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The Unique Considerations for Blended Families When Calculating Life Insurance

Jacob Jaegle, CFP®
October 3, 2018

The role of life insurance in financial planning is very important.  In most cases, people seeking life insurance policies are couples who are in the accumulation phase of life, relying on one spouse’s or both spouses’ incomes to meet daily living expenses.  The sudden loss of life of an income earner would be emotionally and financially catastrophic to the surviving family members.  In certain other cases, life insurance is purchased to pay for estimated estate taxes. Now that the estate tax laws are much more generous than they were in previous years, we are seeing a decrease in this life insurance need.



Planning for Blended Families


What is becoming a much more regular conversation is the increased need of life insurance for blended families.  Blended families are clients who are in a second marriage and have children from a previous marriage.  When a second marriage occurs later in life, the newly married individuals may desire to transfer the wealth created in the second marriage to the children of the first relationship.  This can create quite an emotional toll on both parties in the second marriage for a couple of reasons.  First, while one spouse wants to take care of his/her children, the other spouse may want to share the assets of their estate.  Second, there may be disagreements when deciding if the son-in-law or daughter-in-law is considered family and an extension of the second marriage.

The first step in planning for the life insurance need for the blended family is to determine who has or who created the assets. One person may have built a legacy singularly, or both parties may have created it together.  The second step is to calculate the amount of assets that will be transferred to the next generation.  Step three is to determine which children the assets will be passed onto and the percentage-split across all the children beneficiaries, which - depending on the situation - may not be an even divide.  



A Case Study

In a helpful illustration, consider Judith who has built her wealth, created the majority of her own assets, and has two children from a previous marriage.  When Judith met Tony and they fell in love, Judith quickly realized she needed to shield her hard-earned wealth from Tony in order to pass it down to her children. Tony, you see, did not accumulate assets during his lifetime.  Some questions that Judith should consider are:

  • Will the assets be transferred during her life, at death, or a combination of both?
  • Should the assets transfer directly to the children or should a trust be used?
  • If Judith passes away before Tony and if her assets flow to the children of her first marriage, what money will be used to support Tony during the remainder of his life?

It doesn’t take long to realize that there are many considerations that Judith must weigh in order to support her children’s financial future as well as to help ensure that Tony can be supported during his lifetime.  



We most often hear of the importance of life insurance planning in its traditional sense, but the need for life insurance can go beyond simply replacing income.  If you struggle with taking care of your beloved children while also providing for your better-half, consult with your financial consultant today. It only takes a meeting to help understand your situation, listen to your concerns, and – together - pinpoint which life insurance strategy may be the best fit for you and your family.

This information does not purport to be a complete description of the developments referred to in this material. The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of the author and not necessarily those of Raymond James.

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