Stephen Dunbar has an idea for boosting the retirement income of a client with high income and healthy parents: The client could pay for a survivorship life insurance policy for the parents.
The policy would pay off when both parents have died, or the only living parent has died.
"In most cases, the financial return and leverage from using life insurance to create the asset will be more compelling than trying to save and use the markets," Dunbar said last week in an email interview.
Dunbar is a managing partner of the Business Strategies Group and a financial professional at Equitable Advisors. He has a law degree from Stanford and holds the Chartered Life Underwriter professional designation.
What It Means
For clients with great relationships with their parents, paying for life insurance for parents could be a simple way to create a big, tax-free nest egg.
The Policies
A survivorship life insurance policy is a policy structured in such a way that it covers two or more people and pays benefits after the death of one or more designated insureds.
Dunbar's strategy relies on the kinds of survivorship policies called "second to die" policies or "last to die" policies.
The Strategy
Dunbar says the best implementation of the survivorship life strategy for a given client will depend on the nature of the family involved.
"One way to improve economics to the client is for them to ask parents to contribute to the premium in lieu of an inheritance, or as a partial inheritance, so the client gets assistance with paying the premium cost and parents can use annual gifting rules," he suggested.
A client who was strapped for cash can team up with one or more other siblings to pay the premiums for the life insurance.
