Thought For The Week – March 5, 2014

My Comments: From time to time I’ve posted a article from an associate of mine in Southern California whose life for the past 40 years has involved life and health insurance, not unlike mine. He sends me his weekly newsletter from which this comes.

By Gene Pasutla, Westland Financial Services, Inc.

For the past week now I have been participating in a discussion on a LinkedIn interest group on the legitimacy of suggesting that a client purchase life insurance on his/her parents. When they die, the client will receive a huge lump sum that can go far in enhancing their own retirement. Many of the participants expressed disapproval of someone actively trying to benefit from their parents demise. I have my thoughts on that, but am not interested in discussing the morality of it.

What does interest me, however, is the financial planning values associated with insuring ones parents. Look at any insurance illustration and you can see the predictable rate of return generated by “investing” in premiums for a policy on a healthy senior’s life. The only unknown is when the person will die so that the actual ROR (return on investment) can be calculated.

No one objects to receiving an inheritance. No one objects to parents investing money to grow that inheritance. Investing in insurance that grows the inheritance definitely has merit. And for sure, it is a good idea to protect the inheritance by using life insurance to pay for long-term care costs or for estate transfer costs.

I have had a large insurance policy on my mother for many years. It can be tapped to pay long-term care cost if she needs it, or it will pay a respectable return to me if she doesn’t. The bottom line, my sister and I have not had to worry about paying to take care of Mom should the worst happen. Mom is 91 now and each year she lives is a joy. The fact that my rate of return on her policy is going down is a small price to pay for having her with us that much longer. Another example of how life insurance is a win-win.

( Gene included an illustration of the coverage he has on his mother with his post. I did not include it here, but if you would like to have a copy, I saved it and will forwad it to you by email if you ask me. It needs some explanation for those of you not familiar with insurance company terms. – TK )