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Planning For Life After Death

estate planning life insurance Apr 11, 2022
Yields for You
Planning For Life After Death

My wife and I have a deal, or rather, she has a deal, and I have no choice. The deal is that she dies first, because, as she puts it, “I can’t live without you, so I have to die first.” If only life were so cooperative.            

Living a life free of regret, a life free of anxiety, means planning for the inevitable.

In my experience, one of the greatest sources of anxiety is fear of the unknown…and there is nothing more unknowable than death, except for its certainty. And while death may bring about emotional and spiritual anxiety, financial anxiety need not be part of the equation.

As part of our “dying” plan, life insurance is an important tool, and can help ease the financial burden of losing a loved one.

When purchasing life insurance, here are some strategies, tips and information that can help you make the best decision for yourself and your loved ones.

Let’s start off with the basics; shopping around is a good strategy. There are many insurance companies out there, each with different policies and pricing. Differing state regulations make it so that comparing policy terms is tough. We will guide you through the buying process so that you know how to find the right policy at a reasonable price.

Be sure to ask insurance agents if they represent multiple insurance companies or just one. A “captive agent” works with just one company, so you probably won’t get the right plan at a fair price with such an agent. You want to feel confident that the insurance agent is working in your best interest.

There are two primary types of life insurance. Having confidence knowing that you purchased the right type of life insurance goes a long way toward reducing financial anxiety for you and your family.

  1.   Term insurance provides a specific payout (death benefit) for a specific length of time (term).
  2.  Permanent insurance, on the other hand, never expires. It lasts a lifetime and has a death benefit along with a potential savings component (cash value).

The real question is, “What is your need?”

Term insurance may be right if you need a specified amount for a defined period of time, such as to help pay off a mortgage, pay for college expenses, replace lost income until retirement, or pay for funeral expenses. The downside of term insurance is that your rate will reset at the end of the term and you can be denied coverage.

"Permanent insurance" Is ideal if you want to guarantee coverage for your whole life, such as to pay for funeral expenses or to provide a living legacy. Whole life policies can also provide ancillary benefits, such as acting like a ROTH IRA for retirement savings, providing cash-value, growth, retirement income, long-term care, or the ability to receive death benefits while you are still alive.

Once you find the right life insurance policy, asking for another agent for a second opinion might be smart. Be sure to also ask if it is a “low load” policy. A load is a commission paid to the salesperson—you want to avoid high load policies.

Here are additional questions to ask:

What are the most common mistakes people make when buying life insurance?

Many people ignore the fine print. Be sure to know your plan inside and out so you feel secure you have the right amount of coverage with details to cover your risk. Working with a financial advisor is helpful to ensure the policy fits your financial plan.

How important is life insurance if I already have ample savings and retirement assets?

It depends on your situation. You might want life insurance to replace lost income. Oftentimes, one spouse is the breadwinner—the other spouse should hold enough life insurance to replace the breadwinner’s income and Social Security benefits. For those in or nearing retirement, factoring in lost Social Security and pension benefits is vital and often overlooked.

How can I make the most of the cash value in my policy?

You can also borrow against life insurance plans to fund emergencies, a loss of income when between jobs, or the start of retirement.

Of course, it is prudent to sit down with your financial advisor to determine if borrowing against your life insurance plan is the right move.

Remember, life insurance is just one piece of the puzzle.  In addition to providing for our loved ones’ financial needs after death, we need to make sure there is continuity of finance and that our instructions are carried out.

The truth is, for most people, there are a few simple (and free) things you can do today that will ensure your assets transfer to your loved ones - without getting tied up in courts or going to creditors.

Check out my free DIY Estate Planning Guide here.

P.S. If you have a large amount of disposable income, you may want to consider buying a "leveraged" insurance policy.

And if you have a policy that you no longer need, rather than letting it lapse, you may want to consider selling it through a viatical sale. Selling it to a third party, rather than surrendering it to your insurance company, or letting it lapse, may provide you with a greater benefit.

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