How to Use Life Insurance to Equalize Inheritance

We often think of life insurance in very simple terms. We assume that the entire point is to ensure that our loved ones are financially safe, in the event that something happens to us. So, we tend to look for a life insurance policy that will adequately replace our income if it is ever lost. This is indeed the case for many people, and it’s obviously a smart move, but there are many more reasons to consider a life insurance policy. Some of them might surprise you.

For example, let’s imagine that a fictional couple, Dan and Barbara, are in their sixties and own two homes. One is their primary residence, in which they have lived for several decades, and one is a beach house. The beach home has appreciated considerably in value, due to an explosion in development in the area recently, whereas the family home is worth considerably less.

Dan and Barbara have retired, and are generating enough retirement income to keep them secure, but they don’t exactly have piles of money in the bank. The most valuable thing they own is that beach house, which is now valued at over $800,000, whereas their primary residence is worth maybe $200,000 at most.

Dan and Barbara expect that, when they pass away, their children will sell the primary home and split the proceeds to cover their final expenses and debts. Perhaps there will be a bit of money left over, but it won’t be much.

They really want to leave the beach house to their daughter, Anne. She visits regularly, bringing her husband and grandchildren, and the beach house has become a second home to her. Many warm memories are attached to that house, and Dan and Barbara wouldn’t want Anne to be forced to sell it.

Meanwhile, their son, Jake, doesn’t care much for the beach and in fact lives on the other side of the country. The beach house doesn’t mean much to him, but Dan and Barbara wouldn’t want to leave such a large asset to Anne only.

In this case, a good solution is for Dan and Barbara to purchase a life insurance policy in an amount approximately equal to the value of the beach house. This way, they can also leave something of significant value to Jake one day.

Using life insurance to equalize inheritances is more common than you might believe! It’s a great way to ensure that no one feels slighted, while at the same time preserving assets that other heirs might not wish to sell when dividing the estate.

For more information on this use of life insurance, or for answers to any other questions you might have, give us a call and we’ll be happy to help you explore your options.