Financial Planning with Life InsuranceSubmitted by Stone House Investment Management, LLC on March 19th, 2018
When asked to name their most valuable asset, most people would identify their tangible items, investments, or properties, but nearly all fail to recognize that their ultimate prized possession is themselves. In times where you can own insurance on nearly every household item, many haven't even purchased an insurance policy on their own life. While the basic concept of life insurance is straightforward, the benefits this insurance provides to your overall financial plan are seldom understood.
Review your goals
Owning life insurance has become a necessary part of modern financial life. A good life insurance plan starts with your goals in mind and a conversation between you and your financial planner. Instead of limiting the scope of what you discuss with your advisor, try to apply as broad a perspective as you can. While every client we work with has unique financial goals, common goals include:
- Debt reduction
- Income replacement
- Business continuity planning
- Charitable giving
- Providing for the next generation
Life insurance can be a great way to accomplish any of the above goals and a whole host of others not mentioned here.
A multi-faceted approach to your insurance portfolio
What about when you have multiple goals to achieve? This is where insurance and proper planning come together to meet even the most complex needs.
Some individuals may have mortgages they want to be paid off using the proceeds from life insurance, but also want an overage to leave for their children to put to good use. Simply buying a larger life insurance policy than is needed to retire the mortgage probably isn’t the right answer, but neither is locking all the future proceeds in a trust for the future and not having a plan for paying off the mortgage ASAP.
In these instances, having multiple policies with different features and benefits may be the right approach. Immediate needs can be met with one pool of insurance, while more distant goals are accomplished with another dedicated insurance policy. As an alternative, a single insurance product that it is used in conjunction with various trust and estate planning tools so as to meet the needs of the family over the long term may be suitable.
What can life insurance do while I’m still alive?
The death benefits of life insurance are often publicized, and for good reason, as they provide protection when families are at their most vulnerable. That said, one of the greatest but often underutilized benefits of life insurance is what it can do for you while you are still alive.
Permanent life insurance can act as a kind of forced savings, allowing the cash value of the policy itself to accumulate over time and provide another source of liquidity for important goals like education or retirement. Oftentimes, these policies offer relatively attractive interest rates, meaning that the policy can accrue significant value over time. This isn’t to say that raiding the life insurance piggy bank is a good idea in all circumstances, but it’s nice to have an option within your financial plan that can provide for the future while managing cash needs today.
Please keep in mind that insurance companies alone determine insurability and some people may be deemed uninsurable because of health reasons, occupation, and lifestyle choices. Guarantees are based on the claims-paying ability of the issuing company. At Stone House, our advisors work with you to evaluate your short and long-term goals and build out a plan to help you achieve your definition of financial success.
Your financial future awaits
*This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel. Neither the information presented nor any opinion expressed constitutes a representation by us of a specific investment or the purchase or sale of any securities. Asset allocation and diversification do not ensure a profit or protect against loss in declining markets. This material was developed and produced by Advisor Websites to provide information on a topic that may be of interest. Copyright 2014-2015 Advisor Websites.