Financial Freedom in Retirement Blog

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By: George Wells


November 13, 2018

Life Insurance and Long-Term Health Care in Your Estate Plan

Topics: Estate Planning

What do I need life insurance for at this age? Are you kidding me? I’m done working! Life insurance? Estate planning? That’s right.

Should I Consider Life insurance in My Estate Plan?

life insurance yes or no

If you haven’t had any major medical events happen in the past five to ten years, you’re likely a candidate for life insurance. It has changed a lot over the years. Today in estate planning, life insurance is used for managing income taxes, transferring assets and most importantly to you, giving you benefits while you’re alive so you can do the things you want to do, have assistance in your home and receive money tax-free to use.

I am excited about the changes in life insurance! So many financial professionals don’t understand it and don’t know how to use it or to explain to their clients how to apply it. We want you to be able to ask the right questions and make the right decisions. Call us with your questions. We specialize in this subject, and we can tell you quickly if you’re a candidate for life insurance and if it’s a good idea for you.

What Benefits Come with Life Insurance in Estate Planning?

In estate planning, life insurance is one of the most powerful tools in managing your income taxes and getting benefits while you’re alive. If you encounter any type of challenges, physically or neurologically, you can get benefits through very specific types of Life Insurance products. One is called corporate design life insurance. Again, when you reach the age of 70½, you will be required to take out required minimum distributions from your IRA account(s). But if you don’t need the money, you must pay the taxes on it. So you need to know where to put that money if you don’t need it so you can get the highest tax advantage for yourself, your spouse and your heirs.

Two Activities of In-Home Daily Living

 You can use a certain type of life insurance for your benefit while you are still living if you ever need in-home care because you are unable to do two of the six activities of daily living (bathing, dressing, taking medications, meal preparation, toileting and transferring). If you’re not able to do two activities of daily living because of a neurological or physical challenge, you can get tax-free benefits.


Tax-Free Advantages in Life Insurance

Another attribute of life insurance is avoiding or managing income taxes when you’re passing your stuff on to your spouse or to the next generation. Because life insurance is tax-free, anything that goes through that mechanism will be completely tax-free. So if you have a large estate or a farm or a business that would be difficult to liquidate, you can use life insurance to pass those assets to the next generation. This includes any type of discretionary assets. Life insurance is something you should definitely consider.

How Does Life Insurance Affect Estate Planning?

Life insurance is important in estate planning, and you can use it to leverage your estate so you can leave more money to your heirs in a more tax-efficient and protected way. If you are coordinating your life insurance with your estate plan, there will be no ongoing fees; your payment will be part of the one-time estate-planning fee.

People ask, “Are there ways to use life insurance in a way that enables me to control how it’s distributed after I pass away?” Yes. One way is to make your living trust the beneficiary of the life insurance and have the trust go to your children or grandchildren over time. You can specify that the money is to be used for their education. You can even build in incentives to pay them funds if they go to college and graduate about when they should.


There are a lot of ways life insurance can be used to help your family after you’re gone. A lot of our clients who are in their fifties, sixties or seventies have a pension, and their adult children will not have pensions, even though they, too, have worked hard and gone to college. Few companies still offer pensions.

We also have to be concerned about what’s going to happen with Social Security. This might not be a concern for you, but it might be a concern for your middle-aged child or a child who will be middle-aged or elderly 10, 20, 30 or 40 years from now. What kind of retirement income will they have? You can leave life insurance and a trust for your children to provide them a retirement income in case they don’t have a pension or won’t have Social Security benefits that are as good as yours. We don’t know what the future will look like because there are a lot of changes in society that are impacting people’s employment and the amount they can earn. We see automation increasing and taking away jobs. Technology advances, globalization, and other trends will continue to change the way we earn income. People who have assets and who have saved money can use life insurance as part of their estate plan to create retirement income for their children.

Planning in Advance for Long-Term-Care Expenses

There are two general approaches to planning in advance for potential long-term-care expenses:

  • You can purchase traditional long-term-care insurance. This product is not very popular because it is expensive, and in general, people don’t want to purchase a policy to pay for a place they never want to go (a nursing home or assisted-living facility). Traditional long-term-care insurance is not being used much, currently and traditionally.
  • You can try a “hybrid long-term-care policy” or “asset-based long-term-care policy.” This newer alternative is a lot better, in our opinion. One advantage to these policies is that they are a tax-free way to structure part of your assets so you can pay for care at home instead of having to move to a facility. But if you do have to go to an assisted-living facility or nursing home, having this type of policy in place can provide substantial long-term-care benefits to help pay for it. You might never have to deplete your estate or worry about trying to qualify for Medicaid. Another good thing about these newer hybrids or asset-based policies is that if you never use them — if you never need long-term care — your heirs will get a death benefit, so you’re not wasting the money like with a traditional policy.

Unfortunately, not many advisors are knowledgeable about these policies. A lot of financial advisors are just concerned about structuring their clients’ assets in the stock market. They just assume you’re going to be fine forever and then you’ll pass away at some point. They’re not thinking about the possibility that their clients might need long-term care for a long period of time. We ask all our clients who are planning ahead to look into life insurance.

Next: Different Estate Types and Trusts: Simple Explanations with Examples

Previous: Living Trusts: Definitions, Problems, and Differences


How Does FundMax Help with Estate Planning?

FundMax is an educational resource. If you don’t feel like you have fully exploited us for all the knowledge and insights we offer, do some more research. We provide these insights through FundMax, a free retirement resource guide that helps people optimize their retirement funds and avoid regret by making sure they are “all set” for retirement. At FundMax, you can ask questions, watch videos and read some things. We encourage you to explore a lot of material on the site so you can get an idea of our style. You will likely get a lot of your questions answered. If you still want to talk to us; you’re welcome to contact us. We are happy to answer your questions.

This is a resource we have developed for you, for your benefit. Make no mistake, we are a thriving financial firm that makes money. We are a financial firm that takes new clients. But first and foremost, we consider ourselves a significant resource to the public…mostly people we will never need to meet. We believe in providing you with valuable information at no charge. We know it can be intimidating to ask someone for help, especially if you’re a do-it-yourselfer or if you feel like you’re all set. We are here for you as a resource, and we get a lot of clients as the indirect result.


You can further explore our Estate Planning insights:

View our Estate Plan Index page. It's basically a road map to all of our most popular estate planning insights.


You can download our eBook 'The Ultimate Guide to Estate Planning'

This free educational ebook explains estate planning as simple and complete a possible.

New call-to-actionReady for a Financial Professional?

Okay, so you’re officially fired up about estate planning, but maybe you’re unsure about how to get started. No problem! We understand that all the information involved in estate planning can be a little intimidating at first.

  • Do you have questions, comments or suggestions after viewing our Estate Planning Guide? 
  • Would you like to video chat or talk on the phone to someone at FundMax before meeting with an attorney?
  • Would you like us to recommend an estate planning professional?

Referrals for Estate Planning 

If you’re looking for a referral from a tax or legal professional, we will refer people to you if we’re comfortable with them and if we and our other clients have had good experiences with them. We will not refer anyone to you if we are uncomfortable about doing so.

You might need us, but you might not. Maybe you came here and got all the information you need, and you are thinking, “I feel a little guilty because I got all this stuff from them and gave them nothing.” Well, share it. Send it to somebody else…or don’t. We are here for you. We are here for your benefit, so feel free to use all our materials to learn something new. We will be here, still serving you and giving you information.

If you have questions you would like to have answered that you think others might benefit from as well, contact us, and we will likely create a method to answer those questions as well. You are probably not the only one with that question. 

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