Google's Death Benefit! Can I create one for myself?

Photo by Daria Shevtsova on Unsplash

Author: Andrew Lee About 3 minutes read.

DISCLAIMER: The information here is provided as general purpose and does not guarantee future success or same results, nor it construe any financial or legal advice. Every individual situation varies and your milage will vary. Always consult with a qualified tax and financial professionals for your individual conditions.

TL;DR- Yes. It is pretty straight forward to purchase a 
life insurance with an income rider. However, there are 
some complex tax situation you need to understand, 
and other individual situation such as being collected 
by creditors when debts are involved or assignments 
between parties that you are not aware of from your beneficiary’s act.

An income rider is an addition provision to the death benefits on your life insurance policy with a pre-defined time frame (e.g. 20 years, 30 years, etc.), and it usually requires the insured (e.g. you) deceased within the rider’s defined time frame in order to trigger the rider to produce a steady income stream (usually a percentage of the death benefits that accommodates your monthly income) for the beneficiary (usually your partner and children) up to certain period of time and at the end of the period, the death benefit will pay out as a lump-sum. For example, a 1 million death benefit (face value) with a 20 years family income rider that pays 0.7% up to 10 years. The monthly income will be $7,000 up to 10 years if the insured deceased within the 20 years window, and at the end of the 10th year’s payout, the 1 million death benefit will be paid out as a lump-sum.

Now, the tax implication involves depending on who is funding the life insurance policy (employer or yourself, or both) and who’s estate does it belongs to. You do want to consult a qualified tax professional to figure this out for your situation. The creditor complication may surface if your beneficiary has assigned the proceeds to another party (e.g. borrowing money, investing in some financial products, etc.), in this case, beneficiary may not receive the benefits before the creditors which defeats the purpose if you plan to assist your beneficiary (teenagers) to manage their finance in such way.

Few things you can do some due-diligence and dig into are:

• Understanding how tax implies in your situation when you plan for life insurance, either from your employer (Group Life), or funding one by yourself, or both, or other methods, and whether a Term/Whole/Universal Life makes sense. You do want to consult with a qualified life agent and tax professional for your options.
• Does income rider (usually with additional cost) really makes sense as oppose to utilizing a will or setting up a trust to manage the death benefits for your beneficiary?
• You have a trust with Spendthrift clause for your life insurance policy proceeds to prevent creditors.

I only point out a few things here. Estate planning ahead is not an easy task and it does involve a lot of planning with the correct information. Please consult with a qualified life agent, tax professional, estate planner and attorney to understand how it works for you and whether it suits your plan and expectation before purchasing any insurance product, or taking any actions.