Life insurance might be on the bottom of your priority list, but today, we want to discuss why it should be closer to the top.
It may be a surprise why anyone would invest in life insurance with a higher premium, especially if you have a very healthy trust fund handy. It can seem useless to pay more than $20 per month, but with the right strategy, it will actually leverage your money further.
Those with little assets and finances purchase life insurance because they feel it is an unfortunate necessity. The wealthy, however, purchase it because they know it can actually be an excellent financial tool.
Of course, high premium life insurance is not for everyone. Here are the situations when you should consider it:
- You have a high net worth
- You have no debt
- You have several assets
- You want to pass on a large estate to your children and kin
For the individuals with little to no assets living paycheck to paycheck, they will most likely have a cheap life insurance policy. But, for those in the above situation and a continuous cash flow, you can definitely afford it and should. Let’s break down some numbers and consider some options:
Second-to-Die Life Insurance
A second-to-die life insurance policy is a policy on two individuals, typically a married couple, where benefits are paid out once the last surviving spouse dies. Thus, this type of life insurance is great for estate planning.
Let’s say you and your significant other have an estate that is valued just below $10.9 million, the estate tax exclusion rate cut off for couples as of 2016, and decide to sign up for a $4,000,000 policy with a $75,990 annual premium. If you are 64, and you live to the average age of 85 (assuming you are younger than your spouse with the higher life expectancy) according to the Social Security Administration, you would have paid $1,595,790 and still have the $4,000,000 return for your estate.
Is a High Premium Right for You?
In your younger years, you may want to consider term life insurance. As you get older and life becomes even more unpredictable, however, a higher premium and permanent plan may be the better choice, especially with the conditions mentioned above.
Not to mention, if your estate value is higher than the $10.9 million rate for a married couple (and more than $5,450,000 for an individual), it would be subject to the federal estate tax, which can really add up in cost. In fact, after the second parent passes, the estate tax return form is due within nine months. This can be a big burden for your child(ren) to handle, particularly during the mourning process. This is when a life insurance policy similar to second-to-die policy would come in handy as it will strengthen your estate value and guarantees cash to pay for the taxes.
Life insurance policies with high premiums do come with criticisms but your life situation will determine when they will work for your benefit. You should definitely speak with an agent if you are unsure whether or not this is a wise investment option for you. Always do your calculations and know the values of your assets and net worth as a starting point.