The Many Benefits of Life Insurance in Your Estate Planning

Lets Talk About.........The Many Benefits of Life Insurance in Your Estate Planning

By Alan Orlowsky

Life insurance is a contract between an insured (insurance policy holder)and an insurer or assurer, where the insurer promises to pay a designated beneficiary a sum of money (the "benefits") upon the death of the insured person. Depending on the contract, other events such as terminal illness or critical illness may also trigger payment. The policy holder typically pays a premium, either regularly or as a lump sum. Other expenses (such as funeral expenses) are also sometimes included in the benefits. Source: http://en.wikipedia.org/wiki/Life_insurance

 Many of my clients are in the process of building wealth but it may be years before they realize the fruits of their investments or labors. If such a client dies prematurely, life insurance can be used to create wealth immediately for heirs and loved ones. Here are 10 ways to accomplish the creation of wealth, using this unique asset of Life Insurance within your estate plan.

Life Insurance can be used to accomplish any of the following:

1. The creation of an estate where circumstances have kept the estate owner from accumulating sufficient assets to care for his loved ones in the event of a premature death.

2. To protect a business value due to the loss of key employees.

3. For debt reduction. Personal and business loans can be paid off with life insurance proceeds.

4. To equalize inheritance. Most estates are made up of various illiquid assets and the liquidity nature of death benefit proceeds allows for equalization among children.

5. Accelerated death benefit. Terminally ill individuals can receive a portion of their death benefit prior to death on an income tax free basis to pay for medical bills, and other expenses and/or to prevent dying destitute.

6. To pay for death taxes and/or estate settlement costs. These costs can exceed 50% of the fair market value of an estate.

7. Pay off a home mortgage.

8. Fund a business transfer. Many businesses have multiple stockholders. Life insurance proceeds upon the death of one stockholder provide ready cash to finance the transaction.

9. To replace charitable gifts. If large assets are gifted to charity there are fewer dollars that can pass as an inheritance. Life insurance can replace that lost inheritance.

10. To supplement retirement funding. Certain life insurance products can supplement retirement funding by accumulating additional funds for retirement years.


Of course the amount of the inheritance can be tailored to the needs and wants of a particular person. Where one person might feel comfortable leaving a sum of $100,000, another might want to leave an inheritance in the millions. Generally speaking, either goal can be achieved.

Many taxable estates do not have sufficient liquidity (cash) to pay estate taxes within nine months after death. Clearly, estate assets could be sold to the detriment of the beneficiaries, and if the market for those assets is strong, this might be a satisfactory solution. On the other hand, if the market is down or if the people charged with selling the assets do not appreciate their true value, a sale could result in devastation of the estate value.

Therefore, life insurance (if structured properly) can provide the estate with immediate liquidity to buy time and flexibility for the executor and heirs to determine the best course of action. Life insurance proceeds guarantee that the assets can be sold in an orderly manner, including holding the assets to a later date if the market is in a slump.

The amount of life insurance needed will depend on a variety of factors including:

• How the insurance is to be used
• Whether or not you own a business and your plans for its succession
• Whether or not you have a taxable estate
• The liquidity of your assets
• Your age and current earning capacity
• And many more.

Your advisory team, using detailed financial modeling and reasonable assumptions, can help you quantify the amounts needed for these various coverage needs. Your life insurance agent or financial planner may have software that helps with these calculations as well.

Should you have questions regarding more benefits to of Life Insurance in Estate Planning contact Alan Orlowsky by calling 847-325-5559 or visit our website: http://www.orlowskywilson.com

Choosing a Life Insurance Provider - Lincolnshire IL

Choosing a Life Insurance Provider

Let's talk about Choosing a Life Insurance Provider. There are a number of factors that go into picking the right insurance company or companies for your insurance needs. The final decision will depend on what you are trying to accomplish.

Some factors that are commonly used by advisers when consulting with clients about their insurance needs include the following:


1. Rating

Ratings help in a general way to determine which companies are the strongest financially. Most ratings systems work on an easy-to-understand alphabetical structure similar to the credit markets. So a company that has a triple-A (AAA) rating is likely to be more financially sound than a company with a B rating. These ratings involve the opinions and judgments made by the ratings services.

There are 5 key rating services in the market today, including Standard and Poor's, Dun and Bradstreet, Weiss Research, Moody's Investors Services and A.M. Best. The issue is these various agencies have different scales with different letter ratings that do not necessarily correspond from one agency to another. In addition, not all insurance companies have ratings from each of the agencies.

In addition, there is a rating scale called Comdex. This places the company on a percentile ranking from 1 to 100. An insurance company with a Comdex Score of 90 would place it in the top 10% of all companies in financial strength. This percentile ranking has greatly simplified the understanding of all of the various ratings for the consumer. A Comdex score of at least 75 is desirable.

2. Underwriting

In addition to ratings, another key factor in your decision will be to look at how each insurance company rates you as the insured person. This is important because the better the rating you are assigned, the lower the insurance cost.

Some companies, often those with higher credit ratings, are very selective about who they select to insure. This results in a lower claims and higher profit for the company. Other companies specialize in insuring people with health problems. These are companies that are generally charging higher premiums to compensate for the increased risk.

If you are in poor health, your choice of carries may be limited.

3. Insurance Pricing

The actual pricing offer you receive for your insurance is also a factor in choosing a company. In larger cases, you will want to make sure that your under-witting file is seen by more than one company so that you will receive competitive bids. As long as the company with the lower premium meets the minimum rating screen that you and your adviser have established, it will make sense to go with the lowest premium possible.


4. Cost and Internal Rate of Return

A Calculation of internal rate of return (available from most companies as part of their illustration) will help you to compare one policy illustration or design with another. Because insurance costs, crediting rates, expenses, and other moving parts in an insurance contract vary from company to company, a way to compare the whole picture is to look at the death benefit at a given point in time relative to the premiums paid to that point in time. A good place to start is to look at the period of time around your life expectancy. If one policy shows that the internal rate of return (IRR) of 8.5% at life expectancy and another is showing an IRR of 6.8%, you will want to explore the policy features that are creating the difference.

In the end, your choice of companies is likely to be driven by a combination of all these factors, resulting in your choosing a company that has good ratings, offers a product that fits your needs at a price you can afford, from a company that has a good financial track record.

If you have questions about this post or about a particular legal situation, please contact Alan Orlowsky by calling 847-325-5559 or visit our website www.orlowskywilson.com.