What’s a reason to buy life insurance?
If you ask a financial advisor, the first thing he or she would ask is “are you insured?” Life insurance is an important component of financial stability, for untimely death, but also for other aspects of future financial stability; with the right financial planning and policy.
It can help in funding for college education, pay up loans – mortgages, personal loans, and credit card bills, death expenses including estate and death taxes, in keeping a business stable or passing it to partners and heirs, and to leave a legacy or trust to children or grandchildren.
Death Benefit is a reason to buy life insurance
The major importance of life insurance is to provide financial security to the family after death. The loss of income from your passing, especially if you are a sole income provider, can cripple the family financially. Get sufficient coverage to ensure they’d be able to cope with monthly bills and provide for their basic needs.
Aside from providing financial security for your family. You also unburden your family from burial and other expenses incurred upon death such as hospital bills, funeral, and burial costs as well as estate taxes and legal costs. Buying final expense life insurance guarantees your family is unburdened from financial obligations of losing you.
Saving for college is a high priority for every parent; with the rising cost of higher education and the high-interest rate of student loans. You wouldn’t want your child to be dealing with loan payments after graduating and starting his or her first few years of adult life.
Life insurance is a feasible option via cash value. It can support your other savings options. Securing ample fund for college makes sure that he or she will start a debt-free life after college.
Pay off Debts is a reason to buy life insurance
Life insurance secures your family from debts including mortgages, personal loans, and credit card payouts. It offers security for the family to be debt free as they transition to a life without you as their sole provider.
You have the option also of paying out debts from the accumulated cash value. Insurance gives you many options for financial freedom as you move forward to your golden years and enjoy the fruits of your labors.
Life Insurance For Business
Business obligations require you to be insured to guarantee that all the work you’ve done to establish the enterprise will not all go to the bin. Business loans, credit cards bills, and operational costs are heavy burdens to pass on to the next owner or a partner.
If the business is a partnership, each partner should have a life insurance as leverage for the enterprise if one of the partners dies.
Life Insurance as Investment Option
Life insurance can be as straight as an arrow in providing security upon untimely death. But now, a variety of insurance products offer investment options that allow you to invest and earn dividends; accumulate cash value over time that you can withdraw from and provide passive income on your retirement.
The dividends or interests earned from the different investment options are tax-deferred. These dividends and cash value also act as extra protection from any future financial burden or disaster.
Life Insurance As Wealth Leverage
If you think only the average Joe’s need life insurance, think again. Individuals and families in a higher income bracket use life insurance to leverage their wealth, secure trust for their children and grandchildren; and provide extra cash to pay for estate taxes and legal obligations.
- Estate Tax Payout – Federal law requires payment of estate taxes for estates exceeding $5,340,000. Unfortunately, not all individuals have that kind of cash on hand to pay for an estate tax of 40%. To get through the dilemma of paying out the tax, life insurance acts as the leverage to ensure estate taxes are paid and assets can be distributed to heirs. If estate taxes aren’t paid, there’s no way to distribute or sell the deceased’s properties. Life insurance cashout pays for the estate tax and keeps all assets intact until they can be distributed to heirs or pay for other loans and liabilities.
- Irreversible Life Insurance Trust – this kind of life insurance product’s purpose is to protect an estate. It is not part of the estate because it’s not owned by the insured, therefore, resulting to decrease estate taxes. A trust bank or company manages the trust that pays for the insurance premiums and upon the death of the insured distributes the benefits to beneficiaries. This is another method of protecting businesses, farm, and other real properties as well as art collections and stock portfolio eliminating the option of selling them off.
- Build Estates for Grandchildren – Also called Generational Split Dollar, wealthy grandparents can establish a form of life insurance trust to give their grandchildren security. This works by giving a loan to the children (parents) for the purpose of creating estates for the grandchildren. This loan is given to buy life insurance on the parents’ lives that’s bought through a trust – that’s being repaid upon the death of the children (parents). The Generational Split Dollar allows for the loan to have a deferred payment scheme rather than paying it during the grandparents lifetime.
- Setting Up Special Needs Trust – This is for protecting special needs children. A trust can be created, to protect and ensure that all the financial needs of the child with special needs are met for a lifetime. Life insurance policy strategically provides cash for an estate and protects other assets by naming the trust as the beneficiary. This increases the value of the estate through automatic tax-free benefit for the child’s trust. Money in the trust is secured from creditors, lawsuits and unauthorized individuals as well as guarantees government benefits for the child including social security earnings.
There are so many reasons to buy life insurance. It is for protection, income generation, security for the future generations and for people with special needs as well as good leverage for wealth management and starting a business. Explore all your options, understand each products’ pros and cons as well as fees and charges.
When people talk about Life Insurance it seems like the mood in the room turns gloomy. Life Insurance is not sexy, and most people would rather avoid the subject if possible. I am here to tell you that it’s time to talk about Life Insurance if you haven’t got it secured, and I am going to explain why.
A reason to buy Life Insurance is that it is a key building block in your financial portfolio. Most are aware the need for life insurance but seems not be on the top of the priority list. If you have a family, it’s in their best interest if it rises to the top. Most wait till an important life event or even sometimes when it is to late.
Another reason to buy life insurance is if you are young. It is cheap. Even if you are single with no debt, but have plans of having a family, this is still the best time. The younger you are, the cheaper life insurance is, unless you have health problems. It wise to lock in the rate as early as possible, because with time, premiums obviously increase.
When you decide to make the leap and start discussing Life Insurance, there will be 2 types of policies to choose from.
Term Life Insurance
Term life insurance is the most popular today. Term life insurance is pretty straight forward. You have set premium based on the death benefit amount you chose. You can choose a term length of 10-30 years depending on your age. The premiums are guaranteed for the duration of the term period that you chose. At the end of the guaranteed period you will have some choices.
- You can continue your policy but understand premiums will increase and some cases drastically
- You can convert your policy to a permanent policy without any health questions being asked. Some companies don’t offer this feature so be sure to check with your agent before purchasing
- You can buy a new term policy with a new guaranteed period. Of course, this all depends on if you are still in good health.
Permanent Life Insurance
Permanent Life is going to cover you for your lifetime (age 121). These types of polices will build up cash value and most, not all, come with guaranteed premiums. Of course, if you make withdrawals or loans of the cash value build up this will affect the premium. Permanent policies are more expensive that a term, simply because you will have the coverage longer. There are 2 types of permanent policies:
While both these are permanent policies the difference between them is great. They both are good products, but you will want to find an experienced agent that can explain the ins and outs of each policy.
Reasons to Buy Life Insurance
The easiest answer to if you need to buy life insurance is to ask yourself, if I die will any of my loved ones be affected financially. We know emotional they will be, but we are talking financially. Below are the 3 top reasons to purchase life insurance:
- Debt- If you have a mortgage, credit card debt, or even medical bills you don’t want to leave a burden on your family because of debt you have accrued.
- Children– If you have children then life insurance is a must, especially if you are a financial provider. Even if you stay at home parent, what your daily duties would have to be replaced. com has stay at moms/dads, if you had to pay someone else to do their job, worth $75K-$147K depending on where you live.
- Own a Business- If you own a business then you will want to buy life insurance. Life insurance can be a good strategy to have in the event of an untimely death. It could pay of debt or provide an income to your family. Life insurance could also be great succession plan if you were to pass unexpectedly.
If I decide to buy life insurance: How Much?
This might be an easier question to answer than most people think. The easiest way to calculate what you need is:
John makes $100K a year, has 2 children under the age of 5m and is sole income producer. John wants to provide for his family if he were to pass away unexpectedly. I will estimate that John is in a 30% tax bracket, so his take home pay is $70K/annual. John would need a minimum of 7-10 ($700K-1million) times his gross salary ($100K) for his family to continue the lifestyle they are accustomed to. If he has debt, then the amount would be higher.
Make sure you consult an experienced agent before making any life changing decisions or before you buy life insurance.
Who should I buy life insurance from?
Life Insurance can be a complicated process if you don’t have the right help. We recommend always using an experienced agent when you buy life insurance. It would also benefit you more to go with an independent agent/agency, rather than a captive agent (Primamerica, State Farm, Nationwide, Woodmen of the World, etc.).
Captive agents are stuck using their respective companies’ products only. An independent agent will have multiple companies to choose from with access to tons of products. Using an independent agent assures you will get the best possible policy with the best rate. Always read the fine print on any policy and ask your agent tons of questions when it’s time to buy life insurance.