Life Insurance Protection

Life Insurance is more than a strategy. It is a promise that you will always take care of your loved ones, even when you are no longer here.

There are different types of personal life insurance policies just as there are different needs. You may want to provide protection for your spouse, your children, and other persons who are dependent on you, or you may want to protect a purpose such as an education need, a mortgage, a personal or business debt, or to provide a liquid source of payment for estate taxes. Although many people start out with term insurance which provides protection for a limited period of years, I have always found that most clients will have a need for permanent insurance long after their term insurance eventually expires.

The two main categories of life insurance include:

Term Insurance - provides coverage that is inexpensive at younger ages and is most suitable where protection is needed for a specific period of time. For level term insurance, annual costs can be “locked” in for a set period of years such as 10, 20, 30, or even 35 years. Younger persons often obtain term insurance because it is inexpensive, and it provides the protection they need within their budgets. The cost of term insurance typically becomes unaffordable as you age because the initial design of term insurance does not allow for the endowment of the death benefit at mortality.

Permanent Insurance - as the name indicates, can be designed to provide protection for your entire lifetime. Permanent policy types can include Whole Life, Universal Life, Variable Life, and variations of the above. Each have their own advantages and disadvantages, so it is important to understand which ones are suitable to accomplish your goals and objectives. The advantages of a permanent life insurance policy are numerous, however from a purely philosophical viewpoint, I have found that many clients require a need for permanent life insurance long after their term insurance eventually expires. For high net worth clients, providing liquidity for estate taxes is the most common reason for needing life insurance, however for many clients and their spouses, they realize that their family requires a support system even after their kids have become adults. Life events often cause unpredictable turns where business valuations and asset portfolios do not perform as expected, or the timing of their liquidity creates a cash flow problem. Permanent life insurance policies are often purposed to provide for the inside build-up of tax deferred cash values that can be used for retirement distributions and/or tax- free death benefits. They can be used as a charitable giving strategy or even as a component of other tax strategies. Maintaining permanent life insurance as an asset class can be a conservative and tax effective strategy for insuring lifetime stability for your family.

The need to work with a professional:

It is important to work with a professional who understands how to design a life insurance policy that is suitable for your needs and budget. There are permanent insurance policies that are designed to provide guaranteed death benefits and cash values to essentially last your entire life (i.e.: age 120), and there are other policies that are designed with purposeful limitations that provide guarantees only to a younger specific age with no death benefits or cash value thereafter. Most commonly, the reason for the latter is to help the client save on the cost of their annual premiums. Additionally, there are policy designs which illustrate projections based on how an insurance company will credit a policy’s cash value and death benefits resulting from the “assumed” operating performance of the insurance company, the projection of interest rates, or the underlying performance of a policy’s investments in conjunction with an insurance company’s allocated policy costs. The takeaway is that a policyholder can only be certain about the guarantees that are stated in a policy illustration, and that projected illustrations of cash values and death benefits may or may not occur. This does not mean to say that they will not occur, it only means that a client should understand the risks beyond the guarantees, and balance those risks with their required objectives, their anticipated goals, and of course the amount they are willing to spend to balance all of their concerns. As an advisor, our priority is to assist our clients by presenting solutions to their problems and helping them understand the risks and rewards of these options.

We look forward to assisting you with your goals and objectives.