In a recent episode of her "Women & Money" podcast, financial expert Suze Orman discussed a listener's question about using life insurance to resolve a family estate issue.
Scott, the listener, wrote that his father had passed and his mother had put their $750,000 home into a transfer on death (TOD) account for Scott and his two sisters. One sister expressed that she didn't want any part of the property and wanted to receive her share in cash.
So, Scott's question was: Can I take out a life-term policy for my mom so I can cover the cost of buying out my sisters? Or is that immoral?
Don't Miss:
The average American couple has saved this much money for retirement — How do you compare?
Can you guess how many retire with a $5,000,000 nest egg? – How does it compare to the average?
While Orman didn't find the idea immoral, she questioned the practicality of Scott's proposed solution. "It’s not an immoral question," Orman said. "But I’m not sure it solves your problem. And let me tell you why – a term life insurance policy is only good for a specific term."
Term life insurance generally provides financial protection during a specific period, often while someone is still working or raising a family. Unlike whole life insurance, which covers a person for their entire life and builds cash value, term life only pays out if the insured person passes away during the policy term.
See Also: I’m 62 Years Old And Have $1.2 Million Saved. Is This Enough to Retire Stress-Free?
Without knowing Scott's mother's age, Orman painted him a picture to explain why this isn't the best solution. "Let's say your mother is older ... in her 70s and she's gonna live to her 90s, possibly even 100. There's no way that a term policy, if that's how old she is, will be cost effective."
According to Orman, Scott could end up paying more in premiums than if he were to just save up the money himself before his mother passes. The way term life insurance works, his mother could potentially outlive the policy and have to re-evaluate the terms, which could drive up the cost of premiums.
Trending: Founder of Personal Capital and ex-CEO of PayPal re-engineers traditional banking with this new high-yield account — start saving better today.
Orman's advice highlights an important principle in financial planning: life insurance can be a useful tool, but it's not a one-size-fits-all solution. For Scott, taking out a loan, setting up a savings plan, or discussing other financing options with his family may be more practical ways to buy out his sister's share of the home.
Family estate planning has many complexities, particularly when splitting assets among multiple parties. Dividing high-value assets like real estate can be financially and emotionally difficult, especially when siblings have differing priorities.
See Also: I’m 62 Years Old And Have $1.2 Million Saved. Is This Enough to Retire Stress-Free?
It’s important to evaluate all available options for individuals facing similar estate planning dilemmas before making decisions. While life insurance can provide peace of mind and financial support, its role in estate planning depends on several factors, including age, cost and timing.
Consulting with a financial advisor can help ensure your strategy is cost-effective and aligned with your long-term goals. Whether you’re navigating property divisions among family members or planning for future expenses, an advisor can provide guidance tailored to your unique situation.
Read Next:
How do billionaires pay less in income tax than you? Tax deferring is their number one strategy.
Studies show 50% of consumers think Financial Advisors cost much more than they do — to debunk this, this company provides matching for free and a complimentary first call with the matched advisor.
UNLOCKED: 5 NEW TRADES EVERY WEEK. Click now to get top trade ideas daily, plus unlimited access to cutting-edge tools and strategies to gain an edge in the markets.
Get the latest stock analysis from Benzinga?
This article Suze Orman On Using Life Insurance To Buy Out Family: 'Not Immoral, But It Won't Solve Your Problem' originally appeared on Benzinga.com
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.