The title question isn’t asking for the legal definition, but rather for a practical one. Practically speaking, a life insurance policy can be looked at as a mathematical equivalent to immortality. Why? Because as long as jess than the current earnings is spent, the principal will last forever.
Let’s say a young person is looking to protect his/her family and buys a large enough policy so that when the death benefit is invested, a conservative return is all that is necessary to continue the current lifestyle. Now let’s say that young person lives to a ripe old age, with all financial responsibilities discharged. What to do with the life insurance policy?
Well it certainly could be left to the widow(er), children, or grandchildren. But it could also be left to a family foundation, to continue his/her pet philanthropic projects. Properly drafted and funded, a family foundation could go on ad infinitum.
Those of you who watch PBS and/or listen to NPR have probably heard of the Jerome L. Green Foundation, which funds many of PBS/NPR programs. Mr. Green was a New York City attorney and real estate investor who started the foundation in 1978. While he started the foundation with his own money, I have to believe the foundation received at least a portion of his life insurance proceeds, as seven years after his death, the foundation donated $200 million to Columbia University (his alma mater), the largest gift the school had ever received. The foundation has made over $500 million in gifts in its 41-year history.
While most family foundations are nowhere near the size of the Jerome L. Green Foundation (although some are indeed larger), they don’t have to be to make an impact on the local community. It just so happens that New York City was Mr. Green’s local community.
Not so philanthropically inclined? Trusts can be used to pass assets, including life insurance proceeds, down to family members. Many attorneys specialize in intergenerational family planning.
These are but some of the reasons I’m amazed when I hear “But I won’t need the insurance when I’m older.” True, the life insurance may not be needed for the purpose for which it was purchased. It could possibly be needed for a different purpose, perhaps to equalize the estate or to fund a buy-sell agreement, or it could just provide desirable options that would otherwise be unavailable. Either way, there’s no downside to having it.