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 provides 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 five 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 fiduciary advisors who put your best interests ahead of their own financial gain.
The younger you are when you get coverage, the lower your policy premiums will be. 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 are financial responsible for another person, you should consider life insurance to replace any income that will be lost should you pass away unexpectedly.
Be honest when applying for coverage. 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.
Your beneficiaries may need a higher death benefit than you think. 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.
Understand the differences in policies and the benefits they provide. Life insurance can come in many forms, but for most people it basically boils down to term insurance, which provides coverage for a set period of time, and permanent insurance, which remains in effect for as long as you pay your policy premiums. A permanent policy includes an investment component and some tax benefits and is therefore more expensive than a term policy. However, you can purchase a term policy and invest the difference you would have paid for permanent insurance into the markets and even a tax-advantaged retirement account to yield positive returns.
Don’t keep it a secret. 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.
Pay policy premiums on time. Missing just one policy premium can result in policy termination and forfeiture of all the premiums you paid up to that point. Consider setting up an automatic payment program through your bank account to avoid this costly scenario.
Annually review your policy to ensure it still meets your needs. 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 list as beneficiaries of the death benefit, especially since those designations supersede any instructions contained in your will.
About the Author: Jamel Gordon, CFP®, is a financial advisor 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. He can be reached at (954) 712-8888 or via email at email@example.com.
Provenance Wealth Advisors (PWA), 515 E. Las Olas Blvd., Ft. Lauderdale, FL 33301 (954) 712-8888.
Jamel Gordon, CFP® is a registered representative of and offers securities through Raymond James Financial Services, Inc., Member FINRA/SIPC.
Investment Advisory Services offered the Raymond James Financial Services Advisors, Inc., and Provenance Wealth Advisors. Raymond James is not affiliated with and does not endorse the opinions or services of Berkowitz Pollack Brant Advisors + CPAs.
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. You should discuss any legal matters with the appropriate professional. Prior to making an investment decision, please consult with your financial advisor about your individual situation.
The information contained in this report does not purport 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.
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.
* Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™ and federally registered CFP (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.
Posted March 17, 2021