- You Have a Young Family
Millions of Americans remain uninsured or underinsured when it comes to life insurance, often due to a lack of information or misconceptions about cost. Studies have shown that many consumers significantly overestimate how much term life insurance costs, especially younger adults and millennials.
Life insurance policies have evolved considerably in recent years. Simplified underwriting processes now mean that many term life policies may not require a medical exam, depending on your age and general health. Term life insurance can be much more affordable than most people expect.
Another common reason people delay getting life insurance is that they rely on coverage provided through their workplace. However, employer-provided policies typically offer only modest benefits, often enough to cover burial costs and final expenses. To ensure adequate protection for your family’s financial needs, consider factors such as mortgage payments, existing debts, health care expenses, living costs for your spouse and children, and future education expenses.
- You Need More Tax-Advantaged Wealth Transfer
For high-net-worth individuals or business owners, life insurance can serve as an efficient vehicle for wealth transfer and estate planning. In many cases, life insurance proceeds pass to beneficiaries income tax-free and can help mitigate estate taxes when structured properly.
Various strategies exist for using life insurance in succession or legacy planning. Working with a financial professional can help tailor a policy that fits your long-term goals while maximizing tax benefits.
- You Are Looking for Tax-Advantaged Retirement Income
A permanent life insurance policy with cash value can provide a stream of income if necessary, depending on how the policy is structured. The cash value in the policy can build up and be borrowed against to pay for college expenses, retirement or other costs during your lifetime, usually without any taxes owed if all IRS rules are followed.
- You Want to Protect Your Spouse
Many people don’t realize that when one spouse dies, the surviving spouse only gets one Social Security check (the larger one) from that point forward. Permanent life insurance can protect your spouse’s lifestyle in the event of your passing.
- You Want Long-Term Care Insurance
Some of today’s life insurance policies are called “hybrid” policies because they cover additional potential adverse events in addition to death, such as disability or the need for long-term care. These extra coverages may be part of the policy itself, or be available as optional insurance policy “riders” depending on the way an insurance company structures their contracts.
Hybrid policies have grown in popularity compared to traditional long-term care insurance because they offer more flexibility. They provide a long-term care benefit if you need it, but if you do not, the policy still pays a death benefit to your beneficiaries. This helps avoid the drawback of traditional long-term care insurance, where you may pay premiums for coverage you never end up using.
Long-term care, whether at home or in a nursing facility, can be very expensive, more than $9,000 per month on average for a shared room. While Medicare covers short-term stays in nursing care facilities, it does not cover long-term care. Medicaid can cover long-term care costs, but qualifying typically requires spending down most personal assets, which may leave little for your spouse or heirs.
If tax-free loans are taken and the policy lapses, a taxable event may occur. Withdrawals (partial surrenders) and loans from life insurance policies classified as modified endowment contracts may be subject to tax at the time the withdrawal or loan is taken and, if taken prior to age 59½, an additional 10% federal tax may apply. Withdrawals and loans reduce the death benefit and cash surrender value. Guarantees subject to the claims-paying ability of the underlying issuer. Product, product features and rider availability can vary.
Do you have questions about life insurance? Call us!
This article is provided for informational purposes only, and is not intended to provide any financial, legal or tax advice. Before making any financial decisions, you are strongly advised to consult with proper legal or tax professionals to determine any tax or other potential consequences you might encounter related to your specific situation.
Sources:
https://www.cnbc.com/select/half-of-americans-dont-have-any-life-insurance/
https://www.forbes.com/advisor/life-insurance/long-term-care-hybrid/
https://www.genworth.com/aging-and-you/finances/cost-of-care.html
