way to get higher returns and output from your money. Life isn’t lived on a spreadsheet, and money’s main purpose is to be used for whatever you value in life and in death.