Tag Archives: Life insurance

THOUGHT FOR THE WEEK – April 23, 2015

life insuranceThere is a positive correlation between the age of the advisor and the age of the client. I have few clients who are millenianals, but many who are roughly my age. And while I spend a lot of time helping them massage their retirement portfolios, one of the issues that surfaces frequently are the taxes that have to be paid. Too much of Americans’ retirement assets are contained within their IRAs, 401(k)s and other qualified plans. Like their health care, their retirement is almost totally under the control of the Federal Government.

* Where they can invest
* When they can take out the proceeds
* When they must take the proceeds
* How much they must take
* And, what the taxes will be

Combine that with the regulations around Social Security and the rules of their pensions (if they have one) and retirement planning isn’t about getting the most out of your assets, but rather how to get penalized the least from the Federal Government.

Perhaps I am being a little overdramatic; but all too often I see situations where clients would be much better off if they had more non-qualified investments and pension strategies when retirement time comes around. That’s why using Index Universal Life makes so much sense to successful younger clients who are looking to put away money out of the reach of the tax man with no risk in a down market and nice results when the S&P performs.

Imagine a Roth IRA (after-tax money going in, but coming out tax-free), but not part of the Government program;

* No restriction on how much you can contribute
* No tax on the appreciation
* Interest credited up to 13% when the S&P is cookin’
* Minimal cost to guarantee no losses
* Tax free income in retirement
* And, tax free distribution of whatever is left at death

I should be talking from experience, but unfortunately, when I should have been doing this, they weren’t available. They require discipline and an awareness that life is fleeting. I’ve got lots of good memories, but damn, how time flies.

Recently an advisor associate in California penned this next paragraph to share with me and others. He was talking to us as financial planners who take ourselves seriously. This is what he said:

“You really should offer these plans to your younger clients who are trying to put away annual savings for retirement. We just showed one to a 42 year young business man. He will be investing about $30k per year to build a retirement account for himself. Some of that will go into a qualified plan but we suggested he put $10,000 per year into the insurance strategy. We minimized the insurance to the legal minimum but still it gave him over $1/4 million to start. By the time he is 65 he will have put away $240k and if the S&P only averages 6.8% he will have over $450k in his account and will be able to take over $27k per year tax free in retirement. With safe money interest rates so low and unlikely to rise in the foreseeable future, and the stock market bouncing every which way like a football landing on a hard surface, clients are quickly appreciating the safety, efficiency and predictability of these plans.”

Call, text or email me if you want to know more…


THOUGHT FOR WEEK – April 15, 2015

rolling-diceMy Comments: As usual, talking about long-term care with clients, friends and family members is often a difficult conversation. As a financial planner for whom the need for personal long-term care is an increasing possibility, I’m sensitive to articles I run across that offer choices. Here is one of them.

I know this looks and smells like a sales pitch. But if this issue is on your mind, take 3 minutes to watch the video that comes up when you click on the dice image above. Call me or send an email if you want to know more.

Another way to manage the financial risk of long-term care. By Gene Pastula

There is a lot of risk inherent in the long-term care issue. As an advisor, the most imbarasing risk is that long-term care will require the draw down of a client’s portfolio at a time when the market is not performing well. That could happen you know. Putting linked-benefit life into the portfolio not only takes that risk off the table, but the fixed/guaranteed nature of the cash value also helps reduce the volatility risk that clients fear more as they continue to age.

Top 10 reasons your clients would like to have a linked-benefit strategy in their portfolio…if you would just suggest it.

1. They want to keep their money in their estate so they can pass it on to their children

2. Their ability to stay at home when they need care, surrounded by familiar surroundings and loved ones is greatly increased.

3. If a nursing home is the best solution, “cost” will not be the determining factor in choosing the appropriate one. Keeps peace in the family.

4. They like the fact that companies offer geriatric care management rather than paying fees to attorneys and other specialists

5. By recommending these products for their portfolio you have additionally become a source of expert advice for recommending care providers and other local assistance via the carrier.

6. They won’t have to depend on their children to make the right choices as they will have professional assistance.

7. They will never put their children in a position of having to choose between the high cost of long term care for one parent and protecting the assets of the healthy parent.

8. They will know that no harm or ruin will come to a spouse or family member’s health or lifestyle by making them a primary caregiver.

9. Frees up time for family members to serve as advocates for their parent’s medical and care giving needs, versus being the caregiver. Changes dramatically the quality of time a chronically ill person spends with family members.

10. Kids are more likely to use care that is pre-funded allows the children to get the best possible care for mom or dad without risking it dwindling their inheritance.

The author continues: “Last week I presented LTCi and Linked Benefit life to a full house luncheon seminar. In a little back-and-forth with the audience, we discussed a comparison to purchasing a lottery ticket. But every one of my tickets will win an average of 150% of the cost of the ticket and some will win up to 450% or more. TAX FREE! They agreed that comparing Linked-benefit to winning lottery tickets is pretty close and should make it sell like hotcakes. (Do hotcakes really sell that well??) The point being, that’s when clients understand the value in committing some of the money in their portfolio to products like TLC, or MoneyGuard or Asset Care instead of Banks, Bonds and Money Market accounts…or in many cases, even stocks, they readily embrace the idea. There was no consensus on whether or not we would still have to buy them lunch to get them to come and hear about it.”

Life Insurance and Retirement

rolling-diceMy Comments: This is not an easy idea to talk about. The article came from someone critical of Dave Ramsey and Suze Orman, who argue that premiums for life insurance in retirement are an extravagance.

Some of the assumptions made by the author can be questioned, but the overall theme is essentially correct. Personally, I’ve made a similar choice, as there is absolutely no way I can replicate the benefits to my wife and/or children, regardless of when I die. That’s assuming I die first, which is not a given. But it provides me with huge peace of mind, and the certain knowledge setting aside money today will contribute to the financial freedom of those I leave behind.

by Tom Martin on March 6, 2015

Dave Ramsey, Suze Orman and scores of other financial pundits in the media scorn the idea of having life insurance in retirement. Their rationale seems to make sense on the surface: Life insurance is designed to replace your earnings when you die. Once you retire (and have no earnings) you are living off your investments. When you die, your investments don’t die with you, so what is the purpose of using valuable funds to pay for unneeded coverage?

Life insurance clearly plays an important role for very wealthy clients to efficiently transfer their estate, but are the media pundits correct when they advise that the average family to dump their coverage in retirement? Probably not.

Let’s consider the following statistics:
• The average American approaching retirement has retirement assets to replace only 10 percent of his/her pre-retirement earnings.
• 55 percent of Americans over age 65 rely on Social Security to provide more than half of their income.
• The maximum monthly Social Security retirement benefit for a person reaching full retirement age in 2015 is $2,642.

These statistics clearly show that Social Security is a vital source of retirement income. When we view our Social Security benefits statements, we tend to discount the importance of this benefit, as benefits are expressed in “today’s dollars.” In reality, our actual benefits will be much larger due to inflation. By contrast, when we consider how much savings we will have at retirement, we often fail to consider that the values of those dollars will be similarly reduced due to inflation. Consider the following example.

John and Jane Doe, age 50 and 45 respectively, plan on working to John’s full retirement age of 67. John is making $150,000 per year and Mary earns $70,000 per year. John and Jane both contribute to a 401(k) plan and, based on their investment assumptions, they figure that they will have $1,000,000 in retirement funds by the time John reaches age 67. Assuming a 5 percent withdrawal rate, they will be able to withdraw about $50,000 per year.

John receives his Social Security statement and sees that his retirement benefit will be the maximum, which is $2,642 in today’s dollars. Jane’s benefit is projected to be $1,450 if she claims at age 62 (same year John retires). John and Jane incorrectly assume that Social Security will provide about half of their retirement income, which is $49,000 from Social Security and $50,000 from retirement accounts.

In reality, both will receive much larger Social Security checks, since these amounts will be indexed for inflation. If we assume 3 percent inflation, John’s actual benefit will be about $77,000 per year and Jane’s will be about $40,000 per year. In comparison, assuming a 5 percent withdrawal rate on their retirement assets, they will have $50,000 income from the retirement funds. In reality, despite a respectable retirement account balance, Social Security will actually provide about 70 percent of their income.

Since Social Security benefits continue to increase with inflation, by the time John is age 80, his Social Security benefit will have risen to $113,000, at which point Jane’s benefit will be about $59,000.

Let’s assume that John dies at age 80 and Jane lives to age 85. At John’s death, Jane will assume John’s benefit and lose her own benefit. The total Social Security benefit will drop by $59,000 per year. Since Jane will spend 10 years as a widow, this loss amounts to $590,000!

What’s more, consider if John dies at age 75 and Jane lives to age 90. John’s death would cost Jane well over $1,000,000 in lost Social Security benefits.

Even though they have a sizable retirement account, it only represents about 30 percent of their income. Such a substantial reduction in Social Security benefits is likely to cause a substantial reduction in Jane’s lifestyle.

The financial pundits would be quick to recommend that John purchases a term policy today to cover his “temporary” insurance need. They figure that once John retires, he has no earnings to protect. In reality, his death after retirement will cause a substantial reduction in household income. John should consider some form of permanent insurance for at least part of his insurance portfolio now in order to mitigate the eventual loss of the Social Security benefit. If Jane predeceases John, John would lose Jane’s benefit. Even if the permanent insurance was just on John’s life, he could still utilize his policy to replace the benefit he lost on Jane. He could use the policy to provide a tax-free income stream through withdrawals and loans. He could cash the policy in, replace it with an annuity, or even sell the policy as a life settlement. Either way, a permanent policy on John could create a useful cushion regardless of who dies first.

In summary, life insurance can play a critical role in helping couples meet their retirement goals, whether it is through utilization of the policy’s cash value or in having the death benefit replace the lost Social Security benefit.

Clinton And Gender Politics No Simple Matter

flag USMy Comments: Unlike many men, especially those from the Middle East and other parts of the world, I’ve never been troubled by a cultural dictum that says women are inferior. I have no problem responding to real leadership no matter where it comes from. I have other faults but I don’t think this is one of them. Hopefully my wife is reading this and agrees.

Meanwhile, the national stage marches on and before too many months have passed, Barack Obama will turn the keys over to someone else. The reality is we cannot turn the clock back to some earlier, more simple time, when old white men cast the deciding votes for virtually everything and women weren’t even allowed to vote.

Froma Harrop / March 17, 2015

Carly Fiorina has evidently hired herself as a hit woman, going after Hillary Clinton and her likely run for president. Fiorina is former chief of Hewlett-Packard and onetime Republican candidate for Senate from California. The thinking is that as a formidable woman, she can go after Clinton without being called a sexist male.

Republicans understand correctly that they have a problem attracting female voters and that Clinton is a special case, even next to other female politicians. Clinton has paid a lot of attention to gender equity issues and has weathered decades of sexist attacks, not only from the right but from some backers of her Democratic foes; recall the nastiness of her unsuccessful race against Barack Obama for the 2008 nomination.

As a result, Clinton has an army of women, especially older ones, watching her back. But within this set of facts lie dangers for those who misread the feelings about Hillary.

Some women no doubt yearn for a first female president, but more, I’d venture, simply regard Clinton as the strongest candidate, in intellect and in experience. For decades, they’ve seen her pelted by disrespect tinged with sexist ridicule, the latest incarnation being an obsession with her age not applied to potential male candidates of similar vintage. That’s what has her supporters fuming.

Thus, the assumption that these women would respond warmly to any woman thrown in their face registers as insulting. Such simplistic thinking has gotten Republicans in trouble. It led to the disastrous nomination of Sarah Palin as John McCain’s running mate in 2008. The scariness of having the grossly unqualified Palin one heartbeat away from the presidency may have cost McCain the election.

The gender gap is based on differing worldviews. There is little in Fiorina’s conservative agenda that would appeal to the women who got Obama elected in 2008 and re-elected in 2012. And assuming that her being female is enough to go on opens all kinds of possibilities for Republicans to put their foot in it.

For instance: Republican strategist Ron Stutzman recently told the media that Fiorina could be a “very effective critic of Hillary, which Republicans are going to need.” He added that “obviously there is a space for a very articulate, conservative woman.”

Only one? Why not two?

Speaking for myself, I don’t buy into the ludicrous idea that it’s anyone’s “turn” to be president. Nor do I believe in the need for a “transformational figure” embodying a gender, race or religion that hasn’t presided in the Oval Office before. May the most competent human serve all of us.

I backed Clinton for the 2008 nomination because I thought she had the best ideas and best preparation for the job. When Obama became the nominee, I supported him — not because he is African-American but because of his brainpower and moderate politics.

Nowadays, I’d like to hear more from former Navy secretary and senator from Virginia Jim Webb, another Democrat who’s shown interest in the race. And there’s always a chance, however tiny, that Republicans will come up with a presidential candidate whom I would vote for. It’s happened before.

When it comes to assumptions about female candidates’ appeal to female voters, Democrats should watch their language as much as Republicans. In response to the support Republican men have expressed for Fiorina’s crusade, prominent Democrat Ann Lewis said, “These guys really believe it’s unfair that women are now running.”

Don’t go there, Democrats. Republicans aren’t attacking Clinton because they think it’s unfair that women are running for president. They’re going after her because she’s strong and tough enough to be a serious threat. Clinton has earned the right to be a threat.

Follow Froma Harrop on Twitter @FromaHarrop. She can be reached at fharrop@gmail.com. To find out more about Froma Harrop and read features by other Creators writers and cartoonists, visit the Creators Web page at http://www.creators.com.

Long-Term Care and Who Will Pay For It

Pieter_Bruegel_d._Ä._037My Comments: Selling long-term care insurance has been a tough sell for me. It’s less appealing than life insurance and statistically, it’s less likely to happen than death. It’s an emotionally charged issue that’s hard to deal with rationally.

The major player in the long-term care insurance policy world is Genworth Financial. They’re on the hook for billions of dollars of benefits and are running out of money. You can argue emotionally that they should have known better, but rationally, if the money’s not there to pay benefits, they don’t have the ability to print it.

This possible outcome puts more pressure on all of us to better understand the dynamics of this and to make the best possible decisions about our personal future financial freedom. Find someone skilled to help you make a decision that it’s your best interest.

March 3, 2015 • Bloomberg News

Here’s an uncomfortable question: who’s going to pay for mom or dad’s nursing home bill — or yours, for that matter?

The answer, for about 1.2 million Americans, is Tom McInerney. McInerney, 58, is the chief executive officer of Genworth Financial Inc., the beleaguered giant of long-term care insurance.

McInerney is in a tight spot, and it’s getting tighter. Long-term care policies written in past decades have turned into a black hole for the insurance industry. Executives misjudged everything from how much elder care would cost to how long people would live. Result: these policies are costing insurers billions.

Genworth is struggling to contain the damage and on Monday warned of a “material weakness” in some of its accounting. To cope with mounting costs on the policies, Genworth has been raising premiums again and again. Some policyholders are furious.

“I was mad as hell,” says Arthur Mueller, an 83-year-old former real estate executive who lives in Dallas. Over the past 15 years, his annual Genworth premium has roughly doubled to $6,879.

There’s no quick or easy fix for Richmond, Virginia-based Genworth, which has posted two straight quarterly losses. The stock fell by more than half in the past 12 months, including a 5.4 percent slide Monday after disclosing the accounting weakness.

Genworth and other insurers have had to contend with the confluence of three powerful forces. The first is the rising price of elder care. Nationwide, the median cost of a private room in a nursing home is now more than $87,000 a year, after annual increases of 4 percent over the past five years, according to Genworth.

Bond Yields

Adding to the problems, interest rates have plunged to record-low levels. Insurers need to invest funds for decades before paying out on long-term care claims, so low rates hit profits from those policies particularly hard.

The third challenge boils down to demographics: America is graying. Nearly a quarter of Americans were born between 1946 and 1964, the typical definition of the baby boom generation. That’s more than 75 million people. By 2050, when the youngest boomers will be in their 80s, long-term elder care will devour about 3 percent of the U.S. economy, up from 1.3 percent in 2010, the Congressional Budget Office projects.

Given that, you might think more people would be opting for long-term care insurance, which typically covers nursing home costs and home health aides. But just the opposite is happening. Sales are falling, and big insurers like MetLife Inc. and Prudential Financial Inc. have stopping writing new policies.

Market Failure

“What’s happened over the last five, six years is an example, frankly, of market failure,” said Howard Bedlin, vice president for public policy and advocacy at the National Council on Aging. “There was a slew of pretty significant premium increases.”

Still, Genworth executives like McInerney, who joined in 2013, have said they’ll get it right eventually.

“While the product and the market has had its challenges, somebody is going to figure this out,” said Chris Conklin, a senior vice president at Genworth. “We’re sure going to try hard to have us be the ones that do it.”

But time is short. And it’s unclear if anyone can figure out long-term care insurance, at least in its current form. A.M. Best says that long-term care policies are among the riskiest products that life and health insurers offer. Standard & Poor’s and Moody’s Investors Service both downgraded Genworth’s debt ratings to junk in recent months, citing the pressure from long- term care policies.

Family Assistance

Genworth says that even with higher premiums, its old products are a good deal for customers. Despite his higher costs, Mueller says he’s sticking with his policy, given his age, the amount he’s already spent in premiums, and what nursing-home care could end up costing. His main concern, he said, is whether Genworth will still be strong enough to pay for a nursing home if he ever needs one.

Fact is, long-term care insurance might make little sense for many people. More than half of all elder care tends to be provided informally by family members. Government programs cover much of the rest.

Such insurance works best for people who want more costly care than is covered by Medicaid, according to Jeff Brown, a professor at the University of Illinois.

Karen Marshall said she’s learned how costly care can be without the insurance. She took leave from a high-paying job as an attorney at Dewey & LeBoeuf when she was in her 30s to take care of her mother in her final months of battling cancer. Soon after her mother died, Marshall’s father’s health deteriorated, and she left the firm.

‘Daunting Problem’

Marshall, 40, was spending her weekends driving back and forth from Washington to the home where she grew up in southern Virginia. Working as a corporate lawyer wasn’t an option.

“I just kind of felt like I had my back against the wall,” she said. “I spent so much time worried about dropping the ball for someone, whether it be my dad or work.”

Her father is now in an assisted-living facility that costs more than $2,500 a month, and Marshall says he’ll eventually have to move to a nursing home that would cost twice as much. Marshall, who takes on legal work to pay the bills, and started a nonprofit to aid other caregivers like herself, has been helping cover the costs. She says her dad will eventually end up on Medicaid.

Policy makers have been trying to figure out how to cope with the nation’s elder-care bill but so far have come up with few answers. A plan for long-term care insurance tied to the Affordable Care Act was scrapped by the government.

Genworth says insurance is just part of the solution to paying for long-term care. The company is exploring new products that could have more limited benefits and cost less, and ideas like government partnerships.

“It’s a daunting problem for the whole country, really,” Genworth’s Conklin said. “We at Genworth have really committed to try to come up with better solutions for people.”

The Myths of Buying Term and Investing the Difference

life insuranceMy Comments: Life insurance is a financial tool used to solve certain financial problems and offset the risk presented when someone dies and economic pain is the result. That’s a cold way to talk about the death of a loved one, but from an objective point of view, that’s how it must be seen.

Because we hold life so dear, emotion tends to cloud the process that leads to and influences decisions about life insurance. Emotion is the primary reason most of us don’t invest our money very well; hope is not a valid investment strategy. Nor is it a reason to buy or not buy life insurance.

I’m going to assume most of you know the difference between a term policy and a permanent policy. The first is for a specific number of years and the second is designed to last until you die. The best time to buy a life insurance policy is about three months before you die. My next question of you is “when would you like me to come by and take your application?”

I own life insurance today. Or at least members of my family own a life insurance policy on my life. And just as all of us are biologically unique, my reasons for having and paying for a non-term policy are unique to me.

Along the way I’ve owned a number of different term policies, policies that actuarially were unlikely to be there if and when I died. Virtually everyone who owns a term life policy survives the terms of the initial contract. Which is why they are relatively cheap. Insurance companies love it when you send them money for years and never file a claim.

The thoughts behind this post come from a well known insurance company with whom I’ve had a professional relationship for many years. If anyone is interested, you can send me an email and I’ll forward to you the 10 page .pdf file they sent me with the above title.

However, the myths are not expressed numerically. Which is unfortunate.

There are those whose opinions I respect who say you should only purchase term insurance, no matter how old you are. The idea is to pay a smaller price, and then make sure you invest the difference. By the time you actually die, you will have amassed more than enough cash to offset the fact that you no longer have any life insurance.

Mathematically, this is probably true. Only I’m familiar with a phrase that says “life is what happens when you are making other plans.” To me this means that for most of us, as life throws us curve balls, our ability and discipline tends to wane over time. The net result is that when it comes time for us to die, our pile of cash is limited, there is no longer any life insurance in force, and there is economic pain for our family members.

Some of the dilemma results from our way of life which tends to demand answers NOW! Not six months from now, not 30 years from now, but NOW! And I have to remind myself that I have no idea what I’m having for lunch today, much less when the grim reaper will show up and take me from the building.

For most of us, paying attention almost daily to what anything costs leaves us habitually inclined to favor solutions that cost less. And term insurance definitely costs less. If you read paragraph 4 above once more, you’ll understand why. So that’s what we buy. Mind you, if you do unexpectedly pass away and beat the odds, tax free money will flow to whomever you have named as beneficiaries. That we know it might happen is why we are interested in considering our options in the first place.

Over time, our reasons for thinking we want life insurance also changes. When we are young and perhaps have children at home, one of our greatest assets is our ability to earn money. If that goes away, where will the money come from? So we buy life insurance.

As we age and our children are grown and hopefully self-sufficient adults, that need for life insurance goes away. But in the past decade, virtually all of us have been sent a curve ball in the form of what is thought of as the “great recession”. Few of us have as much money today as we would have had if the economic crisis of 2008-2009 had not happened. There is no guarantee a similar event won’t happen again in the next couple of decades.

There are things I can talk about to mitigate those kinds of events, but this is not the place for it. What is appropriate is to identify the various economic risks most of us face as we age and move into the third stage of our life. This is when we stop working for money and money has to start working for us. Economic risks are still there, and it’s in our best interest to understand what they are and decide how relevant they are.

We have to consider the economic burden imposed on our families if we, or our spouse if we have one, has health issues that result in what is known as Long Term Care. The odds are very high that you will be subject to that unpleasant reality. If your pile of cash is not significant, will there be enough money left on the table to keep you from being warehoused until you die? If all of it is spent on you, and you have a surviving spouse, is there enough to take care of that expense? Life insurance is one way to make it possible.

But when you are in your 40’s or 50’s, who among us is thinking that far ahead? Virtually none of us. So we simply buy term and protect ourselves in the near term, hoping our pile of cash will grow large enough. I’m now talking with several ‘seniors’ who are asking me for life insurance quotes to see how much it’s going to cost to manage this problem, in case they don’t die early.

There are also new products on the market that are life insurance products that have riders that enable the insured to access the death benefit before they die to help pay for any long term care that becomes necessary. If you don’t need the care, then the family gets all the money. But if you do need long term care, the riders leverage the amount available so that if push comes to shove, there’s more money available than just the death benefit. These can be lifesavers, to mix a metaphor.

Perhaps this has been helpful. Let me know. Thanks.

7 Things You Need to Know About Term Life Insurance

life insuranceMy Comments: It’s very easy for financial professionals of all stripes to get into heated arguments about the merits of life insurance. Or the lack of merits, depending on your perspective.

A story I tell is about someone who in all seriousness asked “When is the best time to buy life insurance?”. And the answer was “About three months before you die. When would you like for me to come by and take your application?”

Therein lies the crux of the matter. And it is further complicated by the fact that even if I come by and take your application, three months before you die, there is no assurance the insurance company will accept your application and make an offer to insure your life. It only becomes a contract when the legally competent parties to the contract meet all the criteria of a legally binding agreement.

Now add in all the likely variables today, such as your health, your family health history, your age, your ability to pay premiums, the different kinds of life insurance, the tax consequences, your credit history, for how long you want or think you need coverage. All these variable conspire to make a problematical decision process.

But you have to start somewhere. I recently posted an article on Whole Life Insurance; here is another, this time about Term Life Insurance.

Sep 26, 2014 | By Stephan R. Leimberg, Robert J. Doyle Jr., Keith A. Buck

The two principal characteristics of term insurance are: the insured must die for any benefits to be paid and, by definition, the contract expires at the end of the term. Stated more specifically, a term life insurance policy promises to pay a death benefit to a beneficiary only if the insured dies during a specified term.

The contract makes no promise to pay anything if the insured lives beyond the specified term.

Generally, no cash values are payable under a term life insurance contract. If the insured survives the specified term, the contract expires and provides no payment of any kind to the policyowner.

1) When should term life be sold?

In general, some type of life insurance is indicated when a person needs or wants to provide an immediate estate upon his or her death. This need or desire typically stems from one or more of the following reasons:

A. Providing income for dependent family members until they become self-supporting after the head of household dies.
B. Liquidating consumer or business debts, or to create a fund, enabling the surviving family members to do the same when the head of household dies.
C. Providing large amounts of cash at death for children’s college expenses or other capital needs.
D. Providing cash for federal estate and state inheritance taxes, funeral expenses, and administration costs.
E. Providing funds for the continuation of a business through a buy-sell agreement.
F. Indemnifying a business for the loss of a key employee.
G. Helping recruit, retain, or retire one or more key employees through a salary continuation plan, and finance the company’s obligations to the dependents of a deceased key employee under that plan.
H. Funding bequests of capital to children, grandchildren, or others without the erosion often caused by probate costs, inheritance taxes, income taxes, federal estate taxes, transfer fees, or the generation-skipping tax.
I. Funding charitable bequests.
J. Preserving confidentiality of financial affairs. Life insurance proceeds payable to someone other than the deceased’s estate are not part of the probate estate and are not a matter of public record. It is not unusual for a beneficiary to be a lover, illegitimate child, faithful domestic servant, or have some other type of relationship with the insured that he or she may not want to be publicly acknowledged.
K. Assuring nearly instant access to cash for surviving dependents. Life insurance proceeds are generally paid to beneficiaries within days of the claim. There is no delay, as might be the case with other types of assets, because of the intervention of state or other governmental bodies due to settlement of tax issues, or because of claims by the decedent’s creditors.
L. Directing family assets to family members in a way that minimizes state, local, and federal taxes.

Generally, term insurance is not the most effective type of life insurance for all of these death benefit needs. However, term insurance may serve the insured’s needs in many circumstances. Because term insurance is not just one product, but rather many variations on a general theme different types of term insurance are indicated for different types of needs.

Keep in mind, term insurance, more than any other type of insurance, is pure death protection with little or no ancillary or lifetime benefits. Therefore, the two overriding considerations in the use of term insurance, regardless of the specific application, are:
• Will death protection alone meet the need?
• Will the coverage last as long as the need?

In short, with term — as with any other decision about the appropriate type of coverage — the product must match the problem.