Single premium life insurance is one way your clients can leave money to their heirs.
As your clients prepare for retirement something strange happens. They begin to divide their money into two "buckets." First is the money they need to live on during retirement, or "live-on" money. The second is money they intend to leave to someone else after they are gone, or "leave-on" money.
Wealth transfer is all about the "leave-on" money, not "live-on" money. It is for money that the client does not intend to use in retirement. However, this is money that they do not want to give up the control over, just in case they need it in the future. So where do you want to "park" the "leave-on" money until they are either ready to use it or pass it on? Here are the requirements for that money:
Safe. You want the money to be somewhere that is safe. When the client dies you want to be sure their children or grandchildren are guaranteed to get the amount of money the client wanted them to receive. In short you are more concerned about a return of the money, than a return on the money.
Tax-advantaged. The account should be tax advantaged. Nobody wants to pay income taxes every year on an account they plan to give away. Nor do they want the beneficiaries to have to pay income taxes on the account when they ultimately receive the money.
Simple. Starting and keeping the plan should be simple. It should provide "auto-pilot" control, so once you set it up you don't have to worry about it again. What you see should be what you get. There is no additional work on your part—or the client's—after the initial set up. Again, if the client plans to give the money away he or she should not have to spend lots of time managing that money, or getting a bunch of quarterly mailings about the account.
Has an access option. If for some reason the client needs to use this money at any time he or she should be able to get to it. After all it may be "leave-on" money today, but we don't know what the future holds and the client may need some of it later on.
The plan may provide for future growth. While the plan is to give this money away, it would be nice if it would grow—without a risk of loss—in the future. But getting good growth, no risk of loss and having access options in one account can be difficult to find.
A product that may cover all of these requirements for wealth transfer is single premium life insurance. Yes, life insurance.
First of all, while a single premium life may be right for wealth transfer, it's not the only answer. You may want to consider other ways to do wealth transfer; it takes a meeting with the client to determine if it fits their financial situation and goals.
It's only for money they don't plan to use. Wealth transfer is not right for all or even most of their money; it's just for "leave-on" money. The client wants to keep control over the money and have it pass only at death, not before. They very much want to be sure it is guaranteed and will be there when needed and for the amount planned on. I say again, it's only for money they don't need in retirement. I can't stress this point enough. So let's see how single premium life insurance fits the requirements for a good wealth transfer plan.
Let me be clear about a few things
Safe. The single premium life contract is backed by the full financial strength of the insurance company.