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Maximize Legacy Planning with Life Insurance

Life insurance policies can benefit people in some unexpected ways. Most people know the primary benefits of life insurance: To meet financial obligations upon a policyholder’s death, as well as maintain their household should they have any spouses or dependents to support. But in certain scenarios, life insurance policies can provide a much larger benefit that can help shape a family’s legacy.

One is family legacy planning, with which older consumers could use their funds from a 401(k) account or IRA to fund a life insurance policy for the benefit of their children or grandchildren, further setting future generations up for financial security. This is especially beneficial for younger generations, as the Social Security system’s future is uncertain and some employers are wiping away pensions in an effort to stay afloat.

While family legacy planning is basically amping up the value of inheritances children and grandchildren will receive anyway upon the policyholder’s death, life insurance advisors should be sure to have a thorough discussion with consumers to ensure they know all the features of such plans.

Annuity legacy maximizationFamily Legacy Planning with Life Insurance

Financial professionals with senior clients who own annuities that they may not need in the future should educate them on using the financial tool to maximize their legacy. Instead of leaving the face values of the annuities to their children, grandchildren or other loved ones, annuity legacy maximization can increase the amount they would normally receive.

Annuity owners who qualify for life insurance should consider enabling the account’s income feature to pay premiums on a life insurance policy. The income from the annuity would be taxable, but the tax-free death benefit of the life insurance policy will likely provide a greater amount of wealth for the beneficiaries than the annuity could provide.

Beneficiaries will receive a healthy amount of tax-advantaged wealth if their older loved ones opt for annuity legacy maximization. Strategic annuities used in correlation with a well-designed life insurance policy can not only benefit your consumer, but their families as well.

Obvious but key

While financial professionals are always on the lookout for ways to improve consumers’ coverage and benefits, a recent Consumer Reports finding shows that perhaps the most integral part of policy performance is to not forget about it. Too often, people who buy life insurance policies forget to tell their beneficiaries, so upon their death, the loved ones may not even know there are funds to claim.

The Florida Office of Insurance regulation revealed that there is about $7.4 billion in unclaimed life insurance benefits in the United States. Financial professionals should recommend to their clients to let it be known that they have coverage and make it a point to communicate with the beneficiaries if the client isn’t able to do so.

Back in 2013, not enough was being done to locate beneficiaries of forgotten life insurance policies. “The industry now supports a national standard to require life insurers to use new technologies to identify policyholders who have died and whose beneficiaries have not made claims” according to USA Today. “Twenty states have enacted laws based on the standard, according to the American Council of Life Insurers.”

Editor’s Note: This post was originally published in March 2014 and has been reviewed and updated.

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