John Bullis: Do you have enough life insurance?

One of the great tax shelters also provides for your family if you die. It's Life Insurance.

There are two main types of life insurance.

Permanent or Whole Life policies have a bigger premium and build up cash values that you can borrow against.

Term policies have lower premiums and do not build up cash values. It's more like rent.

However, if others need to be protected in case you die, life insurance is not only appropriate, but it can be a bargain.

Since the death benefit is not subject to income tax, it goes farther for your loved ones.

The death benefit will be counted as an asset when you die unless you use an irrevocable life insurance trust, also known as an ILIT. There are rules of course, but the standard answer is to set up the ILIT, then the ILIT applies for the insurance policy. You contribute money to the ILIT so there is enough to pay the premiums. The trust collects the death benefit when you die and distributes it to the beneficiaries as the trust provisions indicate.

Now that a person dying in 2013 can leave $5,250,000 of assets with no death tax, perhaps the ILIT is not such a big deal as in prior years. On the other hand, we will continue to have inflation and the inflation rate will increase someday when all the federal debts have to be paid.

Setting up the ILIT before the policy is purchased can be a good benefit in the long run.

The cost of term insurance is pretty small if you are young and in decent health. You might be surprised how much life insurance just $50 a month will buy. Some term insurance policies have the same premium for a long time, say 10 years. Most are convertible to whole life insurance, even if you have a health problem after you buy the term policy.

Buying life insurance is sort of like going to a restaurant. There are many choices to consider. You can protect your family from financial problems by shifting the risk to the insurance company, for a premium.

If you have an insurable need, why not start the discussion with a life insurance agent?

Did you hear? "It is never too early, but it is always too late." By Michael Virardi.

• John Bullis is a certified public accountant, personal financial specialist and certified senior adviser serving Carson City for 45 years. He is founder emeritus of Bullis and Company CPAs, LLC.


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