Leaving An Inheritance With Life Insurance
25% of Americans have no money saved for emergencies and 51% would exhaust their entire savings within 90 days. If you’re like most Americans, leaving an inheritance behind doesn’t seem like much of a possibility. In addition to final expenses and burial costs, most of us will leave some debt behind.
Even if you have a large estate, your family members could be bogged down with costly estate or inheritance taxes. This is why most financial advisers recommend life insurance. It can provide your loved ones with financial protection, allowing you the freedom to spend your current assets while still leaving something behind for your family.
To make sure you have life insurance we you need it, we recommend purchasing guaranteed universal life insurance. Guaranteed universal life insurance is the least expensive form of life insurance with guaranteed coverage until age 90 or later.
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What is Guaranteed Universal Life Insurance?
Guaranteed universal life or GUL insurance offers guaranteed rates and coverage until the age you choose. The A+ rated companies we recommend for these policies offer a set price with a fixed death benefit until the age of 90, 95, 100, 105, 110, or 121. Depending on the longevity in your family, you can fine-tune your policy to match your needs.
GUL Insurance is typically available to applicants under the age of 79 that are in average or better health. If you’re already retired and living on a fixed income, you can lock in coverage that fits your budget, so you’ll never have to worry about your policy becoming unaffordable.
Guaranteed universal life insurance policies will not increase in price every 5 years or cancel your coverage at when you turn 80 like AARP. We receive calls every month from clients who purchased a policy from AARP and find out that their policy is canceling when they turn 80, or that their rates are increasing again. It is very difficult to find affordable life insurance when you are 80 or older, so avoid this predicament!
By purchasing a guaranteed policy, you can sleep easy knowing that as long as you make your payments each month, your life insurance policy will pay out when you pass away. Guaranteed Universal life insurance also allows you to spend your savings guilt free so you can enjoy the retirement you’ve worked so hard for.
When you pass away the proceeds of your life insurance can pay your loved ones directly with a tax free lump sum. The payout from your life insurance is confidential and it will go directly to the beneficiary or beneficiaries you chose, avoiding any legal battles between your surviving relatives.
How Much Guaranteed Universal Life Insurance Can I Purchase?
Guaranteed Universal life insurance is available for policies that range from $50,000 of protection to $10,000,000 depending on how you much coverage you qualify for. Most life insurance companies will offer you 10 to 30 times your annual income before taxes depending on your age. This formula is known as “working years”.
To determine your working years, the life insurance company you apply with will subtract your current age from the average retirement age. Most life insurance companies set their planned retirement age at 70.
For Example: Let’s say you're 50. Subtract your current age (50) from the retirement age (70) = 20 years. The majority of life insurance companies will offer you up to 20 times your current income before taxes.
There are other situations where life insurance companies will offer you more coverage than what your current income qualifies you for. In these situations, the life insurance companies may be able to consider your net worth or other assets like property or businesses.
Please keep in mind, the more coverage that you purchase, the more expensive your policy will be. These policies are designed to pay out, so if some of the life insurance coverage you need is temporary, like a mortgage or college tuition for example, you may want to consider purchasing term life insurance as well. This is also known as laddering your term life insurance coverage.
When Is Layering Life Insurance the Right Choice?
We highly recommend term life insurance in addition to guaranteed universal life insurance in some situations. Layering life insurance coverage is ideal for people who are sole providers with mortgages or young families. Depending on the situation, most applicants will purchase a term policy in addition to a guaranteed universal life insurance policy.
The term policy will provide the bulk of the coverage until retirement age, the mortgage is paid off, or the children graduate college / move out. Once you need for coverage is minimal, your term policy will end, but you will still have your permanent life insurance in place to provide an inheritance.
For Example: Let’s say you’re 40 years old and you have a $500,000 mortgage with 20 years left and two young children. To ensure that your family can keep the house and your children will have money to go to college, you’ll probably want to purchase at least $1,000,000 of coverage for the next 20 years. Once your family’s house is paid off, you won’t need a million of coverage anymore though. In this situation, layering life insurance is a perfect fit.
Term life insurance will provide your family with the coverage they need for the next 20 years, and the guaranteed universal life policy will provide an inheritance when you pass way. Layering your coverage while you are healthy will allow you to lock in affordable life insurance rates for the rest of your life. These two policies will run side by side for 20 years, when you mortgage is paid off the term policy will cancel, but you’ll still have the permanent coverage in place until you pass away.
Real World Case: Last year I worked with Mike and Susan from Northern California. Mike and Susan are 43, and 41 respectively, and they have two children ages 11 and 13. Susan called us last year when they closed on their new home. Susan and Mike purchased term life insurance on each-other to secure the mortgage balance and replacement income for her and the children.
The balance of their mortgage was about $600,000 at the time. Susan and Mike both purchased $1,000,000 of term coverage for 20 years to secure their mortgage and their children’s education. In addition to the term coverage, they each purchased an additional $250,000 guaranteed universal life insurance policy until the age of 95. This policy will “layer” coverage on top of their term policy.
If Mike or Susan pass away in the next 20 years, they will leave behind $1,250,000 to pay off the house and provide money for their children’s college. If something happens to Mike or Susan after 20 years, their debt will be gone or very minimal, and these policies will provide a tax-free inheritance to their children.
Please note however; the term policy in this example will expire after 20 years, hopefully well before Mike or Susan’s lifetime expectancy. If you are leaving an inheritance with life insurance, do not rely solely on a term policy, term insurance is not designed to leave an inheritance.
Term Life Insurance Should Not Be Purchased to Leave An Inheritance
The most common form of life insurance that is purchased in America is term life insurance. Term life insurance is the most affordable coverage available, but term life insurance is not designed to offer protection for your entire lifetime. Term life insurance offers financial protection for a set period of time, usually until retirement or when your mortgage is paid off.
Most term life insurance policies end coverage before the age of 80, and the majority of life insurance companies will stop offering coverage after the age of 75. Term life insurance is very affordable because the majority Americans outlive their “term” or period of coverage. If you’re purpose for purchasing life insurance is to leave an inheritance, you do not want to take the chance of outliving your policy. If you already have a term policy, you may have some options.
Depending on your current age, some life insurance companies will offer the option to convert your existing term life insurance into a permanent policy. If you have some health issues, this is probably the best value for you, but if you’re in average or better health, purchasing a new guaranteed universal life insurance policy will probably save you money in the long run.
Life Insurance is a great way to provide your loved one’s with a tax free inheritance after you pass away. Whether you’re looking to cover your final expenses, send your kids to college, or pass on the assets that you’ve accumulated over your lifetime, please give us a call.
Our agents are consultative and do not have quotas where here to help you and answer any questions you may have. At JRC, our service is free and our goal is to provide our customers with the most affordable policy available that meets their needs. Toll Free: 855-247-9555.
Managing Partner and Co-founder
Cliff is a licensed life insurance agent and one of the owners of JRC Insurance Group. He has helped thousands of families of businesses with their life insurance needs since 2012 and specializes with applicants who are less than perfect health. In his spare time he enjoys spending time with family, traveling, and the great outdoors.