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Cash-value life insurance as part of an estate plan

Some California residents may benefit by choosing to purchase cash-value life insurance policies as a part of their overall estate plan. Those most likely to do so are people who already have enough assets for their own retirements, are older and who are risk-averse.

Many investors, wary of the vagaries of the marketplace, place money into low-yielding investment tools such as certificates of deposit or money market funds, with the idea that the money will be earmarked for a designated beneficiary. These investors may do better by instead liquidating the low-yielding asset, then using the money to purchase cash-value life insurance for the named beneficiary instead.

Many CDs, for example, yield a low 1 percent interest rate. Life insurance policies, on the other hand, may yield a rate of return that is significantly higher. The strategy is best used by people who are older than 59, who are family-oriented and who have sufficient assets other than the low-yielding product to support them through retirement. They should also be people who have a financial adviser and a prepared financial plan and have either children, grandchildren or charities to whom they wish to receive the money as a distribution.

The preparation of a comprehensive estate plan involves a strategic look at how best to pass assets to intended beneficiaries. For some people, cash-value life insurance policies may provide a good option. People who believe that such policies might work for them may want to talk to an attorney who has experience in estate planning matters. An attorney can review the client's financial plan, property holdings and goals and then provide advice regarding the advantages of this method as opposed to other alternatives.

Source: Life Health Pro, "Why cash value life insurance may be the estate planning tool your clients need," Brett W. Berg, March 30, 2015.

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