Mar
Life Insurance Planning
Buying life insurance is to cover a need. First identify if you were to die, what the needs would be of your loved ones. The best example is if a parent were to die, there would be a loss of income for the children and spouse. Parents are obligated to cover this. Insurance is needed to replace income, provide a time of grieving for a spouse, or perhaps provide for a higher education for the children. All of these reasons should be written down, and an amount of money calculated to cover those obligations. Financial planners and insurance agents often advocate using your income times three or five to establish the amount you should be insured.
Another need is for wealthy clients to pass assets to their loved ones. If the client has assets that exceed the non-taxable amount s/he can pass to a spouse, then life insurance fills the amount that will be taxed. If, For example, if a husband can pass one million to his wife, but has an additional $500,000 that will be taxed at 35%, he can insure himself for $150,000 to pass on to his spouse to compensate for the amount lost in taxes.
Decide on the Best Insurance Vehicle
The myriad of insurance offerings sometimes make it best to let an independent financial planner help you decide which insurance is best for you. Balance your obligations, and then look for the best possible insurance.
Term life offers big payouts for the smallest premium. This can be bought for long time increments to replace salary loss especially during child rearing years. If a health issue arises, this insurance can be upgraded to a whole life policy. The exception is when term insurance is being used as a Key Employee Coverage, which offset losses incurred with the death of a key employee.
Whole life policies are often used to offset tax consequences for wealthy estates, to give continued coverage on an ending term policy in the event of a health problem, or as a gift from a parent. It can also be a charitable giving tool. As a rule, whole policies pay insurance agents handsomely and should not be bought without the advice of an independent financial planner.
Blended Policies
A blend between a whole life policy and term policy is called a Universal Life. This policy is supposed to pay for its own premiums after you have paid into it for a number of years. The upside is that as interest rates stay fairly solid, the policy’s premiums will always be paid. The downside is that the policy can actually lapse if interest rates are not high enough to satisfy premium obligations.
Life insurance planning takes thought and is best a part of an overall fiscal plan developed with the help of a good financial planner. If you tackle it alone, however, it is best that you keep your objectives in mind and understand each policy type thoroughly. That way, you can strive to do the best for your loved ones.
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