Planning to meet the financial needs of your survivors is one of the most important and fundamental steps in creating a sound financial strategy for you and your family. This step usually requires the purchase of a life insurance policy to ensure that your family’s needs will continue to be met, even after your untimely death cuts your earnings potential short.
Let us help you understand and select the right policy for you:
Corporate Sponsored Plans
Term Life Insurance
Universal Life Insurance
Whole Life insurance
Single Premium Life Insurance
Survivorship Life Insurance
Variable Universal Life Insurance
Term Life Insurance
is the simplest form of life insurance. It provides affordable protection for a specific period of time at a scheduled premium level. Premiums may increase at the end of the term.
You choose a coverage level, a term (usually 5, 10, 15, 20 & 30 years) and name a beneficiary, that is, the person you want to receive the benefit if you die. If you die while your term life insurance policy is in force, the death benefit is paid to the beneficiary you chose.
At the end of the term, you can renew your coverage often at a higher premium, without having to provide evidence of good health. You can also convert it to a permanent life insurance policy which builds cash value and may earn dividends.
Term insurance can help you meet a number of personal and business needs and is often a good choice:
• When life insurance is essential but dollars are scarce
• For a well-defined period of time
• To protect your family (insurance benefits can help pay a mortgage or fund a child’s education)
• To protect your business (benefits can ensure business continuation by helping to cover business expenses)
Universal Life Insurance
Universal life products give you the flexibility to choose the amount of protection that best suits your family or business. It allows you to increase or decrease coverage as insurance needs change. Increased coverage may be subject to underwriting requirements. You may not decrease your coverage below the required minimum. A decrease may result in a surrender charge being applied against the policy’s cash value. With universal life insurance, you control the amount and frequency of payments. Looking towards the future? You have the option to increase the premium or make lump sum contributions, subject to limits as specified in the policy. The extra dollars grow tax-deferred, and may increase the cash and death benefit values. On the other hand, in a temporary cash crunch, you can pay less than the scheduled premium and let the policy’s accumulated cash value pay the remainder of the monthly charges. Universal life products can be customized with innovative policy features to fit your lifestyle.
Variable Universal Life:
VUL offers permanent insurance protection, usually through age 95. Simply put, this means that as long as you meet the policy costs, you are guaranteed protection. Some term insurance products periodically require proof of insurability to continue coverage. While there are term products that can cover you for life without additional requirements, their rising costs can make them prohibitive.
Additionally, while all term insurance is purchased with after-tax dollars, VUL has the potential to satisfy its policy costs with pre-tax dollars (policy’s cash value accumulates on a tax-deferred basis), further strengthening the VUL strategy.
At first look, term insurance may seem attractive because you can purchase large amounts of coverage at a relatively inexpensive price. But, the cost should not be the only consideration that goes into your decision making process. For instance, consider the impact of becoming uninsurable at the end of the term period due to a health condition. You may save a few dollars today, but the eventual cost of un-insurability may be the death benefit your beneficiaries will never receive.
Permanent protection also offers a host of policy riders that can further enhance the effectiveness of your policy. Term insurance provides a much more limited range of riders.
Variable Universal Life has Cash Value Accumulation
You can also allocate a portion of each VUL premium to one or several investment divisions, or a fixed-rate general account option. These investment divisions typically include stock, bond, balanced, international, and money-market portfolios. Earnings within the investment divisions will vary with market conditions and your principal may be at risk. Premium payments plus investment earnings, less policy fees and charges, serve as your policy’s cash value. Usually, you can allocate as little as 1% of the premium to any of the investment divisions in a VUL policy. It should be noted that a decrease in your policy’s cash value may decrease the overall amount of insurance coverage.
Term insurance has no cash value. You do have the option of “investing the difference” in growth-oriented products, like mutual funds. The value of your mutual fund account will vary with market conditions. Your principal may be at risk and, in most instances, mutual fund earnings are taxable each year. This means that you have less money working towards achieving long term goals. Most mutual funds also require a minimum dollar amount to participate in a particular portfolio.
Investing in vehicles like mutual funds is still a solid strategy to follow. But you have to have the discipline to carry this out. If you neglect to put money aside for the future, the “buy term and invest the difference” strategy collapses. Without the ‘invest’ portion, you are left with a term policy that is incapable of accumulating funds for the future.
VUL policies are sold by prospectus only. Investors are asked to consider the investment objectives, risks, and charges and expenses of the investment carefully before investing. Both the product prospectus and the underlying fund prospectuses contain this and other information about the product and underlying investment options. You should read the prospectuses carefully before investing.
Survivorship Life Insurance
Under one arrangement, you may want to establish an irrevocable life insurance trust to purchase the insurance policy, with your heirs as beneficiaries. (This keeps the insurance proceeds out of your estate for tax purposes.) By means of a will, estate assets then pass to the surviving spouse at the first death. At the second death, the insurance death benefit is paid, with the policy proceeds passing directly to the named beneficiaries. They can then use the money to replace assets lost to taxes.
• Price. Since two lives are insured, premiums are generally lower than for two single-life policies.
• No second guessing. There is no need to plan based on who will die first.
• Underwriting is generally more liberal than that for a single life policy, since two lives are insured and the benefit is paid at the death of the second. A proposed insured who may have been denied life insurance coverage by a single life insurance product, may be approved for coverage by a survivorship life insurance product. Keep in mind that not every person who has been declined for coverage for a single-life policy is necessarily eligible for coverage under a survivorship life insurance policy.
Survivorship can meet other needs as well, and is commonly used to benefit:
• Children with special needs. The insurance can provide guaranteed funding for a trust to provide for a child with disabilities after the death of the second parent.
• Charitable gifts. This coverage can help create a living legacy for a favorite charitable organization after both spouses’ needs have been provided for.
• You work hard to build up an estate over your lifetime — and you may end up a millionaire. While taxes may be inevitable, you can help counter the loss with a Survivorship Life Insurance policy.
Whole life is permanent life insurance protection that protects your family or business no matter what lies ahead, from the day you purchase the policy until you die, as long as you pay the premiums when due.
Whole life insurance can be a solid foundation upon which to build a long-term financial strategy because it guarantees a lifetime of protection for your family or business.
Generally, the death benefit can be used for:
• Survivor needs
• Mortgage protection
• Wealth transfer
• Charitable giving
• Business needs
For more information and to arrange an appointment to discuss your life insurance needs, click to contact us.