Death is often the furthest thing on the minds of twenty-somethings just beginning their careers and enjoying the freedom and opportunities that come with their post-college life. However, introductions into adulthood also come with a long list of responsibilities, liabilities and risks that require careful consideration and planning.
In the unfortunate and tragic event that a millennial with student debt or other loan obligations has an accident and passes away, the responsibility for making payments on those loans may fall to that individual’s parents or other loan co-signers. While state law requires that the assets of single individuals without children be passed to their parents, it is unlikely that twenty-somethings have ample savings to cover this outstanding loan balance. Rather than risking the transfer of this burden to one’s parents, consideration should be given to securing a life insurance policy that covers the amount of the debt. Often, these policies can be secured through one’s employer, and the cost of premiums when the policyholder is young and healthy is affordable. Alternatively, the parents of millennials may consider buying policies insuring their children, who may take over premium payment when their earnings rise and when they have a spouse or children to leave a death benefit. After all, life insurance policies become more important as individuals get married and start having children who rely on the policyholder for their livelihood and long-term care. For example, the proceeds from a life insurance policy may help to pay the mortgage and allow surviving family members to remain in their homes after the death of a breadwinner. Those proceeds may also pay for a child’s college education, pay off burdensome debt, support a surviving spouse’s retirement, or simply provide loved ones with financial flexibility.
When a named beneficiary receives the proceeds from a life insurance policy, those proceeds are not subject to federal income taxes. However, those proceeds can be subject to federal estate taxes when a decedent’s estate is valued above the lifetime exclusion amount of $12,920,000 in 2023 ($25,840,000 for married couples filing jointly). One way to avoid this scenario and exclude life insurance proceeds from one’s taxable estate is to structure a policy as part of an irrevocable life insurance trust, in which the trust owns the policy and makes premium payments on behalf of the insured for the benefit of a named beneficiary.
As you age, your life insurance needs may change. For example, the death benefit may need to increase depending on your current stage of life and financial responsibilities to family members, business partners and employees. While life insurance may not be a top priority for most millennials, it can be a vital and affordable component of a well-thought-out estate plan, putting individuals in control of their finances during life and after death.
About the Author: Scott Montgomery is a director and financial planner with Provenance Wealth Advisors (PWA), an Independent Registered Investment Advisor affiliated with Berkowitz Pollack Brant Advisors + CPAs and a registered representative with PWA Securities, LLC. He can be reached at the firm’s Ft. Lauderdale, Fla. office at (954) 712-8888 or info@provwealth.com.
Provenance Wealth Advisors (PWA), 200 E. Las Olas Blvd., 19th Floor, Ft. Lauderdale, Fla. 33301 (954) 712-8888.
Scott Montgomery is a registered representative of and offers securities through PWA Securities, LLC, Member FINRA/SIPC.
This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. 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.
Any opinions are those of the advisors of PWA and not necessarily those of PWA Securities, LLC. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of PWAS, 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 investments mentioned may not be suitable for all investors. Life insurance and long-term care insurance policies have exclusions and/or limitations. The cost and availability of life insurance and long-term care 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 and long-term care insurance. 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.
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Posted on December 13, 2023