In this article, we will provide insight into some of the most commonly asked questions about life insurance:
- What is life insurance?
- How can life insurance benefit my financial goals and the advancement of my family after my passing?
- At what age is it too late to begin thinking about life insurance?
- What are some of the tax benefits of owning a life insurance policy?
Many of the tasks on life’s to-do list may have relatively hefty price tags, from homeownership to college savings plans to planning for retirement and all the added costs that come with it. It is difficult to know where to start on the various goals you have set in mind for yourself and your future. Knowing when to buy life insurance, understanding life insurance types, whether you need term life insurance or whole life insurance, and grasping how to assign a life insurance beneficiary or beneficiaries. These are all questions that can be overwhelming and have led to only one in four Americans having any established financial strategy for their future. What is necessary to reach your destination, whatever that may be, is a roadmap of what must be done along the way.
Who owns life insurance?
The global pandemic, COVID-19, has somewhat changed how Americans view life insurance. A recent article reports Americans purchased or increased life insurance coverage in response to the pandemic. The biggest reason for doing so is a fear of being diagnosed with COVID-19 (30%). About the same proportion (29%) say they got or increased coverage because someone they know was diagnosed with COVID-19. With that said, about 2 in 5 Americans (39%) do not have life insurance coverage, either through work or purchased from an insurance company. Another 7% are not sure if they have coverage.
Accumulating and protecting your wealth
You may have big dreams of traveling the world or building your dream home in your dream location. Perhaps you look forward to golf games and leisurely days by the pool without worrying about the day-to-day expenses your lifestyle is costing. There is more than one way to invest in your future and all that you have in mind for it. It is not just about creating and managing your and your family’s wealth; it is also essential to protect it and utilize other financial benefits of that wealth protection.
Life insurance can be one of the most essential parts of creating a successful financial strategy, regardless of what stage of the financial life cycle you are in. Whether you are in the accumulation stage as a middle-aged professional, the preservation stage as a pre-retiree, or the distribution stage after your retirement. Having a strategy in place for your life insurance needs will enable you and your family to feel secure that your finances and future will be financially stable.
The accumulation period of the financial life cycle is based on saving and investing for your current and future needs. The list of events that might occur during this period of your life can include many milestones such as: Purchasing your first home, buying a second house for rental income or vacation needs, career establishment and promotion, becoming a parent (with all the costs that entails), as well as beginning the process of tax-deferred retirement planning.
All of the effort and many successes in the accumulation period should be protected at all costs for the benefit of your financial future. Guess what? There is life insurance for that! To minimize risk, basic term life insurance - a short-term, time-based solution for your insurance needs, could be invested. Term insurance helps you to be covered for a specific period, typically between 10 and 20 years of coverage. At the end of the allotted time the insurance is purchased, it runs out.
The limited time frame of a term life insurance policy is ideal for individuals expecting to build their wealth and who do not need the broader safety net that a full life insurance policy provides. Often, what happens is that after 30 years or so of homeownership, raising children, assisting with their college finances, and saving for retirement, people have fewer financial obligations and securities to protect. To learn more about the different types of life insurance options available, the American Council of Life Insurers (ACLI) offers comprehensive information.
Prioritize the preservation of your wealth
The preservation period of the financial life cycle is centered around preserving the wealth you have worked so hard to accumulate. This stage coincides with mortgage repayment, getting those kids to college, and investing for retirement and all that includes. A solid and effective financial future often rests on the ability to protect the assets you’ve built for yourself throughout your life journey. The best option to protect and preserve these assets is by purchasing a permanent life insurance policy, which is a lifelong commitment that protects your lifelong investments.
Life insurance products and solutions include whole life, universal life, indexed universal life, and variable universal life. These permanent life insurance products all include beneficiary payouts after the policyholder’s passing while also growing in value over time. These accumulating funds can be used for, but are not limited to, college tuition expenses, a down payment on a mortgage, or launching/expanding a small business. Additionally, specific life insurance policies allow for conversion to permanent life insurance coverage without the need for evidence of insurability.
While each stage in planning the financial life cycle is essential, one could argue that the preservation stage is perhaps the most important. Focusing on the protection and conservation of one’s assets, even if not started until later in their financial journey, is imperative in the success of any one person’s future.
Distributing your wealth after retirement
The distribution period of the financial life cycle is focused on your life period when you enter into retirement. This financial stage in life primarily consists of the distributions you can take from investment accounts, sales of items no longer needed such as large family homes, and Social Security distributions. This is when all of your hard work comes to fruition, and you can look forward to your life in retirement without worry or care.
Before you enter the financial life cycle distribution period, it is essential to invest time and focus on your financial strategies and where they need to be. Much of your financial strategy’s success is based on your plans after retirement and how far you want your dollar to stretch. This means you should have strong communication with your attorney for your estate planning needs, including the creation of your will and trust, DPOA (durable power of attorney), health care instructions, beneficiary designation, and any other items that might have to do with your estate. This is also a good time for your attorney, CPA (certified public accountant), and financial professional to be having discussions with each other on your behalf to ensure everything is as in order as it can be.
During this stage in your life, your retirement stage you have waited so long for, your permanent life insurance policy is available to help give your finances an extra boost. From tax-free retirement income to minimizing exposure, to the various risks in the stock market (such as protecting your IRA and 401(k), to paying for unexpected medical expenses, the benefits of a permanent life insurance plan practically pay for themselves. Overall, the cash value that your life insurance plan has accumulated allows for you to spend your money where you want to, and not just on what you need to.
For many, the most important part of planning for retirement and what comes after is the knowledge your loved ones and descendants are taken care of after you are gone. It is not just about making sure your funeral costs and pending financials are taken care of; it is also about ensuring your heirs are left in a better financial position for their futures. Permanent life insurance assists in making things easier during this challenging time by transferring wealth in the most tax-efficient ways possible, simplifying complex beneficiary scenarios by detailing distributions properly, and distributing money that has been set aside for the specific purposes of paying taxes and settlement costs which ultimately protects your family’s future.
How to get started
A life insurance policy is a way to ensure a proper planning strategy and security for all the phases that you, your family, and your finances go through in life. A life insurance policy is a financial asset whose benefits should not be undervalued. Whether it be a basic term life insurance policy, a life insurance policy for an annuity, over 50 life insurance, or a permanent life insurance policy, there is no better time to start protecting your investments than today. Who knew life insurance could advance and protect your financial journey in so many ways? Get started by reaching out to one of our trusted financial professionals today.
This post is for informational purposes only and should not be considered as specific financial, legal or tax advice. Depending on your individual circumstances, the strategies discussed in this presentation may not be appropriate for your situation. Always consult your legal or tax professionals for specific information regarding your individual situation.