August 2011 – Life Insurance, A Multi-Faceted Tool

“No one really likes it, until they need it, and then they’re glad they have it.”

The above can be said about all kinds of insurance, but it is especially applicable to life insurance – across all stages and circumstances of life.

Insurance has been with us for a very, very long time.  Early Chinese merchants were the first to grasp the concept of spreading their risk of total loss by shipping only a small part of their product on a single caravan or vessel.  If a boat was lost to a raging storm or a caravan wiped out by thieves, all of the merchants involved would lose only a small portion of their goods instead of one merchant losing everything.

Modern insurance practices can be tied to seventeenth century Lloyd’s of London. Benjamin Franklin formed the first successful American fire insurance company in 1752. As the US grew, so did the insurance industry. Where a risk exists – life, auto, health, worker’s compensation, legal, even divorce – the desire to share that risk with others is very strong.

A Multi-Purpose Tool
Life insurance in America was initiated, in many instances, by fraternal organizations formed by groups of people bound by country of origin, race and often religion. Premiums were paid, often in the form of dues, so that the care of widows and orphans did not become a burden on society in general.

Life insurance today has many uses. Its primary purpose is to protect a dependent or a family from the premature death of the breadwinner. Life insurance can also be used as an estate-planning tool or as a means of saving for retirement. It can be used to make a significant charitable gift, or it can be borrowed against for present needs.

In short, life insurance has become a financial and estate planning necessity for many people.

So, who needs it?
Fundamentally, life insurance has but one basic function: to provide income for a family whose chief wage earner has died unexpectedly.  If, because of death, that income were suddenly cut off, the family would be in deep financial need. Life insurance plugs that gap and as a result is a necessity for most families.

Time passes and circumstances change. So does the need for life insurance. What do you do, then, with that life insurance policy you already have and which met your past needs?

First, talk it over with an experienced life insurance agent who is also a financial and estate-planning professional. Your agent should help you consider all of your current and future needs plus what your ever-changing life circumstances might allow you to do. Life insurance can make possible what someone once described as “a legacy on the installment plan.”

A Valuable Asset
Many of our readers are living in the so-called golden years of their lives.  Nevertheless, all things considered, they have lost the bet they once made with their insurance company: they lived beyond their life expectancies. They did not die and make their insurance company pay out that large sum of money so their family members could survive the financial loss of their income. In addition, if they were like so many Americans who chose whole-life (also known as cash-value) policies, they now own a valuable financial asset for which they have no pressing or immediate need.  They may have lost the bet, but they also won – because they are still alive!

At this point, if they do nothing, the beneficiaries named in the policies will still benefit financially with tax-free income. But is that what they really want to do at this stage in their lives?

A Paradigm Shift
As we grow older – and some say wiser – our goals and objectives in life change.  We look back and see that the hills we climbed were steep, but we made it to their tops.  The way ahead still has obstacles, but they are manageable with caution.

What do we want to accomplish on this last leg of our journey through life? There is still much to be done, but how best to accomplish it?  What are the values that are important to us now and how can we continue to be a part of them?

The life insurance we currently have can play an important role in these new goals and objectives.Below are a few ways we can use this valuable asset:

  • Primary Beneficiary of a Partial Interest  This is a fancy name for designating the Janaka Foundation as one of several beneficiaries to your life insurance estate.  You can still name loved ones – family members, close friends – as well as other favorite charities.  You decide the percentage each named beneficiary will receive.
  • All Incidents of Ownership in the policy.  You make a gift of the entire policy so that the Janaka Foundation is now the legal owner of the policy.  You ensure that the insurance company is aware of this fact, too.  If there are premiums still to be paid, you may arrange with the Janaka office to pay them through your annual donations. The alternative is for the Janaka Foundation to “freeze” the policy at a lower death benefit.  The value of the gift is the “interpolated terminal reserve” (fair market value) of the policy as determined by the insurance company.  That amount is your tax deduction.
  • Contingent Beneficiary  Should one or more of the beneficiaries not survive you, the Janaka Foundation could be named as the beneficiary of that share.
  • Residual Beneficiary Many policy owners use life insurance proceeds to settle all claims, debts and obligations of their estate.  Should not all of the life insurance proceeds be needed, your executor would be instructed to give the residual (remaining) amount to the Janaka Foundation.

We hope that this newsletter will inspire you to take a new look at your life insurance estate. It may help you to understand how you can use this valuable asset to perpetuate your spiritual ideals through the Janaka Foundation and its support of the future of Ananda.

For further information about Life Insurance
and other types of charitable estate planning, request our brochure Planning for the Future.

You can also contact Parvati Hansen at the Janaka Foundation office:
Phone:  530-478-7695

Or find more estate planning information at the Janaka Foundation website at:  www.janakafoundation.org