Facts of life: creative uses for life insurance
Written by Wayne Rothe •
However, there are other innovative uses that can make life insurance a low-cost solution to certain financial problems. Author Paul Grimes writes about some of those in his excellent book, The Facts of Life – How to Build Wealth and Protect Your Assets With Life Insurance.
However, life insurance is often the only feasible solution to financial problems. If you’re in your 30s and earning a six-figure income, there is no more effective way to protect your spouse and kids who rely on your income.
A joint last-to-die (JLTD) insurance policy would cover the capital gains taxes on that cabin. Because this type of insurance pays out only on the second death – when it’s really needed – it’s inexpensive. “With the death of the second spouse,” Grimes writes, “the policy pays out the death benefit to the kids, who use the money to pay the capital gains taxes. And – voila – the cottage stays in the family, and one child is not forced to go into debt or sell his or her share.”
“If both spouses die, then those kids could be in a lot of trouble,” Grimes writes. “That’s a great use for joint last-to-die policies.”
Imagine that you and your spouse take a $200,000 JLTD policy. Let’s say the premiums are $4,000 per year and the second death occurs in 20 years. You’ve paid $80,000, and your estate collects $200,000. The $120,000 gain represents a tax-free return of about 8.8 per cent for your beneficiaries.
Your insurance advisor can do a needs analysis to determine if you should buy this insurance – and the cost.