With Thanksgiving around the corner, many are preparing to gather with family and friends to give thanks. This year, take a moment to reflect on how those loved ones would be affected if you weren’t there to financially provide for them.
A common vehicle to consider for this need is life insurance. A flexible tool, life insurance can provide both death benefits, where proceeds go to your named beneficiaries upon death, and living benefits, where proceeds from the policy can be available to you while you are living. Some newer policies even provide access to the death benefit as a resource for funding medical and long-term care expenses.
Life insurance has become more affordable in recent years. Because people are living longer, life insurance companies are using new mortality tables to set the costs of insurance premiums. One considerable benefit of life insurance is that it provides a tax-free inheritance to the designated beneficiaries that bypasses probate. Other assets left to loved ones, such as an IRA or real estate, may be subject to significant income and potentially estate taxes, which can quickly deplete the monetary value of the asset.
When buying life insurance, make sure to conduct thorough research and compare policy types and companies. Here are some tips to help evaluate your life insurance needs:
■ Know when you should consider a life insurance policy.
The traditional need for life insurance is for younger, working families who have dependents that would need income replaced to maintain their current standard of living in the event of your death. For families with grown children, the loss of Social Security income and potentially pension income for the surviving spouse is a major factor to consider.
Lastly, you may have sufficient income for you and your spouse’s lifetime, but seek tax-efficient vehicles for leveraging your assets either for a medical emergency or to pass on to your family, charity or other legacy goals. Many companies offer desirable policy options for healthy individuals into their 70s.
■ Understand what you need in a life insurance policy.
Are you protecting your family in case of an early death? Have you taken on additional debt that requires you to provide coverage? Do you want to use life insurance to cover your final expenses?
Life insurance is now used for a variety of reasons, so it’s important that you pinpoint your specific needs to calculate the appropriate amount of coverage needed.
■ Learn the different types of coverage.
Term life insurance provides the most affordable coverage for a set term, generally ranging between 10 and 30 years. At the end of the term, coverage expires. Permanent insurance is more expensive, but a portion of the premium is saved in the form of “cash value” that can be accessed as needed. Whole life insurance is one type of permanent life insurance that offers “guaranteed” cash values and has fixed annual premiums. Universal life insurance is another type of permanent life insurance that offers flexible premium payments, and potential tax-advantaged growth, based on the performance of the financial markets.
■ Evaluate what you already have.
If you already have life insurance, make sure that it matches your current needs. If it’s been more than 10 years since you purchased your current policy, you may be able to find a new policy with more features that is less expensive. You may also review your policies with a fiduciary adviser to identify potential fine-print pitfalls, such as if coverage could lapse or premium rates could increase in your lifetime.
Planning ahead is the only way to prepare yourself and your family for the unexpected. Take time to enjoy your loved ones this holiday season, and to consider insuring their financial well being for years to come.
CHRISTOPHER SCALESE, financial adviser, author of the book, “Retirement is a Marathon, Not a Sprint,” is the president of Fortune Financial Group. For more information about Christopher Scalese and Fortune Financial Group, please visit www.fortune-financial.org.
