Contributed by Life Insurance Specialist Matthew Gouin
I’ve helped seniors with their retirement for the last several years now and I’d like to share a few ideas that have helped others I’ve met along the way. Life Insurance can be a powerful tool and can be used for much more than covering one’s final expenses. There are many ways to use life insurance and I’m going to share a few.
The first is through Pension Maximization. When choosing a pension payout, you typically have several monthly options. Many retirees choose to take a partial amount to provide a widows benefit for their spouse. In doing so you will receive a lesser amount. I recommend taking the full amount and using the difference to invest in a life insurance policy. You can provide a large lump sum to your spouse rather than a monthly payout.
In addition to Pension Maximization, many of my clients are choosing life insurance to leave behind a legacy or offset estate taxes. Instead of using a monthly income to pay premiums, we will utilize the Required Minimum Distribution or (RMD) from IRAs to pay annual premiums. This gives the client cheaper premiums by paying annually, an answer on how to use the mandatory RMD, and it also creates a tax free benefit to whomever you choose.
Many retirees I meet with have old life insurance policies saturated with cash value. If you cash in the policy you will forfeit your death benefit and pay taxes on part of that money. If you borrow against it, you must pay that loan back plus interest. In most cases when you pass away that cash value stays with the life insurance company. There are few options to use that cash value so what good is it? Did you know that you can use that cash value towards the purchase of a new policy? Even though you may be 10,20,30 years older you can utilize that cash value to work for you. Insurance companies are more concerned with the health of an applicant than their age. Last year I had an 80 year client issued Preferred due to her good health.
Through a 1035 Exchange, we can transfer the proceeds from an old life insurance policy to a new life insurance policy with no tax consequences. Ultimately, this provides clients with three options:
1) Pay the same premium and maximize death benefit
2) Keep the same death benefit and reduce premiums considerably, or
3) Sometimes a policy that is completely paid-up.
Whatever options you choose, Cornerstone is here to help! Contact us today for a free financial review!