Intentional Inheritance with Life insurance
An article came across my scroll from Yahoo Finance the other day with the following title:
Net Worth for US Families: How To Tell if You’re Poor, Middle-Class, Upper Middle-Class or Rich
Of particular interest to me, as reported in the article, a big difference between the Middle Class and the Upper Middle Class. Since both classes represent 20% of the population, I was alarmed to see that only 8% of the country’s wealth is with the Middle Class, while 49% is with the Upper Middle Class.
As a financial advisor, financial planner for the past 25 years, I’ve served both the middle and upper middle classes. It does not surprise me, as a practitioner, that one of the differences in wealth accumulation and transfer between the classes can be linked to the availability of an inheritance. Life Insurance is one financial product in a financial plan that can be solution to this discrepancy. This post will speak to reasons why there is resistance to maintaining life insurance for some, and why it is an easy solution to implement in your financial plan.
Initial Resistance. Over the years, I’ve heard phrases like “I don’t want to leave a rich widow”, or “I didn’t get anything when my parents died” or “my kids are successful, they will figure it out”. Statements like this are hard for a wealth manager to hear and process. In many cases, this mindset won’t even allow underwriting to begin.
Needs Based Approach vs Human Life Value. Over the years, I have seen many policies that were originally designed to “cover the mortgage”, resulting in a face amount that is well behind current valuations. Said another way - $100K in 2000 isn’t the same as $100K in 2024. As such, new policies should be considered to keep with the pace of net worth growth that occurs over a person/couple’s lifetime.
Reliance on Group Life Insurance. Many people with well paying jobs receive life insurance as an employee benefit. Sometimes people even buy up to 5x their salary as coverage. Usually, that coverage is terminated when one leaves a position or retires. Buying an individual policy at that time is typically more expensive and sometimes not an option due to health problems that may now exist. Hence, carrying coverage into retirement, with a goal of leaving and inheritance, is harder and/or it is easy to rationalize why it can be dismissed.
Bequeathing other Assets. Home and other real assets, 401K plans, IRA and brokerage accounts can also be part of an inheritance. Keep in mind that repairs, real estate commissions, insurance premiums and the cost to carry said assets can reduce the expected amount left behind. When it comes to IRAs, not only is there an embedded tax burden, with the passing of the Secure Act 2.0 in 2022, IRA inheritors now must completely disburse the beneficial IRA by the end of year 10 – shortening the life of that asset and the useful life of the inheritance.
Life Insurance is an easy way to help leave an inheritance. It will infuse liquidity into an estate at a time where it is much needed. When part of a financial plan, it can materially help future generations, as the article referenced above alludes to. Schedule with me at www.pickandrollwmt.com if you’d like to have a discussion specific to your situation.