4 Surprising Ways Life Insurance Can Serve Your Clients

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Your clients probably think of life insurance as a safety net for their income. If the primary breadwinner dies, life insurance can replace the wages they would have earned, therefore protecting the family. As a CPA, you might not be too concerned with life insurance. After all, what does it have to do with taxes?

As it turns out, life insurance can actually be used in some surprising ways! The function of life insurance is to replace lost income or provide heirs with a liquid asset. But the ways in which your clients actually access their life insurance benefits can vary greatly. The following four benefits of life insurance might actually surprise you.

Life insurance can function as a cash substitute for assets. Let’s assume your clients own a valuable non-cash asset that they want to pass on to a child, such as a vacation home. But they don’t have an equal amount of cash set aside for the other children. If their estate is set up to divide assets equally among the children, they might not want to force the sale of the vacation home. Purchasing a life insurance policy in the appropriate amount can ensure that the other children receive an equal inheritance.

Life insurance can protect wealth. When your clients pass on, their estate could be taxed before assets are transferred to the heirs. These estate tax bills can be hefty, and at times force the sale of assets in order to pay them. Since none of us can predict when we will die, it would be a shame for heirs to be forced to sell assets during a less advantageous time. One solution is to purchase a life insurance policy in the amount of the expected taxes due on the estate, pay the taxes with the insurance payout, and preserve the assets for the heirs.

Life insurance protects retirement assets. If one spouse earned a retirement pension through past employment, it’s important to remember that that money will vanish upon their death. A life insurance plan can act as a backup to pension plans. In another scenario, a retired couple might take reverse mortgage on their home in order to cover living expenses. By purchasing a life insurance policy in the amount of the home’s worth, they can still leave a legacy to heirs.

Life insurance can even function as a college savings vehicle. Let’s assume your clients want to pay for a child’s or grandchild’s college expenses. What happens if they die before that child finishes college? A life insurance policy with a payout designated to the student can replace that lost money and make sure your clients’ wishes are honored. And since life insurance money is not counted in the formula which decided federal financial aid, the student can maximize their opportunities to pay for tuition, room, and board.

It’s important to remember that life insurance can serve a variety of functions. As your clients’ most trusted advisor, you are in the ideal position to help them find creative solutions for their financial planning dilemmas. By partnering with a financial advisor, you can combine your tax knowledge with insurance expertise, and make your clients happier in the long run.

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