5 Ways Life Insurance Can Solve Family & Business Needs

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​Sergio B. Gomez​
Aug. 21, 2020

​Life Insurance

A traditional life insurance plan provides cash benefits to loved ones when the insured passes away. Did you know that Life insurance can also be constructed to solve individual and business commitments? Below are five examples of how life insurance can be designed to solve family & business needs:

• Real Estate Investment (R.E.I.)

In R.E.I. partnerships, two or more parties come together to acquire property for the purpose of increasing their equity position. If one of the partners was to pass away, that R.E.I. could be subject to an early sell off to satisfy the needs of the beneficiaries. Selling the property early or in a down market could create a financial loss to the partners involved.
A life insurance plan on each of the investors could be used to pay off the beneficiaries of the deceased in the event of death. This would allow the remaining investors to keep and control the property and continue with their operation.
 

• Preservation of Capital

Many times families or businesses have savings that are deposited in bank accounts not keeping up with inflation. The erosion of capital is taking place every year at an average rate of 3.22%. Even if the savings institution provides an average savings yield of .80%, that’s still a 2.42% loss!
By depositing the lazy money into a cash value life insurance plan, you can obtain a very conservative rate of return of 5% and keep 100% liquidity on your savings. This plan will also provide your beneficiaries with 150-200% leverage on those funds immediately. If you deposit 100k, then your beneficiaries will receive approximately $150-200K in benefits. The death benefit would also continue to increase over time.
 

• Loss of Key Employee

 Employees are a companies’ greatest asset. Some employees are a pillar in the business and a loss of that key employee could be devastating to the continued operation of that company. In the event of death of that employee, the company would suffer losses and it would need capital to find a suitable replacement.
A cash value life insurance plan owned by the company on the life of the key employee would provide funds to the business so that it can find a successor. The premiums are paid by the business on an annual or monthly basis. Since the policy is owned by the business, the company would be able to use the cash value for any purpose.
 

• Pension Maximization Strategy

When an employee retires, sometimes there are several retirement options. An employee can receive 100% payment only for their Lifetime, a 100% retirement benefit for the employee and survivor, or even a benefit in which the employee and the spouse get the same benefit.
A pension maximization strategy uses the difference in the maximum retirement benefit and their reduced amount for their survivor to obtain a higher benefit. For example if the pension is $5,000.00 and the reduced benefit for employee and survivor is $4,200.00. Then $800.00/ monthly or less can be allocated to a permanent life insurance plan in order to generate a higher benefit to the survivor.
There are four significant benefits from this strategy:
 

1. The Life Insurance benefit could produce a higher monthly income than the survivor pension benefit.
2. If you have great health it could mean you will live a longer life. This strategy will provide higher benefits overall in every scenario.
3. Healthy individuals may find that the life insurance premium is less than taking a reduced pension amount.
4. If your spouse predeceases you, the life insurance plan could be used as an inheritance for your heirs. The pension would no longer disappear upon the death of employee and spouse.

 

• Income Replacement

 If the primary income earner were to pass away, his dependents would be in a difficult financial position. The hardship could force the selling of assets at a loss in order to replace the loss income.
A life insurance plan attained for the purpose of replacing the loss income would enable dependents to continue to meet obligations without having a “fire sale”. The policy can be designed to replace the income over a specified amount of years.
 
The Bottom Line
 
Life insurance plans can be designed to solve many financial situations that can arise when an individual passes away. A life insurance agent can assist in designing and implementing a plan to solve each scenario.
Red Lion Financial’s Quoting tool is a great place to begin your comparison.