No one really loves to discuss life insurance except perhaps, well, insurance brokers. The subject alone inherently addresses end-of-life issues and final expenses head-on. Even most of the life insurance advertisements we see in digital media or on TV don’t depict happy, young people enjoying everyday activities—what we most often see are the middle-aged or elderly with their grandkids. However, life insurance is not just for seniors. Well-planned insurance products can, in fact, carry financial benefits to people of all ages. Even infants can gain more financial security later in life. Knowing when to buy life insurance and which type is best for you and your family should be an important factor in creating your optimal wealth management plan.
When buying life insurance, which type is best?
Term life insurance is the least expensive form of life insurance policy a person can get. As the name implies, the policy is in force for a pre-determined time period. These policies sometimes do not require an upfront medical exam, and you can pay premiums on a monthly, semi-annual, or annual basis. Term life insurance only pays out in the event of death and has no cash value or investable assets.
Whole life insurance policies cost substantially more than term life insurance but do increase in value over the lifetime of the policyholder. In fact, once the policy reaches the minimum required value threshold, the policyholder can use it as collateral for loans or large purchases. Depending on the age and the present day value, the policyholder can request a cash withdrawal which is free of taxation. Used wisely, this can support important milestones like home buying or education. In addition to term and whole life insurance, there are other products which function a lot like mutual fund investments in the securities market that you can consider as well.
Investable insurance contracts
Some insurance products belong in a category of their own because they contain multiple holdings within a portfolio of assets. With variable life insurance, you can choose to invest in forty to fifty sub-accounts from a broker prospectus, much like what fund managers provide for each fund they manage. There will also be account minimums based on the asset type within the funds you choose to invest in. The portfolio also contains a cash component, and like a mutual fund, fluctuates in value with how well the market performs.
You can make withdrawals from variable life contracts without being subject to ordinary income taxes. Further, the earnings you accumulate can be deferred in perpetuity. Variable universal life policies can be transferred from the contract holder to a new beneficiary. If you’re wondering when to buy life insurance, think about the time value of money when it comes to investing. Making plans for life insurance with the help of a professional who can walk you through every step is a wise step and one that you can pursue the next time you make a payment for your mortgage insurance.
Insurance trusts
People are accustomed to purchasing life insurance policies as a means of caring for their loved ones after they are gone. But, it isn’t too often that we think of purchasing an insurance policy for an infant so that future adult can have the funds he or she needs later in life, but it is actually a very viable option.
Another way some choose to look after their loved ones is through establishing an insurance trust. Insurance trusts are irrevocable trusts which allow the policyholder to have an appointed trustee to invest the proceeds from their death benefit and administer income payments to beneficiaries. These trusts work well alongside estates, which are taxable but have the benefit of being tax-free.
Planning for college and large purchases
You can purchase a variable life or whole life insurance policy for your infant to help fund his or her future educational expenses or to pay for a family emergency. Combine an insurance policy with a 529 college savings plan as part of a broad college savings strategy. A wealth advisor can help you to develop a holistic plan which includes insurance, estate planning, college savings, and your investment portfolio. Borrow against your whole life or variable contract to fund a lower interest loan to purchase a house. Or, alternatively, you can liquidate part of your policy value as a down payment on a home. This is a good option if you don’t want to have the mortgage company as a lienholder on your life insurance policy before your mortgage is paid.
More options for living
As you can see, life insurance can give you more options on how you want to live your life. With proper wealth planning, the benefits of having life insurance alongside your other investments multiply. Seeking out professionals who can help you examine your options and chose the best course of action for your specific situation can bring extra peace of mind when it comes to your future, and they can introduce you to possibilities you may have never before even considered.
The financial advisors at SD Mayer are ready to help you look at your wealth holistically and explore all of your options for leveraging life insurance to your benefit. Contact us today to get started with an initial consultation.
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SECURITIES AND ADVISORY DISCLOSURE:
Securities offered through Valmark Securities, Inc. Member FINRA, SIPC. Fee based planning offered through SDM Advisors, LLC. Third party money management offered through Valmark Advisers, Inc a SEC registered investment advisor. 130 Springside Drive, Suite 300, Akron, Ohio 44333-2431. 1-800-765-5201. SDM Advisors, LLC is a separate entity from Valmark Securities Inc. and Valmark Advisers, Inc. Form CRS Link
DISCLAIMER:
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, accounting, legal or tax advice. The services of an appropriate professional should be sought regarding your individual situation.
HYPOTHETICAL DISCLOSURE:
The examples given are hypothetical and for illustrative purposes only.
