Protection For What Matters Most
One of the most important aspects of a solid financial plan is having the proper life insurance in place. Many people have life insurance offered as an employee benefit and think they are covered. However no comprehensive plan is complete without a thorough analysis of a client’s life insurance needs.
Most people think of life insurance as something needed while their kids are young, so that their income is protected in case something unforeseen happens. While that is true there are many other uses for life insurance in a well-developed financial plan. Life insurance can be used to replace income as well as provide liquidity for estate planning purposes, protect a family business and also grow wealth tax deferred.
When we meet with clients, the first step is to clarify how much insurance is required to meet objectives. From there, we will look at the different types of insurance contracts and help decide together the right fit. We then shop dozens of different insurance providers and pick the one that offers the best price relative to the client’s needs and medical history. Depending on the policy chosen, there may also be a requirement to see a medical professional for a health assessment.
Few would consider buying Life Insurance to be an enjoyable experience, but no financial plan is complete without at least discussing how life insurance fits into planning.
Schedule a time today with one of our insurance experts to help complete your financial plan.
Frequently Asked Questions
What is the difference between term and permanent Life Insurance?
A good analogy to use is that term insurance is renting an apartment and permanent is like owning a house. Once you stop paying on term insurance, or the contract expires, there is no more coverage or other benefits. With permanent insurance, you own the policy forever, and while the premiums are higher than term insurance, you will have coverage forever. It also builds cash value and eventually, depending on how the contract is structured, it can be paid up and you will still have coverage without having to pay monthly premiums. If you buy a policy that has a long term care rider you can use your life insurance to pay for long term care when you need it. This will be long past when your term insurance contract has expired.
What is the difference between Universal Life vs. Whole Life Insurance
Whole and universal life are the two permanent life insurance policies.
Both plans accumulate cash, so you can withdraw, borrow or invest.
As such, permanent insurance policies are also known as cash-value insurance. This is because whole life coverage earns money through internal interest rates and dividends.
Conversely, universal policies accumulate cash through market indexes but both plans allow cash to be withdrawn, borrowed against or invest
Whole Life Insurance
As the name suggests, whole life insurance is a permanent life insurance policy that covers you for the rest of your life, provided you pay the premiums on time.
Unlike term life insurance, which covers the policyholder for a set amount of time, whole life policies last until death and is the most common policy people purchase to combine insurance with savings. The savings grow on a tax-deferred basis and can be invested to generate interest and dividends. To receive cash, policyholders can withdraw funds against the cash value or cancel the policy. Alternatively, the annual dividends can grow in interest, with some policyholders using dividends to reduce premium payments or purchase extra features.
Universal Life Insurance
known as adjustable life insurance, offer the flexibility to increase or reduce the policy's face value (death benefit). For example, the benefit can be reduced if medical circumstances change, or it can be reduced to pay lower premiums. Policyholders can also stop making payments or cancel the policy and withdraw its cash value. The face value can be reduced without canceling or surrendering the policy. Policyholders can also partially borrow funds against the face value, provided they have enough funds in their accounts.
Universal life policies can generate higher cash value since the returns are dependent on market conditions, with a portion of the premium being put in investments that grow the cash value.
Types of Universal Life
There are various universal life policies, including indexed, variable and guaranteed products. Options available can include no lapse coverage.
Flexible universal life coverage is the classic policy. It allows policyholders to determine the amount and timing of their premium payments. You can even skip payments, provided the premium doesn't fall below a specified minimum amount.
Fixed policies allow you to pay a specified fixed amount every month. The policyholder can choose a fixed policy for the first five years and then enjoy flexible premiums later.
Single premium insurance policies allow the insured to make a lump sum payment to cover the benefits and cost of insurance. In addition, single premiums can shelter funds from taxes and are ideal for growing the insurance cash value faster.
Indexed universal life insurance features a cash value that earns interest based on the stock market index selected by the insurer. The benefit of indexed life insurance is that it allows the insured to benefit from the stock market booms and protects them from the busts. Your insurance company can choose stock market indexes like S&P 500, the Credit Suisse Balanced Fund or a variety of funds offered by each insurance carrier.
I want Permanent Life Insurance, but I cannot quite afford the premiums yet, and I don’t want to waste money on term. What should I do?
It’s usually most important to get the coverage in place now, even if it is just term. Getting insurance usually requires a look at your medical records, so you are never sure it will be available for you in the future. Additionally, if you know you want permanent eventually, some policies can be converted from term to permanent in the future with no medical underwriting.
How can I use Life Insurance to fund my retirement?
Permanent life insurance policies have a cash value associated with them that can be accessed while you are still alive and used to fund your retirement, child’s education, or any other major expense. Some policies even let you choose what asset classes to invest in such as stocks, bonds or money market type funds, making it an extremely flexible tool. Best of all, the funds can grow tax free, making it one of the best investment options when used in the proper circumstances.
What does life insurance cover?
Life insurance covers many expenses, including co-signed debts, mortgages, student loans, living expenses for the remaining family, burial expenses, family loans, estate taxes and more.
What if I outlive my policy term?
If you outlive a term policy, the contract will expire, and you won't receive any refund of the premiums paid. However, you may be able to convert the policy to permanent life insurance.
How can Life Insurance be used in my Estate Plan?
Life insurance is often used in estate planning for a number of different reasons. Oftentimes when there is a family business and one or more heirs wish to continue the business while others do not, Life Insurance can be used for estate equalization. Furthermore, it can be used to pay taxes or any number of other things. We recommend a consultation with one of our advisors to address your specific needs.
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