Many savvy individuals purchase a life insurance policy in their later years for a myriad of reasons; often using 401k funds to purchase a life policy.
What is their reasoning and financial strategy?
Let's look at an imaginary scenario. Mr. Edwards has an estate worth five millions dollars. His goal is to minimize his estate taxes. Mr. Edwards decides to purchase a life insurance policy to help decrease his taxable estate exposure. The life insurance proceeds left to his heirs will enjoy 100% tax-free status.
A second scenario is Mr. Smith has $500,000 of unused cash parked in a low-paying money market account. He does not wish to invest the money in the volatile stock market as Mr. Smith believes a crash is imminent. Mr. Smith has decided to purchase a life insurance policy with an annual premium due of $50,000 per year for ten years. His coverage is $1,000,000. Upon his death Mr. Smith's children and grandchildren will receive $1,000,000 tax free without any estate taxes or capital gains owed. This is an example of a very safe and wise use of "extra" funds that were essentially sitting around gathering little to no interest.
A third scenario is for Mrs. Thompson is to invest her monthly IRA distribution to purchase a tax-free life insurance policy. Mrs. Thompson has ample alternate money resources and quite frankly does not need her forced IRA distributions. By purchasing a tax-free life insurance policy with her IRA distributions, Mrs. Thompson will enhance her estate with tax-free life insurance proceeds upon her passing.