29 Jun Using life insurance as an inheritance

Q. My sister and I are totally on our own, but my dad wants to get more life insurance to leave us an inheritance. He’s a widow and has more than enough money to pay his bills. I think he should just spend his money rather than pay insurance premiums. What can I do to change his mind?
— Daughter

A. We’re glad you’re looking out for your dad in an unselfish way, but you also have to consider his wishes.

There comes a time in our lives when we start to think of our legacy, said Altair Gobo, a certified financial planner with U.S. Financial Services in Fairfield.

“What will we leave to our loved ones when we are gone?” Gobo said. “Besides all the good memories and examples of how to lead a good life — leave a positive effect on others. be kind, humble, gracious — we may also want to leave something tangible behind.”

The fact that your dad wants to leave you an inheritance suggests that he is thinking about your well-being when he’s gone, Gobo said.

Apparently, he “has more than enough money” to live comfortably, however, he may not think his estate is large enough to make an impact so he wants to make an investment in your future, Gobo said.

The insurance policy would really be an investment for you.

Gobo gave this example:

Let’s suppose at age 70, a man buys a $100,000 life insurance policy that may cost $2,700 per year. If his life expectancy is 85, the federal and state tax-free annualized return on investment could be 11.91 percent. At age 90 it would be 6.06 percent, and at age 100 it would be 1.41 percent.

“Since we don’t know the exact date of death it is difficult to compare this to any other investment options,” Gobo said. “So in this example, one might say: `If I live to age 90, where else could I earn 6.06 percent per year federal and state tax-free, guaranteed?’”

If your dad can truly afford a policy without changing his lifestyle or struggling to pay his bills, it might not be a bad idea if it will make the guy happy.

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This post was first published in June 2017.