Life Insurance
The main purpose of life insurance is to provide resources at your death for someone who depends on you for either monetary or other personal support. Few of us like to think about these issues, but the proper and creative use of protection planning strategies to minimize exposure to risk is something even fewer can afford to ignore.
Estimating your needs:
While the calculation of your insurance needs can be quite complex, resist focusing solely on the income that would be lost at your death. Instead consider the actual needs and lifestyle expenses of those you wish to protect.
A few basic questions you may want to consider:
- Who will be affected by your death?
- Is there a financial need?
- Should you take responsibility for it?
- Will the remaining income cover expenses AND allow needed savings for your survivor’s needs?
- Do you have a mortgage that needs to be either paid off or annual funded annually?
- Do you have other Debt?
- College tuition expenses that have not been funded yet?
- Will your estate be subject to taxes or other expenses?
Types of Insurance:
Another factor to consider when purchasing life insurance is which type works best for your specific needs. There are two basic types, Term and Permanent. Neither is the solution to all needs, but each has its appropriate uses.
Term insurance – Temporary insurance that offers protection for a specific period of time; typically annual, 5 year, 10 year, 20 year and 30 year durations.
Convertible Term – Offers the provision of Term Insurance with a contractual option of converting the insurance to a permanent policy or another term policy in the future.
Permanent Insurance - Insurance that is designed and funded to last as long as you live. Includes traditional Whole life, Universal Life and many variations of each. Combines life insurance with tax-deferred savings vehicle and generally requires a larger capital requirement. You pay the premiums and receive a fixed or growing death benefit. Part of each premium goes to the cost of insurance and investing and a portion goes to the cost of insurance. The tax deferral of permanent insurance policies may offer you potentially attractive returns and additional planning possibilities, but make sure to understand the underlying management fees and expenses and policy costs.
Insurance and Estate Planning:
Many people with larger estates will use life insurance to fund a Irrevocable Life Insurance Trust to transfer wealth and provide liquidity needed to protect their legacies from the erosion of estate taxes. This type of trust helps to preserve assets because the death benefit is not subject to estate taxes or income taxes and can be used to pay needed taxes while keeping personal property intact.
Conclusion:
The proper use, amount and types of insurance policies, along with their respective cost, terms, restrictions can be confusing. Seek the advice of a professional before proceeding with any of these strategies. We believe the most accurate way to properly analyze ones insurance needs is through the comprehensive planning process. If you would like learn more about life insurance needs please contact us at 503-362-5554 or e-mail us at tim.weiner@lpl.com
This material contains only general descriptions and is not solicitation to sell any insurance product or security, nor is it intended as any financial or tax advice. This article is intended to assist in educing you about insurance generally and not to provide personal service. Guarantees are based on the claims-paying ability of the issuing company.