Structuring for Life (Insurance)

Structuring for Life (Insurance)

July 29, 2015 – Investors call it leverage. Taking (or borrowing) money from one source in an effort to multiply gains or address other financial objectives.

Outside of the stock market, leverage need not be motivated by desire for profit, however.

Sometimes it’s just about balance.

Take the following hypothetical example based on a true story from our archives where a client exercised her own bit of leverage to add significant peace of mind for her family when she was in the midst of settling her personal injury claim.

The Background

“Charlotte” was receiving a moderately sized insurance settlement from a personal injury claim.

During my needs assessment discussion with her, she commented several times how worried she was that her 41-year old husband “Geoff”, who was the family’s only source of income since the birth of their twins, was currently without any meaningful life insurance.

Geoff and Charlotte planned for her to be a stay-at-home mom for the foreseeable future and wanted to make sure she would be able to provide for her children should something unthinkable happen to Geoff.

So She Used Leverage:

An affordable $1,000,000 20-Year Term Life insurance policy funded with a structured settlement.

Balancing

The Easy Solution

I was able to get a $1,000,000 Term Life policy for Geoff, a healthy non-smoker, from a major carrier rated A+ by A.M. Best for a cost of $1,459.00 per year.

Then, as part of her overall structured settlement solution, I secured a structured settlement for her, also from a carrier rated A+ by A.M. Best, that will guarantee $1,459 a year (the cost of the life insurance) for the next 20 years at a cost of just under $24,000.00.

In this instance, $24,000 represented less than 10% of her overall net recovery from the settlement but the life insurance deficit was probably consuming 90% of her worry.

Such a small amount of money to buy such a large amount of protection.

So this solution was not only easy, it met the need. She’s using tax-free structured settlement income to fund a life insurance policy which, if it’s ever paid out, will do so in dollars that are also tax-free.

Now THAT’s leverage.

That’s balance.

That’s just smart!

Image courtesy of AKARAKINGDOMS at FreeDigitalPhotos.net

 

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