The Solution
Jane and Joe's financial advisor decided that the best course of action to better align them with their goals would be to offer them both permanent life insurance. This strategy gives them the potential to accumulate cash value as well as adding a long term care rider to the policy.
Death Benefit
The permanent life policy will provide individual protection in the event that one of them dies suddenly. The remaining spouse would be able to live out the rest of their retirement as they had planned. A permanent policy with a death benefit guarantee can help ensure that the coverage will remain in place until advanced ages or even to age 121, depending on the policy and the way they choose to pay their premiums.
Long Term Care Rider
If Jane and Joe choose to add a long term care rider they would be covered if either one of them became chronically, critically, or terminally ill. The rider will also give them the ability to accelerate their policy’s death benefit when they are alive so they can have money for whatever they need (i.e., building ramps to the home, adding a stair lift, etc.). This type of flexibility in the policy will give them added security. However, if they accelerate the death benefit while they are alive there will be less, if any, remaining death benefit available for their beneficiaries.
Tax Benefits
When Joe and Jane die, their estate will be passed on to their children. If their estate passes directly to their children, there is a possibility for a significant tax bill. All of the inheritance from their retirement accounts (the IRAs, 401(k)s, etc.) may be taxed at income tax rates as high as 39.6% since it would be impacted by their children’s other income and the way in which they withdraw the funds. That tax bill alone could cost them tens of thousands of dollars. With a life insurance policy, between the death benefit and any cash value it has accumulated, the children have a ready source of generally tax-free funds that they can use to pay off any taxes that are due and still have any remaining policy values for their own without any income tax obligation.
The Conclusion
Life insurance in retirement planning is a critical asset to ensuring you have a retirement free of financial burden. As we've seen with this case study there are many ways to incorporate life insurance into any retirement plan. Please contact us if you want to discuss any solution that fits your unique needs.