Client Profile

A 65-year-old professional was preparing to slow down and transition into retirement. She had worked hard, saved consistently, and built enough retirement income to feel financially secure.

Her focus then shifted to family.

Her adult children were beginning to build families of their own, and she wanted to create a financial legacy that could support them after her lifetime. Although her employer provided some life insurance coverage, she knew that coverage might not continue after retirement and might not fully support her legacy goals.

She had already set aside money for her children. The next step involved finding an organized and efficient way to transfer those assets.

The Challenge

The client wanted a strategy that could help her:

• Provide meaningful financial support to her children.
• Use money she had already designated for family.
• Avoid unnecessary complexity for beneficiaries.
• Preserve flexibility if her financial needs changed later.

Before moving forward, she also wanted to understand the advantages and trade-offs of different approaches.

The Strategy

After reviewing her goals, health, time horizon, risk tolerance, and overall financial picture, the planning process identified permanent life insurance as one possible legacy strategy.

Rather than leaving the earmarked funds in a bank or investment account, the client considered using a portion of those assets to purchase a life insurance policy designed to provide a death benefit to her beneficiaries.

Depending on the policy structure, underwriting results, funding design, and other factors, this strategy may create a death benefit larger than the premium paid.

Why This Approach Was Considered

1. Death Benefit Protection

Life insurance can provide a death benefit to named beneficiaries. In many situations, beneficiaries receive life insurance death benefits income-tax free, although individual tax results may vary.

2. Direct Transfer to Beneficiaries

When the policyowner properly names beneficiaries, life insurance proceeds can generally transfer directly to them without going through probate. This structure may simplify the process for loved ones.

3. Potential Financial Leverage

Life insurance may allow clients to convert assets already intended for heirs into a larger death benefit. Policy design, underwriting approval, premium funding, and policy performance all influence the outcome.

4. Access to Cash Value

Some permanent life insurance policies build cash value over time. If circumstances change, the policyowner may access available cash value through withdrawals or loans. However, loans and withdrawals can reduce both cash value and the death benefit and may create tax consequences.

Important Considerations

Permanent life insurance does not fit every situation. Before implementing a strategy, the client reviewed several important considerations:

• Permanent life insurance policies include costs such as insurance charges and administrative expenses.
• Surrenders and withdrawals may trigger surrender charges.
• Loans and withdrawals can reduce policy cash value and death benefits.
• If a policy becomes a Modified Endowment Contract (MEC), different tax rules may apply to loans and withdrawals.
• Additional premium payments may become necessary to maintain the intended death benefit.
• Clients should review tax and legal questions with qualified professionals.

The Outcome

The client evaluated a strategy that used a portion of the assets she already intended to leave to her children to help provide life insurance protection and support her legacy goals.

The strategy helped her create a more organized plan for transferring wealth to the next generation while giving her confidence that her children could have financial support available in the future.

Key Takeaway

For individuals who have already set aside assets for loved ones, permanent life insurance may provide one way to create a legacy, deliver death benefit protection, and transfer assets directly to beneficiaries.

The appropriate strategy depends on each client’s goals, health, financial situation, funding ability, tax considerations, and overall financial plan.

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Disclosure:
This material is for informational purposes only and does not constitute tax, legal, or investment advice. Life insurance policies contain fees and expenses, including cost of insurance charges, administrative fees, and potential surrender charges. Policy loans and withdrawals may reduce cash value and death benefits and may create tax consequences. Guarantees depend on the claims-paying ability of the issuing insurance company. Clients should consult qualified tax, legal, and financial professionals before purchasing life insurance or implementing a legacy planning strategy.