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Legacy planning using life insurance, proactively!

Published: April 26, 2017 12:00 AM

Most donors who wish to leave a legacy have one goal: leave as much as possible without jeopardizing their own financial security. To do this takes strategy and caution. There are many factors at play; how long they will live, what the stock market will do, taxes, and inflation.

There is one particular tool that has existed for over a century that can assist in this process: life insurance. Most folks are familiar with this vehicle, and most commonly it is thought of as a protection mechanism for a spouse and children in the event of premature death.

In the planned giving world, it can be just as useful and be the main ingredient to overcome the factors mentioned earlier. Most of the time, my team and I help donors do this on a proactive basis; establishing a new policy that is specifically designed for this goal (although an organization taking ownership of an existing policy can have its benefits, too).

Take Mr. and Mrs. Donor, both age 65 and in moderately decent health (they don't have to be marathon runners!). They could bequest one of their investment accounts, current value $500k, and assuming it earns 3% per year; leave a nice legacy of around $900k by the time they are 85 (not bad!).

However, if they were to utilize the one vehicle that creates more leverage at death than any other (life insurance!), they could create a $1.5M gift! This is done by taking that same $500k and purchasing a single premium guaranteed life insurance policy with an AA+ rated life insurance company.

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In the event that someone doesn't have $500k laying around, we will design a similar strategy but fund the life insurance policy over time, say 10 or 15 years.

I personally fund a policy for less than $150/mo. and it will leave over $300k when I pass away (even if I live to be 100 years old)!There are many things to consider when designing these plans. A few key points are: never use term insurance for this planning (it doesn't last forever so there is no guarantee it will pay out!).

Stay away from 'variable' products that have exposure to the stock market. These may have some upside, but the volatility is too great for this type of planning. Use an AA+ rated life insurance company. And most importantly, have an expert 'shop' the market for you or your donor to find the best possible solution. Every life insurance company underwrites differently, based on the donor's age, gender, and health status. Finding the policy that fits best and will create the most leverage can be tricky. And folks that specialize in this will ensure that the product is solid, with no surprises later on.

I have seen donors experience a significant amount of joy and relief when establishing these plans.

Joy that they are able to impact the organization or cause they care about most in a big way; and relief that they can do it in a manner that is predictable and guaranteed. The couple in the example above is now free to confidently spend every other dollar they have during their lifetime, knowing the life policy is in place to leave their legacy.

No wonder life insurance has stood the test of time!

Randall J. KellerFinancial Advisor and Legacy Planning SpecialistRandall.keller@nm.comhttp://randallkeller.nm.com/


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