07 Sep Is insurance the answer for an inheritance?

Q. I want to leave my kids an inheritance, but I expect to live to at least 90 and I will spend most of my money. I’m 72 and healthy now. Is buying more life insurance the answer? How much will it cost?

A. Lots of people use life insurance as an estate planning tool, but it’s not the right strategy for everyone.

Jerry Lynch, a certified financial planner with JFL Total Wealth Management in Boonton, says it probably isn’t the right answer for you based on the little information you provided.

“If you are not sure if you will have enough money, you do not want to increase your expenses by buying life insurance,” Lynch said. “My attitude has always been that you should protect yourself first in retirement and make sure that you are okay, or you end up being a financial burden on your kids, or even worse, you live a terrible lifestyle.”

If there are funds left over, terrific, but you shouldn’t limit your fun or put yourself at risk, Lynch said.

There are other options for leaving funds for your children.

The first would be that you could save as much as you can, invest it wisely and over time there could be something for the kids, said Altair Gobo, a certified financial planner with U.S. Financial Services in Fairfield.

But the assumption here is that you have discretionary money to invest and you will live long enough for it to accumulate.

You, though, said you will spend most of your money. That leads Gobo to believe that there isn’t a lot of discretionary income available. And although you expect to live to 90, there are no guarantees, Gobo said.

That all makes your interest in life insurance is interesting, he said.

“Life insurance would be one way to provide an `instant estate’ that you could leave to your kids,” Gobo said. “The question is: do you have the available funds to commit to the premium payments?”

He offered this example: A $100,000 15-year level premium term policy would cost (depending on underwriting, health exams, etc.) anywhere from $1,500 or more per year. The problem with this type of policy is that although the premium is locked in for 15 years, after that period, the premium will be prohibitive.

He said another alternative would be a universal life policy with guaranteed death benefit to age 100. This would have a greater premium than a term policy — at approximately $4,000 or more per year depending on underwriting, health exam, etc. — but the $100,000 death benefit would be guaranteed to age 100.

Still another way to look at the question is to imagine if you were to invest $4,000 per year for 18 years — to your age 90 — to have $100,000 at death, you’d need a rate of return of approximately 3.72 percent tax-free, Gobo said.

So really, while it’s nice that you’d like to leave your kids an inheritance, you should put your own needs first. No sense eating cat food and leaving the heat set to 50 degrees just to leave money to the kids.

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This story was first posted in September 2015.