Do you need life insurance?

Almost everyone knows that death and taxes are inevitable. For these two reasons, you may need life insurance. Like a Swiss army knife, life insurance can do a lot. There are several reasons why you might want to consider buying life insurance…

You love someone: You can use life insurance to create an estate. Here, you want the people who mean a lot to you, like your spouse and children, to be financially secure if you’re not around to do that. The purpose of life insurance in this situation is to act as a financial safety net.

Owe someone: Because of the guaranteed death benefit, life insurance can be very helpful when it comes to paying off debts and dealing with tax liabilities. For example, at a certain level of wealth, inheritance taxes are levied and life insurance is often used so that the family does not have to deplete the estate.

“Successful and wealthier people often turn to life insurance as a way to cover estate taxes,” says Vince Annable, CEO and founder of VFO Advisory Group and co-author of Your high-performance virtual family office: Maximize your financial and personal life. “For almost everyone, and especially the very wealthy, properly structured life insurance can be a cost-effective solution to estate taxes. Additionally, there are a variety of ways people can pay for life insurance, including using pre-tax dollars.

You have a strategic need for life insurance: There are several powerful applications in business situations for life insurance. Many entrepreneurs can use life insurance to pay executive benefits or greatly increase the amount of money they have after retirement. You may find that purchasing life insurance for critical business purposes—for example, to provide funds needed to replace a key employee or buy out a partner’s successor—makes good sense.

“There are a wide variety of ways to use life insurance to meet personal goals,” says PJ DiNuzzo, founder and lead consultant of DiNuzzo Middle-Market Family Office and author of the Wall Street Journal bestseller, The DiNuzzo™ Middle Market Family Office Breakthrough: Creating Strategic Tax, Cash Flow, and Lifestyle Options for Successful Private Business Owners and Wealthy Families. “For example, you can use life insurance to build greater personal wealth directly by using the investment account of a policy. In addition, some people find that life insurance is a very effective way to support the causes that matter to them.”

Making a decision: These three motivations can and often are interrelated. Most financial problems do not exist in a vacuum. While there are many reasons buying life insurance might make sense, you need to be very clear about what your reasons are. If you decide that buying life insurance will be worth it, you still need to decide on the right amount of life insurance and structure it properly with your goals in mind

“Too often, life insurance is oversold, resulting in people buying the wrong policies as well as an excessive amount,” says Homer Smith, managing founder of Konvergent Wealth Partners and co-author of Optimizing Clients’ Financial Lives: Harness the Power of an Accounting Firm’s Elite Wealth Management Practice. “What’s important is that each person makes sure they’re getting the best possible results, which means buying the right amount of life insurance in the best possible way.” For most people, the only way to be sure they are getting the right amount of life insurance, using the best policies for their programs and not paying more is to rely on the professionals they trust the most, which is usually their accountant and lawyers.

According to Justin Breen, the driving force behind the outstanding BrEpic Network and co-author of Superior results: Increasing the value of your high-performance family office just like the super-rich, “In addition to getting guidance from professionals, you should always know what you are buying. You want to make sure you understand the different options available. This includes possible alternatives to purchasing life insurance. Being engaged and assertive is often a necessity. This will help you make well-informed decisions.”

RUSSIAN ALAN PRINCE is CEO of Private Wealth Magazine (pw-mag.com) and Chief Content Officer of High-Net-Worth Genius (hnwgenius.com). He consults with family offices, wealthy, fast-paced entrepreneurs and select professionals.

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