25 May 2012 0 Comments

Two More Situations That Call For Permanent Life Insurance

I just gave an overview of the use of life insurance in estate planning. Here are two other times when term insurance may not be the right answer.

Contractual obligations

If there is a contractual obligation of any type – domestic or business – that must be paid upon the death of the insured—whenever that may occur—then a Universal Life policy is the way to go. If the contract is for a limited period of time, then you could use term insurance, but if it is indefinite or extends beyond the age when term is available, then a guaranteed death benefit UL policy is called for.

Providing for dissident family members or partner

Family dynamics can be overpowering and even destructive when it comes to dividing assets in the wake of death. Say the head of household wishes to leave something to a new partner or spouse who is not welcomed by the other family members. Perhaps it is to a spouse from a recent wedding. It could be a same sex union that has not been accepted by remaining family members. It could even be a clandestine partner. Whatever the situation, the donor wants to accomplish two things at his/her death. They want to leave funds for this partner and they want to avoid any conflict with other family members. They know that if this partner is named in the will, there will be hard feelings among other family members that will not produce a welcomed legacy.

Life Insurance proceeds are paid directly to the beneficiary of the policy, regardless of any bequests made under a last will and testament or a living trust. They do not pass through Probate and if the policy is owned by the beneficiary they are not subject to Federal Estate tax. Only the policy owner/beneficiary is aware of the transaction.

Since this is a permanent need, Permanent Life insurance is called for.

Coming up I’ll be covering a situation that is a growing concern: a worker whose earned income continues to be a need for dependents long past normal retirement age.

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