Life insurance is a vital estate planning tool intended to help you protect your surviving family members from significant financial burden and other economic risks that can occur when you pass away. In the simplest terms, a life insurance policy passes outside of probate to your beneficiaries, providing them with immediate funds to pay required bills and the security to maintain their way of life long after you are gone. However, no two policies are alike and navigating the world of life insurance can be quite complex.
Following are seven things you should remember when evaluating life insurance policies and determining the one that best fits your unique needs and goals. Like most financial instruments, life insurance should be evaluated under the guidance of a financial advisor who will put your best interests ahead of their own financial gain.
Health issues that arise as your get older may require you to pay higher policy premiums or disqualify you from coverage entirely. If you are married, have a child, or you are financially responsible for another person, you should consider life insurance to replace any income that will be lost should you pass away unexpectedly.
Lying on the application for a life insurance policy can impact your ability to get coverage, increase the premiums you pay, and even cancel a policy already in place without returning the premiums you may have already paid.
The amount of coverage you need will depend on a long list of factors, including, but not limited to, your salary, your spouse’s employment and earning power, your debt (i.e. mortgage and credit card bills), your children’s ages and your wishes for them to attend college or purchase a car or home of their own in the future. You will want to ensure the payout not only replaces your salary and covers your outstanding debts, but that it also accounts for inflation and your family members’ unique needs in the future.
Life insurance can come in many forms. But, for most people, it basically boils down to term insurance that provides coverage for a set period of time and permanent insurance, which remains in effect for as long as you pay your policy premiums. Term insurance can be likened to renting a house, whereas permanent insurance is akin to home ownership.
Because a permanent insurance policy includes an investment component and some tax benefits, it requires higher premiums than term policies. However, the permanent policy can provide coverage for your lifetime and tax-advantaged cash value that you can use in your retirement years if the need for a death benefit has decreased. Think of the cash value as a super charged Roth IRA: tax-free earnings and tax-free distributions.
Once you secure a life insurance policy, it is critical you share the policy information with your beneficiaries or someone else you trust. In the event you pass away, he or she will need to notify the insurance company to begin processing the death benefit.
With a term policy, missing just one premium payment can result in policy termination and forfeiture of all the premiums you paid up to that point. By contrast, a permanent policy with sufficient cash value may continue if you miss a premium payment. However, repeated missed premiums or insufficient cash value will result in a lapse of a permanent life insurance policy. Consider setting up an automatic-payment program through your bank account to avoid this costly scenario.
Your insurance needs will change as you experience different life events, including marriage, birth of a child, divorce and/or death of a spouse. Therefore, make it a point to annually review your policy and the persons you name to receive the death benefit, especially since those designations supersede any instructions contained in your will.
About the Author: Scott Montgomery is a director with Provenance Wealth Advisors, an Independent Registered Investment Advisor affiliated with Berkowitz Pollack Brant Advisors + CPAs, and a registered representative with Raymond James Financial Services. For more information, call (954) 712-8888 or email firstname.lastname@example.org.
Provenance Wealth Advisors (PWA), 515 E. Las Olas Blvd., Ft. Lauderdale, FL 33301 (954) 712-8888.
Scott Montgomery is a registered representative of and offers securities through Raymond James Financial Services, Inc., Member FINRA/SIPC.
Raymond James is not affiliated with and does not endorse the opinions or services of Berkowitz Pollack Brant Advisors + CPAs. PWA is not a registered broker/deal and is independent of Raymond James Financial Services. Investment Advisory Services offered through Raymond James Financial Services Advisors, Inc., and Provenance Wealth Advisors.
This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of the advisors of PWA and not necessarily those of Raymond James. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional. Prior to making any investment decision, please consult with your financial advisor about your individual situation.
The information contained in this report does not claim to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investments mentioned may not be suitable for all investors.
Insurance policies have exclusions and/or limitations. The cost and availability of life insurance depend on factors such as age, health and the type and amount of insurance purchased. As with most financial decisions, there are expenses associated with the purchase of life insurance. Policies commonly have mortality and expense charges. In addition, if a policy is surrendered prematurely, there may be surrender charges and income tax implications. Guarantees are based on the claims paying ability of the insurance company.
Updated on June 1, 2023