September is Life Insurance Awareness Month, making it a great time to review an often-overlooked part of a comprehensive financial plan. Life insurance is sometimes viewed simply as protection against the financial consequences of an unexpected death, but its potential uses can extend well beyond income replacement. Depending on your circumstances, life insurance can help provide financial security for a spouse or family, pay debts, provide funds for education, assist with estate and legacy planning, or even create a meaningful gift for a favorite charity. Most importantly, planning should ideally take place before the need becomes urgent. Age and changes in health can affect both the availability and cost of coverage, so evaluating your options sooner rather than later can be beneficial.
There are several different types of life insurance available today, and each is designed to accomplish different objectives. Term life insurance generally provides coverage for a specific period, such as 10, 20, or 30 years, and is often an economical way to provide a larger death benefit during working years. Whole life insurance is a form of permanent insurance that typically provides lifetime coverage, guaranteed premiums and the potential accumulation of cash value, assuming required premiums are paid. Universal life insurance offers additional flexibility in premiums and death benefits, subject to the terms and funding of the policy. Indexed universal life (IUL) policies may credit interest based in part on the performance of a market index, subject to policy caps, participation rates, floors and other limitations. Variable universal life (VUL) provides permanent coverage with cash value that can be allocated among investment options; because those values fluctuate with investment performance, VUL also carries investment risk and requires careful ongoing evaluation.
Choosing among these options should not simply be about finding the policy with the lowest premium or the most attractive illustration. The appropriate type and amount of insurance depends upon what you are trying to accomplish, how long the coverage is needed, your health and insurability, your cash flow, and how the policy fits with the rest of your financial plan. Permanent policies can also contain expenses, surrender charges and other provisions that should be understood before purchasing. Life insurance is a long-term financial commitment, which is why we believe it is important to evaluate the policy in the context of your overall retirement, tax, estate and legacy strategy rather than viewing it as a stand-alone product.
Life insurance can also play an important role even when traditional income replacement is no longer a primary concern. For example, retirees may find themselves taking Required Minimum Distributions (RMDs) or holding other assets that they do not expect to need for their own retirement lifestyle. Depending upon the individual situation, some of those available dollars might instead be repositioned toward a properly designed life insurance strategy intended to create a larger future legacy. A death benefit could provide children or grandchildren with funds for college or other educational expenses, the purchase of a first home, starting a business, or simply creating a financial foundation for the next generation. Life insurance can also be incorporated into charitable planning for individuals who would like to leave a meaningful gift to a church, nonprofit organization, school, foundation or other favorite charity.
The key is to remember that life insurance planning is not only about preparing for an unexpected death—it can also be about deciding intentionally what you would like your money to accomplish after your lifetime. And because none of us knows exactly what tomorrow will bring, waiting too long can sometimes limit the options available. A policy that is readily available today may become more expensive—or potentially unavailable—following a significant change in health. September's Life Insurance Awareness Month is an excellent reminder to review existing policies, beneficiary designations and coverage amounts and to determine whether your current insurance still aligns with your family's needs and your long-term financial goals.
At Everest Retirement Planners, we evaluate life insurance strategies as part of the financial planning work we do with clients on a regular basis. If you have an existing policy you don't fully understand, are wondering whether you still need coverage, or simply want to explore how life insurance could fit into your retirement or legacy plan, please use us as a sounding board. We would be happy to help you understand the options available and the advantages, disadvantages and tradeoffs involved so that you can make an informed decision.
Have questions about your life insurance or legacy planning options? Give us a call at 704-708-5001.
Want more information - watch my recorded Webinar on the subject by clicking HERE.
This information is provided for educational purposes only and is not intended as individualized tax, legal, insurance, or investment advice. Life insurance products vary by carrier and policy, and guarantees are subject to the claims-paying ability of the issuing insurance company. Individuals should consult their appropriate tax and legal professionals regarding their specific circumstances.