By Dr. Jeffrey S. Glaser
Financial planners will often advise clients that developing a good life insurance program is the foundation for good financial planning. But is it necessary? In most cases the answer is yes. If you have a family who relies on your income, then it is imperative to have life insurance protection. After careful analysis I can determine the actual need for, and the amount of life insurance needed for a family’s financial security.
For example, you just purchased your first home or your dream home. You have a mortgage obligation. In the event of an untimely death, a major source of income is now lost. Life insurance can replace that income for the rest of the survivor’s life. Now let’s get positive and say you live a long life and are retired. Permanent life insurance can supplement your retirement income by developing tax-deferred savings that could be substantial. Also, funds can be used for education funding via a IRS 529 education fund. So, you see, life insurance is not just used to pay final expenses. It is a financial tool to pay for many contingencies.
There are different forms of life insurance. Some are more popular than others but a good analysis after a conference can help determine what is best for the individual client. The different forms of life insurance are as follows:
Term Life Insurance– This is when the coverage goes for a specific amount of time. It is a popular form of life insurance to cover a mortgage. If you have a 30-year mortgage, a 30-year term plan will pay off your mortgage. Whether you have a 15, 20, or 30-year term plan the coverage will end at the end of the said term. Some term plans have a refund of premium options.
Universal Life Insurance – This is a form of permanent insurance where premiums have some flexibility depending on several factors. It may be the least expensive form of permanent insurance. There is a tax-deferred accumulation fund that may be withdrawn for many purposes including other investments, or to help with down payments or closing costs when you buy a home, or for other reasons of your choosing. The accumulation fund will have a declared interest rate so you will know ahead of time what interest rate you will earn on your accumulation fund. The accumulation fund and the cash value will differ in the early years of the policy. After a period of time (depending on the company and contract) the accumulation fund and cash value amounts will equal each other. Accumulation funds can also be borrowed where you would pay interest on the funds. You essentially would pay the interest to yourself. Any money withdrawn that is less than the amount of premiums paid would be a tax-free withdrawal.
Whole Life Insurance – This form of insurance is the traditional permanent form of insurance. The premium paid pays for the cost of insurance and also helps develop cash value. Over a period of time as the cash value grows you can borrow the cash value which is tax-free. You have access to the cash value. If you borrow funds, it should be noted that any money borrowed from the case value is deducted from the death benefit if a claim is made. So, if you have a $500,000 Whole Life insurance policy and borrowed $10,000 from the cash value the death benefit paid to the beneficiary{s} would be $490,000.
Variable Life or Variable Universal Life Insurance – This form of insurance works the same way as Universal Life or Whole Life Insurance with one major difference. The premiums you pay go into a separate account where you can choose investments where you want the premiums to be investments. The investments can be different mutual funds. The funds can be stock or bond funds. Of course, there are may types of stock funds from conservative funds, S&P Stock 500 Funds, New stock funds, etc. Here, the amount of insurance can change based on the performance of the separate accounts where the premiums are invested.
The important fact here is that almost all people need a form of Life insurance. It is critical for the family or individual to meet with a qualified life insurance representative to do the proper fact finding so a proper recommendation based on need is developed and discussed.
Come Visit my website at drjeffglaser.com. There you will find many articles, flip charts, calculators on many financial topics.
Respectfully submitted, Jeffrey S. Glaser, Ph.D.
