Avoiding liquidating assets at death
Imagine someone who owns and operates a midsize soybean farm and has two adult children. One child wants to run the farm and the other wants no part of it. In the event the client dies, there’s not enough cash in the business to buy out the disinterested child. Life insurance could provide liquidity at precisely the right time.
This is one example, but there are many situations where liquidity at death is extremely important to allow estate equalization without liquidating assets. In this situation the need is specific at death, so carrying significant cash value through the life of the policy doesn’t add value.
Increased certainty of an inheritance (for a well-funded, but conservative client)
Imagine someone who is generally conservative, whose portfolio might lean as far as 80% bonds, and who is highly motivated to leave money to her children. She may be well-suited to use life insurance to provide at least part of the inheritance.
Long-term care riders in these situations can be highly valuable because the leverage (risk-pooling) aspects of long-term care riders would protect a far greater portion of the estate than the conservative portfolio alone. Depending on how well-funded the person is, over-funding life insurance and carrying a significant cash value as a complimentary asset class with potential tax advantage can also be highly valuable.
Supplemental retirement income
This has historically been one of the most commonly suggested reasons to purchase permanent life insurance. First, it’s important to determine whether there is an at-death need. If there is, consider life insurance. If there is not, then there is a high likelihood this need can be met in a variety of other ways, such as a Roth IRA (subject to income limitations) or Roth conversions (not subject to income limitations). In some circumstances, there is no better way to meet the need than life insurance.
Other Business Needs Life Insurance Could Meet
There are also a variety of business uses for life insurance, particularly surrounding key people, deferred compensation plans and other executive benefits.