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Insurance & Annuities
Insurance is a tough subject, because it requires that we face the possibility of a horrible loss, be it through death, disability, or costs associated with long-term care. As hard as it is to think about such outcomes, we must face the facts that accidents occur, and such events are accompanied with added financial losses. Only time and the comfort of family and friends can heal the emotional scars. Financial matters can be managed via a risk management strategy that includes insurance products.
The primary benefit of a properly executed insurance strategy is potential peace of mind and financial security associated with the transfer of risk. Your financial future is no longer at risk to devastating events. In the event that the insurance is not called upon until very late in life, certain financial products can still offer financial benefits to the policy owner and the policy’s beneficiaries. Among these secondary benefits are strategies involving the cash value of life insurance policies, certain living benefits associated with insured products, and the use of insurance policies in estate planning. The variety of insurance products available today allows for a number of strategies that can be designed to fit every financial plan.
There are risks that we face that cannot be avoided via portfolio management. Insurance products are a means by which risk can be shifted to a company that can better manage it. For example, the loss of income associated with the death of a spouse would normally devastate our families. This devastation may be avoided with a properly constructed life insurance policy designed to replace lost income.
Discussing the cost of a loss of life in terms of financial consequences is difficult in light of the emotional toll of such a loss. However, the facts are that the loss of the primary breadwinner in a home might have a devastating effect on the futures of the surviving spouse and children. Often overlooked is the value of the stay-at-home spouse working to care for children in their formative years. In the event of a tragic loss, the children still require daily care that now requires funding. To speak of such emotional losses in a clinical manner is difficult. However, an uncomfortable conversation early in the financial planning process is essential for financial independence.
Of course, there are retirement and estate planning strategies associated with so-called “permanent” life insurance (e.g., whole life), when a long life follows the purchase of a policy. We integrate these strategies as part of your financial plan.
This is a question often asked in the beginning phases of insurance planning. For income replacement, there are many products available with many options, which can be confusing during the evaluation process. We will work with you to calculate a sensible benefit and plan design. Your tax status may dictate consideration of variable life products with increasing but less certain benefits. Estate plan designs may require review of still more product offerings and benefit levels which will be dictated by your tax counsel.
Insurance is only one product among many that will make up a proper financial plan. Insurance is a relatively illiquid financial product, so using insurance as a portfolio security is not a good idea. It is certainly possible to have too much insurance, especially if funds devoted to periodic insurance premiums unnecessarily leave other saving and investing vehicles short of funds.
A client’s profile may call for a combination of taxable and tax-exempt investment strategies that insurance alone will not be able to fund. Insurance’s primary role is risk mitigation. After all contingencies have been reviewed and insurance is in place to protect a financial plan, then insurance can be considered as an investment option along with any number of wealth management and estate planning/legacy options.
The main purpose of a permanent life insurance (whole, universal, indexed, or variable universal life) policy is to provide a death benefit. It is not a short-term savings vehicle nor is it ideal for short-term insurance needs. It is designed to be long term in nature and should be purchased only if you have the financial ability to keep it in force for a substantial period of time. Life insurance coverage needs may change if your personal situation changes. For example, if you get married, have a child or get a promotion, you may want to increase your coverage. Make sure that these strategies and products are suitable for your long-term life insurance needs. Also, make sure you are able to continue premium payments, so your policy doesn’t lapse. If you are utilizing a variable life product remember that market fluctuations can have a significant impact on the policy and could trigger a need to add additional premiums to the policy. Keep in mind that taking money from your policy immediately reduces both the cash value and the death benefit payable and can cause the need for more premiums to be paid into the policy in the future. Policy loans are made at interest, which if unpaid will compound over time. Failure to repay loans may cause your policy to lapse. If a lapse occurs, loans may subject to income taxation. Additionally, there may be a 10% federal tax penalty on the lapse if it occurs before age 59½. You should always take care to ensure that your life insurance needs continue to be met over time subsequent to taking cash from your policy. There are fees and charges for variable life insurance coverage, including a cost of insurance based on characteristics of the insured person, such as gender, health and age. There may also be underlying fund charges and expenses, and additional charges for riders that customize a policy to fit your individual needs. All guarantees are subject to the claims-paying ability of the issuing insurer. Investing involves risks, including possible loss of principal.