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Old 08-18-2014, 04:02 PM
 
26,181 posts, read 21,481,737 times
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Quote:
Originally Posted by synchronicity View Post
Actually, these days that's a tough call, because at 5M net worth they'd have zero federal estate tax liability (assuming no prior lifetime gifts). Also, the lifetime fed exemption of 5.34 million is adjusted up every year for inflation.

That said, if they have state estate tax exposure then insurance to cover that might be a good idea. Similarly if most of their net worth is in a small business that is illiquid and/or likely to appreciate considerably in value, then life insurance would be more strongly indicated. And so on, but if someone is in that situation they need to consult professionals rather than read stuff on the intermawebz that could be totally wrong.


On the other hand if they took a million(assuming they'd have no need for it ever) and bought life insurance with it, that could deliver a large tax free payout at death while moving him further away from the 5.34mm limit
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Old 08-18-2014, 10:23 PM
 
4,765 posts, read 3,722,384 times
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I see I need to be more specific, as I was not taking into account federal and state estate tax exemptions.

New scenario:

A 55 year old couple.
2 million in net worth including cash value of home (300K) and pension (500K).
Likely to take pension as 100% survivor annuity.
State estate tax exemption of $4 million.
Term life ($500K) through work that will expire at retirement, possibly age 62.

Of course one would not make a decision without consulting a professional, this is about providing a starting point for further exploration of the subject.

Full disclosure: A bit skeptical of the idea that everyone needs life insurance. My personal observation is that some folks have it because they need it (debt, children, lack of assets). Some folks have it because it is in their nature to be "cautious" and much like extended warranties, it gives them a sense of comfort or peace of mind or perception of control over their "destiny". In fact, I suspect a very high correlation between those who have life insurance and people who buy extended warranties. I tend to think, that people who pay for it and have been paying premiums for, perhaps years, are very sensitive to the idea it may be unnecessary. Those who do not have it, tend to be very skeptical of insurance and sales pitches that tend to prey on paranoia.

But, I am open to new ideas and information. Honestly though, the whole thing about needing life insurance to offset estate tax liability sounds like a sales pitch to get virtually everyone to buy life insurance. Something conjured up in a meeting of insurance big wigs.

What is "permanent" insurance? Whole life? Is that really better than buying term 9when you need it) and investing the difference?

Just trying to get a better understanding of the subject.
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Old 08-18-2014, 10:32 PM
 
Location: Atlantis
3,016 posts, read 3,901,018 times
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Quote:
Originally Posted by Jacelynlim1980 View Post
Most of the people says that the life insurance has become an important part that one should hold today.
Important. . . . . .

Because due to increasing taxes and regulations on earning wealth - it has become one of the only ways for the bottom 80% to have any significant 'wealth' when they die. And leaving life insurance money in a protected trust might be one of the only ways to leave actual money to heirs when one dies.

Life insurance wasn't necessary in the US when people could actually make enough money and keep it secured after their death to leave to heirs.

Life insurance as a means of leaving 'wealth' to heirs and/or dependents is a phenomenon of a socialized state where actually possessing assets during ones life is limited to those that are within the top 10 - 20%.
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Old 08-18-2014, 11:29 PM
 
Location: Southlake. Don't judge me.
2,885 posts, read 4,634,220 times
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Quote:
Originally Posted by Lowexpectations View Post
On the other hand if they took a million(assuming they'd have no need for it ever) and bought life insurance with it, that could deliver a large tax free payout at death while moving him further away from the 5.34mm limit
Well, in the end that part is an IRR game. The death benefit IRR at life expectancy is usually in the ball park of expected bond interest rates, because that's what insurance companies invest in. However, as you note, the DB is received income tax free (in the overwhelming majority of situations) and the standard deviation of annual returns is often the same or lower than bonds, so it can be a nice add from the investment side as well as a risk mitigation tool.

But, it's a hit to cash flow and if one is in a low tax bracket then that's not as large a factor. Of course, like everything, it depends on the person and their needs and objectives.

Of course, if they're close to the fed or state exemption they'd want the insurance in a trust outside of the taxable estate, which limits access to fund cash values. And we could go from there, but again, it would start sounding a lot like planning advice, and we wouldn't want that to happen.
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Old 08-19-2014, 06:07 AM
 
26,181 posts, read 21,481,737 times
Reputation: 22766
Quote:
Originally Posted by shaker281 View Post
I see I need to be more specific, as I was not taking into account federal and state estate tax exemptions.

New scenario:

A 55 year old couple.
2 million in net worth including cash value of home (300K) and pension (500K).
Likely to take pension as 100% survivor annuity.
State estate tax exemption of $4 million.
Term life ($500K) through work that will expire at retirement, possibly age 62.

Of course one would not make a decision without consulting a professional, this is about providing a starting point for further exploration of the subject.

Full disclosure: A bit skeptical of the idea that everyone needs life insurance. My personal observation is that some folks have it because they need it (debt, children, lack of assets). Some folks have it because it is in their nature to be "cautious" and much like extended warranties, it gives them a sense of comfort or peace of mind or perception of control over their "destiny". In fact, I suspect a very high correlation between those who have life insurance and people who buy extended warranties. I tend to think, that people who pay for it and have been paying premiums for, perhaps years, are very sensitive to the idea it may be unnecessary. Those who do not have it, tend to be very skeptical of insurance and sales pitches that tend to prey on paranoia.

But, I am open to new ideas and information. Honestly though, the whole thing about needing life insurance to offset estate tax liability sounds like a sales pitch to get virtually everyone to buy life insurance. Something conjured up in a meeting of insurance big wigs.

What is "permanent" insurance? Whole life? Is that really better than buying term 9when you need it) and investing the difference?

Just trying to get a better understanding of the subject.



You need to know their annual/future income/expense need. That IMO would be a huge driver in the answer and even with substantial assets could justify life insurance
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Old 08-19-2014, 09:48 AM
 
4,765 posts, read 3,722,384 times
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Quote:
Originally Posted by Lowexpectations View Post
You need to know their annual/future income/expense need. That IMO would be a huge driver in the answer and even with substantial assets could justify life insurance
Couple lives on 60% of current income and projections indicate that at age 62 between SS, pensions and income from investments they will have more potential income than while working.

Expected need appx $70K. Projected income appx $130K at age 62.

100% survivor benefits on pension annuities.
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Old 08-19-2014, 09:54 AM
 
26,181 posts, read 21,481,737 times
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Quote:
Originally Posted by shaker281 View Post
Couple lives on 60% of current income and projections indicate that at age 62 between SS, pensions and income from investments they will have more potential income than while working.

Expected need appx $70K. Projected income appx $130K at age 62.

100% survivor benefits on pension annuities.


Well there is a gap between now and retirement what happens to the projected income if one person dies this year or in the next 7? As long as the income split is close to 50/50 it might no be needed
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Old 08-19-2014, 10:04 AM
 
Location: Keosauqua, Iowa
9,614 posts, read 21,205,218 times
Reputation: 13664
Quote:
Originally Posted by shaker281 View Post
What is "permanent" insurance? Whole life? Is that really better than buying term 9when you need it) and investing the difference?

Just trying to get a better understanding of the subject.
If you need life insurance to provide for your family when you're gone due to a lack of liquid assets, term is the only way to go. Whole life premiums are prohibitive to purchasing an adequate death benefit, and the ROI is generally considerably lower than even a conservative mutual fund investment.

If you have enough assets to provide for your family after your passing you really don't need any life insurance at all; however, there are some tax advantages to putting excess cash in perm/whole life.
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Old 08-19-2014, 10:39 AM
 
Location: N/A
846 posts, read 1,877,983 times
Reputation: 937
Quote:
Originally Posted by duster1979 View Post
If you need life insurance to provide for your family when you're gone due to a lack of liquid assets, term is the only way to go. Whole life premiums are prohibitive to purchasing an adequate death benefit, and the ROI is generally considerably lower than even a conservative mutual fund investment.

If you have enough assets to provide for your family after your passing you really don't need any life insurance at all; however, there are some tax advantages to putting excess cash in perm/whole life.
stay focused here...the estate is over $5m and growing. The need to cover potential tax is here...this is not some mom and pop looking for term coverage...this is a perfect scenario for permanent insurance to be employed as part of the estate planning process.

So the term vs perm argument does not apply to this scenario. Sorry, but it doesn't.
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Old 08-19-2014, 10:50 AM
 
Location: Keosauqua, Iowa
9,614 posts, read 21,205,218 times
Reputation: 13664
Quote:
Originally Posted by midwestlaxer View Post
stay focused here...the estate is over $5m and growing. The need to cover potential tax is here...this is not some mom and pop looking for term coverage...this is a perfect scenario for permanent insurance to be employed as part of the estate planning process.

So the term vs perm argument does not apply to this scenario. Sorry, but it doesn't.
You're the one who needs to focus. I was responding to a specific question, which I quoted, that had gotten lost in the shuffle of discussion about the scenario presented:

Quote:
Originally Posted by shaker281
What is "permanent" insurance? Whole life? Is that really better than buying term 9when you need it) and investing the difference?

Just trying to get a better understanding of the subject.
I was not recommending that anyone with a net worth of $5mm and growing purchase term insurance, simply explaining in very general terms who should be looking at which type of product.
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