Life Insurance as a Planning Tool

Written By: Marissa Waldron, CFP®

May 2 is National Life Insurance Day, being that it was the first day life insurance became available in the US (in the 1760s!). Now maybe you don’t have life insurance, maybe you think you don’t need life insurance, and maybe you really don’t! This week I want to spotlight a few different “non-traditional” ways life insurance can be used as an effective tool to maximize your after-tax estate.  

“Traditionally”, life insurance has been used to a) pay off debt, b) replace lost income, such as for a surviving spouse, or c) make sure dependent children are taken care of. If none of those apply to you, you might think you have no need for life insurance. While you might be right, life insurance could still be very useful to you.  

Estate Planning:

The current estate tax exemption amount of $13.61 million per individual is set to be cut in half in 2026. Couple that with continued real estate and stock market growth, the result will be a lot more people having taxable estates. The proceeds of a life insurance policy can be used for heirs to pay a tax bill for those whose estates are over the exemption amount.  

Long Term Care Insurance:

With traditional long term care insurance getting more and more expensive, it becomes out of reach for many who start thinking about it as they near retirement. Additionally, what if you have long term care insurance and never use it? That can be a hard thought to stomach. Today there are types of whole life insurance that also have long term care riders. They can provide the long-term care insurance many will need, and if it’s never used, heirs will still receive the life insurance benefits at death. Even for wealthy investors who have saved enough to “self-insure”, a policy like this could help ensure they don’t have to spend down their portfolio, leaving more for a surviving spouse or heirs. 

Repurposing Other Investments:

Some investors may have annuities or life insurance policies they bought years ago that either no longer fit their needs or aren’t as good as newer products available today. In many cases, they are able to exchange these older products for newer different ones that suit their current needs, and defer any taxable gains through a 1035 exchange.

Say What?

The University of Michigan’s new national poll on healthy aging indicates more than a third of older adults feel lonely at least once a week. 

  • The US Surgeon General has called loneliness and social isolation a “serious health epidemic.”
  • Healthcare providers also say the transition from a structured work life to retirement can lead to a significant decrease in social interactions and a sense of purpose.  

This week in history

1803 – The Louisiana Purchase was finalized. 

1933 – The first sighting of The Loch Ness Monster was reported in a local newspaper.  

1954 (70 years ago) – At age 25, Roger Bannister broke the four-minute mile barrier, finishing a one-mile race in three minutes and 59.4 seconds. The previous world record of 4 minutes and 1.3 seconds was set in 1945. 

1966 – Willie Mays hit his 512th career home run to break the National League home run record. He finished his career with 660 home runs. 

1973 – The thriller Soylent Green was released in theaters. 

1979 – Margaret Thatcher became Britain’s first female Prime Minister. 

What did it cost? (4-pack of 100-watt light bulbs)

1974 – $1.48 

2004 – $19.99 

2024 – $32.99 (LED bulbs cost $19.99 for an 8-pack) 

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