Life_is_Good said:A financial planner once suggested that a life insurance policy is a "good idea" if your estate is highly valued (maybe over $2 mil?). The strategy is to estimate your probate taxes and obtain a policy that covers that amount. This should provide more net inheritance for the heirs in his Last Will and Testament because it makes up for the tax bite.
nellieb said:Suntrust/Allstate just tried to sell my widowed 82 year old father a single
premium whole life insurance policy. Anyone fimilar with this policy?
2B said:It's no accident that the same people sell whole life, single premium life and annuities.
spideyrdpd said:http://www.smartmoney.com/ask/index.cfm?story=200112101
http://www.investopedia.com/articles/pf/05/SinglePremLife.asp
You dont usually do these as investments. They are a way to try to get around some taxes.
2B said:But most are sold to people that don't need them.
I agree that they are very useful to the uber-wealthy.
ERD50 said:I'm not even sure they are useful to the 'uber-wealthy'. Insurance, on average, has to be structured to provide a gain to the insurance company. Even the wealthy cannot change the laws of economics.
At least the examples I've seen, I can't see where the insurance policy does anything that could not have been done by gifting the money to individuals or charities, and lettting them invest it directly.
One possible exception - it looks like an insurance policy would provide liquidity at time of death, and this could be used to pay taxes that are supposedly due in 90(?) days. So, maybe insurance could be of some value in a very illiquid estate. But I suspect there are cheaper options if it came to that, like take out a loan against the value of property to be sold.
-ERD50
spideyrdpd said:The issue with gifting is there are limits. I think this is mostly for people that screwed up. They are widowed and they inherited the wealth of the spouse. Now they are very old with no tax planning done. They cant gift out enough money. They didnt realize that the estate would take a big tax hit.
ERD50 said:So, it seems to me that still boils down to: do you want life insurance or not?
So, like any insurance policy, if the insured dies well before the actuary table indicates, it would help. And maybe the insurance aspect is worth it to not be forced into a sale of inherited property if the insured met an early demise. I still suspect there are other options (use the property as collateral for a loan, etc) - none of which will be presented to you by an insurance salesperson.
--ERD50
FinanceDude said:.....when term would cost about 1/8 as much.............
ERD50 said:Yep, term would certainly be a lower cost way to go (for the client).
Wow, talking up the virtues of term - you must really be one of the 'good guys', FD. Pleased to meet you!
-ERD50
ERD50 said:I'm not even sure they are useful to the 'uber-wealthy'. Insurance, on average, has to be structured to provide a gain to the insurance company. Even the wealthy cannot change the laws of economics.
At least the examples I've seen, I can't see where the insurance policy does anything that could not have been done by gifting the money to individuals or charities, and lettting them invest it directly.
One possible exception - it looks like an insurance policy would provide liquidity at time of death, and this could be used to pay taxes that are supposedly due in 90(?) days. So, maybe insurance could be of some value in a very illiquid estate. But I suspect there are cheaper options if it came to that, like take out a loan against the value of property to be sold.
-ERD50
saluki9 said:No, the are very useful and you don't need to be "uber wealthy" If you're a 50 or 60 year old person, the chances you're going to die in the next 30 or 40 years are pretty darn good.
If you pay 1% or 1.5% per year to buy an option (which is all the life insurance really is) that will pay $1M, $2M or more in estate taxes how does that not make sense?
saluki9 said:If you pay 1% or 1.5% per year to buy an option (which is all the life insurance really is) that will pay $1M, $2M or more in estate taxes how does that not make sense?
2B said:One of the advantages if done right is that the insurance cost is not included in the estate so it saves the estate tax in it which can be substantial.
spideyrdpd said:Again you could be maxing out your gift giving. Its only 12k per person.
I suppose this is like annuities. For most people it makes no sense. At some point though the tax benefit outweights the fact that you can do better elsewhere. Also an older person isnt going to be investing in f*zzy b*nny. They want something more guaranteed and are willing to give up some return.
spideyrdpd said:I dont think these people would be eligible for term insurance at their age ?
I heard about this in Respect to Joe Robbie who owned the Robbie stadium . The family had to sell the stadium at bargain rates. Although I think family squabling had some part in things. I was told that having one of these would of solved the problem.
Doesnt make it the best/only plan.
I also get the feelings its only for the really rich or people that are illiquid.
Again I dont think you can do a loan on something in an estate.
ERD50 said:So you are saying the insurance companies are giving away money? That, on average, they pay out more than they take in?
Does not make sense.
If the insurance co is charging you 1.5%, you could invest that money and make more (on average). So, if you need the insurance, fine. But don't think that you are making a great investment - you are buying insurance. On average, you will lose.
f that were not the case, insurance companies would have all gone out of business long ago.
-ERD50
PS: this is also being discussed here:
http://early-retirement.org/forums/index.php?topic=12724.msg235937#msg235937
maybe we should start a new thread for this, "Insurance as an Estate Planning Tool?"?