Examining The Pros and Cons Of Life Insurance Alternatives

Life insurance is a unique product in that a small premium payment can generate a vastly disproportionate amount of capital and guarantee the availability of that capital almost instantly. Death, the event which creates the need for large amounts of capital, creates the capital to satisfy that need through life insurance. 

Clearly, life insurance is one of the most important of all the wealth creation and wealth transfer tools. Yet, the planner should never choose ANY tool or use ANY technique without asking:

“What are the no-cost or less costly alternatives to this product or device that could also solve the client’s problem—and what are their pros and cons?” 

Once the advantages and disadvantages of the viable alternatives are examined, the planner can objectively ask and ascertain:

“Which course(s) of action will result in the highest present value of capital and income for the family unit as a whole and which course(s) of action will result in the lowest present value in terms of financial and other costs?” 

In many cases life insurance will be the indicated tool. How that life insurance is arranged makes a considerable difference in the tax implications and ultimate cost-effectiveness. One last question that the planner and every member of the client’s advisory team—and the client—must ask is: 

“What if I (we) do nothing?” “What happens—or doesn’t happen?” 

Decisions in financial, estate, business and employee benefit planning with respect to life insurance (or any other tool or technique) must not be made in a vacuum. A planner will be held accountable—not only for what is said and done —but also for the advice which is not given that should have been. 

Reproduced with permission.  Copyright The National Underwriter Co. Division of ALM

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