Bay
Financial Newsletter
Why
Lif Insurance?
Life insurance is a major and unique planning tool
particularly in the business continuation, and estate planning or
wealth management/transfer arenas, because it does three things that
no other planning
tool can do as well.
Think of them as LLW: Leverage, Liquidity, and Wealth Replacement.
Leverage: Life insurance significantly leverages personal wealth,
or a business' bottom line. A small premium payment can generate a
vastly disproportionate amount of income-generating capital. Similarly,
life insurance can provide indemnification to a business for the loss
of a key employee, funding for a buy-sell arrangement, and provide
financing for a deferred compensation agreement.
Liquidity: When crushed with taxes, debts, and other demands
for cash or income occur (at a person's death, for example), the needed
capital will be available almost instantly and cost effectively -
that is, without unnecessary "slippage" or "erosion" - at the very
time it is most needed. Through properly arranged life insurance,
death of the insured (the event that creates the need for capital
in large amounts) triggers the payment of proceeds to satisfy that
need.
Wealth Replacement: Life insurance is the perfect wealth replacement
vehicle. For instance, the ability to make current gifts to a charity,
and replace all or a significant portion of the after-tax wealth that
would have gone to a personal beneficiary adds a whole new dimension
to planning.
Likewise, a person knowing that he/she may assure the financial independence
of a child (or other relative or loved one) through wealth replacement
with life insurance, may feel more secure in taking greater financial
risks in return for greater financial rewards, or comfortable about
using more of his/her wealth for current needs and desires.
THE THREE QUESTIONS
Of course, life insurance, as incredible as it is, should not be considered
a "magic bullet" or panacea. Certainly, every member of your planning
team is bound by professional ethics to consider the alternatives.
In determining which planning strategy (or combination of tools and
techniques) is most appropriate, be sure your planning team works
with you to ask - and answer - the following three questions:
1. Which approach will result in the highest present value of capital
and income for your family (or business) as a whole?
2. Which tool or technique is most likely to help you work toward
your personal and business objectives.
3. Which tool or technique, or combination of tools or techniques,
will satisfy the targeted need at the lowest present value in terms
of financial, psychological, and other costs?
AS
ALWAYS, PLEASE FEEL FREE TO CALL OR E-MAIL ME REGARDING ANY QUESTION
CONCERNING YOUR FINANCIAL SECURITY
