|
How Can I Build and
Preserve My Estate?
Building an estate can
take years of diligent saving and investing. Once you have built up an estate,
you’ll want to make sure that you preserve its value for your heirs. You can
also add to or create a valuable estate by using life insurance.
Why Create an Estate?
Premature death can result
in financial difficulties for your survivors. By using life insurance to protect
against this outcome, you can rest assured that your heirs will be cared for
financially in your absence.
If you wish, you can also
ensure that other financial goals are achieved. Because the premature death of a
breadwinner could make college savings or mortgage repayment impossible, steps
should be taken to prepare for these possibilities. Life insurance provides a
cost-effective way to guard against the threat of interrupted financial goals.
A Case Study
The following example
illustrates the concept of estate creation.
Paul Pringle, a
40-year-old computer programmer, would like to begin a savings program. He and
his wife, Pam, have two children, ages 10 and 8. He feels he can afford to save
about $3,000 per year.
Among his options, he
could choose to invest in a traditional IRA. His contributions would be fully
deductible and would grow on a tax-deferred basis. This would help provide a
respectable retirement nest egg. However, it would not be accessible for most
other purposes without penalty before he turns 591/2.
For the same annual
amount, he could choose to purchase a whole life policy. He could choose a fixed
premium, and his cash value would be allowed to grow tax-free just like in the
IRA. Unlike IRA contributions, however, whole life policy contributions are
generally not tax deductible.
Paul would have
penalty-free access to the cash value through policy loans or withdrawals. And
in the event of Paul’s premature death, his family would receive the policy
proceeds free of income tax. The proceeds would help to maintain his family’s
standard of living, and it could ensure a college education for both of their
children.
Financial Leverage
In the unfortunate event
that Paul dies prematurely, his policy would generate a significant amount of
wealth. For a potentially low premium investment, Paul can create an estate that
might take 20 to 30 years to accumulate in an IRA.
Life Insurance: A Clear
Advantage
The security provided by
life insurance, combined with the opportunity to create an estate, makes this
choice a logical one for many families. Consult an advisor to see how you can
achieve financial security for your family.
© 2003 Emerald Publications
| 
