So the question really comes down to this. Is a family going to realize a better benefit in their family trust through the purchase of a guaranteed life insurance policy, or through the purchase of land in Mississippi using the same amount of money.
I have been working with clients for over a year now trying to help them unravel the mess that a Hartford agent got them into with a single premium variable universal life insurance policy. 10 years ago their $200,000 premium bought a non guaranteed death benefit on a second to die policy of $1.6 million. Today the policy has about $130,000 cash left and with them in their 70’s, the policy is rapidly imploding due to poor investment performance and the natural rise in mortality charges.
With some health changes that have occurred, we shopped to see what kind of fully guaranteed policy we could get to replace the Hartford disappearing act. We had several offers that came back better than Hartford, the best of which would give them about $500,000 guaranteed for life with just the single premium.
They are considering that, but they just threw in the mix the possibility of using that $130,000 to buy land for inheritance purposes. They apparently have found what they believe is a good deal. Of course there are no guarantees on future land value and if the value does very well, there will be substantial capital gains due at some point.
Having discussed that with them I left them to compare that with a life insurance policy that will produce a 375% tax free return on investment. Life insurance has the added value of being a much simpler inheritance vehicle to dispose of and divide when the time comes. With several children the land idea could be a can of worms if they don’t all magically agree on what to do and when to do it. With life insurance there is no question. Simple division and disbursement, tax free.
Bottom line. There’s no doubt that whatever we do, whether our own retirement or planned inheritance, we want to make sure we get the most bang for our buck. Consider it all carefully before you commit.