The following contains some examples of how different types of insurance may be used to satisfy one or more needs for coverage and represent an important component of one’s personal financial/estate and/or business plan.  Please note the below is not meant to be an all-exhaustive list; for example, a life insurance settlement,wherein one ‘sells’ his/her life insurance to an institutional investor, may yield considerably more value in certain circumstances relative to cashing in or lapsing a policy.  Additionally, there are other types of insurance that can and should represent a core foundation for one’s financial plan, such as Medicare (and related coverages), Health insurance (including HSAs), Property & Casualty insurance, Umbrella insurance, etc.

Life Insurance

  1. Financial protection – providing capital and an income stream for one’s dependents.
  2. Estate planning – providing liquidity in the event of federal and/or state estate (or inheritance) taxes.
  3. Business planning in the context of a buy/sell agreement – providing coverage to fund the buyout of a deceased owner’s interest.
  4. Business planning to provide collateral for debt repayment – required by a lender or investor as part of a loan agreement.
  5. Executive compensation strategies – funding the cost of life insurance for key employees to provide them with an incentive to remain with, or accept a position with, an employer.
  6. Wealth replacement – when a child/children work in a family business and one or more children do not, life insurance may provide an inheritance to the ones not involved in the business in order to help equalize the estate bequests of the business owner.  Additionally, life insurance may be used for wealth replacement in other contexts such as charitable planning.
  7. As part of a divorce settlement, with matters such as the policy type, face amount, ownership and beneficiary, vesting schedule, etc. depending upon the unique facts and circumstances of the negotiated divorce agreement. 
  8. To assist heirs in covering potential income taxes upon inheriting property (e.g. having to pay income tax on retirement account required minimum distributions at ordinary income rates).
  9. Final expenses associated with the myriad costs of a funeral.