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Life Insurance

Using Fixed Annuities as a Retirement Tool

Using Fixed Annuities as a Retirement Tool

A fixed annuity is a contract between you and an insurance company, guaranteeing steady income payments. It’s ideal for anyone needing a stable, predictable income for retirement or achieving long-term financial goals. You invest by giving the insurance company a lump sum or a series of payments, known as an annuity, during a surrender period. In return, the insurer agrees to pay you a monthly fixed amount after the surrender period.

Your insurer determines where to invest your annuity funds to generate returns and provide you with an income stream during the annuity payout phase. The monthly amount you receive depends on your annuity contributions, age, and the insurer’s interest rate, which remains constant regardless of financial market fluctuations.

Benefits of Fixed Annuities

Guaranteed Income

Fixed annuities are more stable and predictable because distributions don’t depend on market gains or losses. The investment grows at a fixed rate determined by your insurer. You can also predict how your annuity balance will grow over time. Your contract also assures you of receiving a monthly minimum payment during the stipulated period.

Tax-Deferred Growth

Your earnings in fixed annuities are not subject to immediate taxation. Thus, your earnings accumulate without tax implications. Tax gets deferred to the distribution phase when you’re in a lower tax bracket.

Death Benefit

Your beneficiaries also benefit from your fixed annuities investment. If you die before you start receiving payments, your successors will receive a lump sum payment that is typically equal to the value of your annuity. Thus, the investment ensures your loved one’s financial security even after you’re gone.

Protection From Market Volatility

The guaranteed fixed interest rate covers your investment against market dynamics. Thus, your income stability is secure during the distribution phase.

Risks in Fixed Annuities

High Fees

Although fixed annuities have lower fees than other investment products, they can have unforeseen charges that can set you back by a few dollars. Sometimes the costs are hard to discern without scrutinizing your contract.

Typical fees in fixed annuities include:

  • Premiums: An initial lump sum or payment series to purchase your annuity.
  • Commissions: You may pay a ten-year fixed commission in the surrender period, ranging between 6% and 8% for most fixed index annuity investments.
  • Administration Fees: These can be a fixed annual fee or approximately 0.3% of your annuity contract’s value.
  • Surrender Charges: Get paid for early withdrawals beyond scheduled payments.
  • Mortality Expenses: May be charged as commission to compensate your insurer.
  • Riders: Extra fees included in your contract.

Limited Liquidity

Fixed annuities attract a hefty penalty or surrender charges when you access your funds before your contract matures. The incurred fees discourage early withdrawals to maintain the investment. However, in doing so, it limits the investment’s liquidity.

Lack of Flexibility

Although fixed annuities investors have guaranteed returns, they’re less flexible; the investment has:

  • Strict withdrawal options during the surrender period
  • No benefits from potential market interest rates because of the preset interest rates
  • Limited investment options determined by your insurer
  • Limited liquidity necessary to address immediate financial needs

Examples of Fixed Annuities

  • Single Premium Deferred Annuity (SPDA): Requires a lump sum payment upfront. The funds accumulate and earn a fixed interest rate until the annuitant decides to start receiving payouts.
  • Multi-Year Guarantee Annuity (MYGA): Offers a fixed interest rate for a predetermined period, ranging from 3 to 10 years. The annuitant can choose the length of the guarantee period based on their preferences.
  • Immediate Annuity: You receive regular income payments immediately or shortly after the purchase making a lump sum payment for the contract.
  • Fixed Index Annuity (FIA): Provides a fixed interest rate linked to the performance of a specific stock market index. The annuitant receives a minimum guaranteed interest rate and the potential to earn additional interest based on the index performance.

Conclusion

Fixed annuities are an excellent option if you’re looking for a guaranteed income stream in retirement. However, consider your circumstances and goals and weigh the pros and cons before investing. Speak with a financial professional about your options and understand the risks and benefits before making the decision to purchase a fixed annuity.

More Than One Type of Life Insurance

life insurance

The pandemic has influenced all our lives in different ways, some tragic, but also some that have made us rethink our needs and goals. Some of us have decided they want a new type of career; some have devoted more of their lives to helping others. One impact has been to protect loved ones in case something happens to us by purchasing a life insurance policy. But there’s more than one type of life insurance available.

Millennials

After climbing steadily for many years, life expectancy fell by 1.5 years from 2019 to 2020 – the largest one-year dip since World War II. A survey by Life Happens and LIMRA, a research organization, published in April 2021 found that about 31% of consumers said they are more likely to buy life insurance because of the pandemic. The survey also shows that 45% of millennials said they are more likely to buy life insurance because of COVID-19, possibly because they have more years of income to protect, are more likely to have children and may still have large balances on their mortgages or even student loans.

Whole Life Insurance

When most people think about life insurance, they focus on term life, which offers the lowest cost and covers the insured for a fixed period, say 20 or 30 years. Certainly, term insurance can play an important role, but it may not be enough on its own for extended retirement planning.

Enter whole life insurance and some of its offshoots, which fall into the category of permanent life insurance. With whole life, a portion of your premiums are invested alongside highly rated companies and will grow on a tax-deferred basis. Some believe that whole life is for wealthier people who are doing longer term planning and want to leave a legacy, when, in reality, there are many benefits to the average investor, including fast access to cash for expenses or opportunities (typically 1-2 days) and the benefit of knowing your equity is increasing annually every year.

Whole life insurance offers three kinds of guarantees:

  • Guaranteed minimum rate of return on the cash value, typically between 2% and 4%
  • The guarantee that your premiums won’t increase
  • A guaranteed death benefit that will never decrease

Universal Life

As noted, there are various offshoots of whole life insurance. One is universal life. Unlike traditional whole life, the cash-value component accumulates interest at rates tied to market interest rates. When rates are high, you pay lower premiums to get the same amount of cash value. However, if interest rates are low, premiums may need to increase. 

Prepaid life Insurance

Another alternative is single premium life insurance (SPLI), also known as prepaid life insurance. Instead of paying a premium in monthly or annual installments as you would with other kinds of life insurance, you pay for the policy up front to secure a death benefit when you die. As with other forms of permanent insurance, your premium funds both the death benefit and a cash value amount.

There are other vehicles which can be used to supplement your savings, such as variable life and variable-universal life. All these policies have their complexity and their value. It can be worthwhile to learn more about them from your financial professional today.

The Overall Impact of Life Insurance

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impact of life insurance

The decision to buy life insurance is usually for personal financial security and that of your loved ones. But is it just a financial tool, or there are other benefits you can get from life insurance?

Life insurance cushions you against the impact of the uncertainties of life. To your family members, it can help settle your debts in case of death or provide a more comfortable life after destabilizing accidents or injuries. Let’s explore the benefits of life insurance beyond the financial aspect.

Providing Peace of Mind and Security

In case of a policyholder’s death, life insurance provides a safety net through a lump sum or regular payments, depending on the terms of the cover. This amount can help meet living expenses, mortgage payments, education costs, and other financial obligations for the loved ones.

Outstanding debts such as a mortgage, car loans, or credit card debt can take a toll on the family if the breadwinner passes away. However, if there is life insurance, it can settle these obligations and cater to dependents’ needs, such as children’s education, estate taxes, and funeral costs.

Enabling Life Goals and Dreams

We all want a bright future for our children or spouse in the event of a personal tragedy. Life insurance can help guarantee your children’s education or your spouse’s retirement to maintain living standards when you’re gone.

You can also consider universal life insurance for the cash value component beyond the death benefit. This policy allows you to contribute premiums for accumulated cash value, which you can use for regular expenses or investments. The flexibility of universal life insurance will enable you to use it as a financial resource to fund your dreams.

Whether you want to pursue a business venture or travel the world, you can use life insurance to meet these goals. If you’re an aspiring entrepreneur, you can use the cash value of life insurance to get initial capital for your business.

Fostering Stronger Relationships and Legacy

Although it’s seen as a financial tool, life insurance demonstrates that you care for your loved ones and their future. This aspect can create a deep bond, especially where beneficiaries understand you’re concerned about their welfare beyond your lifetime.

Life insurance is also a form of legacy planning beyond the current generation. The fund can help in philanthropy causes if it’s designated to charity organizations or educational institutions. By incorporating philanthropy into your life insurance planning, you can make a meaningful contribution to society and leave a positive impact beyond your life.

Impacting Communities and Businesses

After taking premiums from policyholders, life insurance companies invest the resources in stocks, bonds, real estate, and alternative investments. Consequently, the capital helps stimulate economic growth through the circulation of money and the expansion of businesses.

To educational and medical institutions, life insurance helps in cash flows by paying school fees and medical bills for the beneficiaries. When a policyholder directs the benefits to infrastructure projects, the funds help improve communities’ overall well-being and resilience.

Statista shows that the life insurance industry in the US is worth close to $1 trillion. This statistic shows that the sector contributes significantly to employment and economic growth, with over 360,000 individuals working in life insurance.

Addressing Common Concerns and Misconceptions

Most people view life insurance as an expensive and complex financial process. This is unfounded, and engaging a financial advisor can help you clear up some of your misconceptions.

There are various life insurance types, each with a different premium, depending on the policyholder’s needs. Some of the most common types of life insurance are term life, whole life, and universal life. Each has benefits, and the premiums are flexible to meet your needs.

Conclusion

Life insurance is an essential financial strategy that goes beyond providing financial security to the policyholder and their loved ones. It gives you peace of mind knowing that the needs of your family members are taken care of even if you’re not there.

Consider life insurance and help your loved ones in fulfilling their dreams. Those left behind don’t have to struggle to settle debts, meet daily needs, or pay for their education.

Do Millennials Need Life Insurance?

Do Millennials Need Life Insurance?

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The financial challenges millennials face can be overwhelming. Many young adults have to figure out how to pay off college loans, save to buy a home or start a family, and sock away money for retirement. Given these hurdles, it’s no wonder that life insurance as a financial asset gets little to no attention. But it should. There are many reasons to have life insurance at a relatively young age, but here are some common ones.

Leaving your debts for others to pay

As a young adult, you become more independent and self-sufficient. While you no longer depend on others for your financial well-being, your death might still create a financial hardship for those you leave behind. You may have debts such as a mortgage or student loans that are jointly held with another person. Or you may be paying your parents for loans they took out (e.g., PLUS loans) to help pay for your education. Your untimely death would leave others responsible for some or all of these debts. You might consider purchasing enough life insurance to cover your financial obligations so others don’t have to.

Funeral expenses can also be a burden for those you leave behind. Life insurance could ease the financial burden of paying for your uninsured medical bills (if any) and for costs associated with your funeral and burial.

It’s less expensive

Premiums for life insurance are based on many factors, including age and health. Certainly, the younger and presumably healthier you are, the less your coverage will cost. This is especially true if you are at a high risk for developing a medical condition later in life. However, 44 percent of Millennials overestimate the cost at five times the actual amount, according to a 2018 report by LIMRA.

Replacing lost income

Someone may be relying on your income for financial support. For instance, you may be providing for a family member such as a parent, grandparent, or sibling. In each of these instances, how would your income be replaced if you died? The death benefit from life insurance can help replace your income after you’re gone.

Providing for your family

As your family grows, so do your financial responsibilities. There is likely a hefty mortgage to pay. And there are costs associated with young children. If you died without life insurance, how would the mortgage get paid? Could your surviving spouse or partner cover the costs of day care and housekeeping?

And there are events you should plan for now that won’t happen until several years in the future. Maybe you’ll begin saving for your kids’ college education while trying to save as much as you can for your retirement. Over the next several decades, think about how much you could set aside for these expenses. If you are no longer around to make these contributions, life insurance can help fund these future expenditures.

Work coverage may not be enough

You may have a job with an employer that sponsors group life insurance. Hopefully, you take advantage of that program, but is it enough coverage to meet your needs now and in the future? Your insurance needs may change with time, although your employer’s coverage may not. Also, most employer-sponsored life insurance programs are effective only while you remain an employee. If you change jobs or are unable to work due to illness or disability, you may lose your employer’s coverage. That’s why it’s a good idea to consider buying your own life insurance.

why people don't have life insurance

4 Reasons Why People Don’t Have Life Insurance

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why people don't have life insurance

There’s nothing exciting about life insurance. But it’s not meant to get you hyped up. It’s meant to take care of you and your loved ones. Life insurance is designed to protect your income in the unfortunate event of your passing, whether too early or at a ripe old age. But who wants to think about that? We all love the idea of YOLO (You Only Live Once), but no one likes to think about that “only living once” is referencing the end.

This may produce the type of consumer who shies away from thinking that life insurance is a necessary option. Even worse, a consumer who purposely doesn’t think about it and develops inaccurate opinions about life insurance. Here are 4 reasons why people don’t have life insurance and why they’re not entirely understanding the truth behind a much-needed piece in their financial portfolio.

The Cost is Too High

The first mistake many people make is over-estimating the cost of life insurance for a variety of reasons — age, gender, pre-existing conditions, etc. — and that stems from not knowing the facts. 44% of Millennials estimate the annual cost for a 20-year term life insurance policy at $1000 a year. But, in reality, they could purchase one for around $165 a year.

There are Other Financial Priorities

Life insurance is about the unexpected. It’s natural for more tangible concerns to take precedence. Student loan debt, retirement planning, credit card debt, mortgage payments are all examples of more pressing money concerns. No one thinks about the unexpected, hence the definition of the term. As human beings we sometimes have tunnel vision to only perceive that which is in front of us.

Life Insurance is a different form of protection. It covers that which we cannot perceive. But it’s also not only about you, but what comes after you. Your loved ones. Those who you certainly do not want saddled with the debt you may leave behind. Purchasing life insurance is an important financial priority that you should not, and cannot, ignore.

Unsure of the Need

You’re never too young for life insurance. Much like planning for retirement, the earlier you start, the more financially protected you will be. Plus, your younger age will have you qualifying for lower premiums. If you develop health issues as you get older, there’s no longer a concern about getting life insurance at a higher price. You’re already covered.

You’re also never too old for life insurance. Policies may come with a higher premium, but you will be able to cover the costs of any debt you have incurred once you pass. Plus, any final expenses such as burial fees and estate closings will no longer be the responsibility of your loved ones.

Believe You Don’t Qualify

While the policies may be more expensive for those with pre-existing conditions, they still exist for the specific purpose to cover those with health issues such as diabetes. If you’re concerned about risk factors disqualifying you for life insurance, don’t consider that door closed to you. Talk with a financial professional about your options. Tailored life insurance plans are available.

insurance coverage

Closing Gaps in Your Insurance Coverage

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insurance coverage

Buying insurance is about sharing or shifting risk, but you may think you’re covered for specific losses when, in fact, you’re not. Here are some common coverage gaps to consider when reviewing your own insurance coverage.Life Insurance

In general, you want to have enough life insurance coverage (when coupled with savings and income) to allow your family to continue living the lifestyle to which they’re accustomed. But changing circumstances may leave a gap in your life insurance coverage.

For example, if you have life insurance through your employer, a job change could affect your coverage. Your new employer may not offer the same amount of insurance, or the policy provisions may differ. Review your income, savings, and expenses annually to help ensure that the amount of life insurance you have matches your needs.

Homeowners Insurance

It may not be clear from reading your homeowners policy which perils are covered and how much damage will be paid for. It’s important to know what your homeowners policy covers and, more important, what it doesn’t cover.
You might think your insurer would pay the full cost to replace your home if it were destroyed by a covered occurrence. But many policies place a cap on replacement cost up to the face amount stated on the policy. You may want to check with a building contractor to get an idea of the replacement cost for your home, then compare it to your policy to be sure you have enough coverage.

Even if your policy states that “all perils” are covered, most policies carve out many exceptions or exclusions to this general provision. For example, damage caused by floods, earthquakes, and hurricanes may be covered only by special addendums to your policy, or in some cases by separate insurance policies altogether. Also, your insurer may not cover the extra cost of rebuilding attributable to more stringent building codes, or your policy may limit how much and how long it will pay for temporary housing while repairs are made.

To help avoid these gaps in coverage, review your policy annually with your insurer. Also pay attention to notices you may receive. What may look like boilerplate language could actually be significant changes to your coverage. Don’t rely on your interpretations — ask for an explanation from your insurer or agent.

Auto Insurance

Which drivers and what vehicles are covered by your auto insurance? Most policies provide coverage for you and family members residing with you, but it’s not always clear-cut. For instance, a child who is living in a college dorm is probably covered, but a child who lives in an off-campus apartment might be excluded from coverage. If you and your spouse divorce, which policy insures your children, particularly if they are living with each parent at different times of the year? Notify your insurer about any change in living arrangements to avoid a gap in coverage.

Other gaps include no coverage for damaged batteries, tires, and shocks. And you might not be covered for stolen or damaged mobile phones or other electronic devices. Your policy may also limit the amount paid for a rental while your vehicle is being repaired.


In fact, insurance coverage for rental cars may also pose a problem. For instance, your own collision coverage may apply to the rental car you’re driving, but it may not pay for all the damage alleged by a rental company, such as loss of use charges. If you’re leasing a car long term, your policy may cover the replacement cost only if the car is a total loss or is stolen. But that amount may not be enough to pay for the outstanding balance of your lease. Gap insurance can cover any difference between what your insurer pays and the balance of your lease.


Policy terms and conditions aren’t always easily understood, and you may not be sure what’s covered until it’s time to file a claim. So review your insurance policy to help ensure you’ve filled all the gaps in your coverage.

need life insurance

9 Reasons You Need Life Insurance

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need life insurance

As a young person, life insurance may not be a pressing concern. With so much life ahead, saving and investing may not take precedence for you right now. However, it’s important to recognize that present choices profoundly impact your future financial security. Explore the significant advantages that life insurance can provide for the present and the years to come.

Understand the Misconceptions

Many misconceptions deter young people from realizing the value of life insurance. Life insurance offers numerous advantages for young people, including lower premiums and potential long-term savings. It secures your future, supports loved ones, and shields you against unexpected financial burdens.

Secure Financial Protection Early On

Starting a life insurance policy in your 20s brings undeniable benefits. Young age and better health translate to lower premiums, enabling you to lock in long-term affordable rates. Acting early saves significantly compared to waiting until later when premiums rise due to increased risk.

Safeguard Your Loved Ones

Life insurance offers crucial financial protection for your loved ones in the face of an untimely death. Imagine the burden on your parents, siblings, or other family members left to handle outstanding debts. Funeral expenses are overwhelming and emotionally distressing. Additionally, the loss of your income could destabilize their financial security.

Plan for Future Responsibilities

Consider future responsibilities such as marriage, parenthood, or co-ownership of assets in your 20s. Life insurance can secure your financial stability during significant life milestones. It provides a safety net for your spouse and children, ensuring their protection in case of the unexpected. Moreover, it safeguards shared assets, guaranteeing financial security for your loved ones and preserving the legacy you have worked hard to build.

Student Loan and Debt Management

The burden of student loan debt weighs heavily on many young adults. In the unfortunate event of the insured’s passing, cosigners or family members become responsible for the remaining loan balance. Life insurance can alleviate this strain through the death benefit, which pays off the outstanding student loans, sparing loved ones from inheriting the debt.

Furthermore, life insurance is a valuable tool for debt management and protection. You can use it strategically to create a safety net for various financial obligations, including credit card debt, mortgage loans, or personal loans. In the case of shared debts or joint ventures, the death benefit can settle outstanding balances, preventing financial hardships for the surviving parties.

Lock in Affordable Rates and Coverage

“Insurability” refers to an individual’s eligibility for life insurance based on age and health. Obtaining coverage becomes more challenging and expensive as you age or develop health conditions. Take advantage of your youth and seize the opportunity to secure life insurance now. Your impeccable health affords you affordable rates and comprehensive coverage for the future.

Build Cash Value and Future Flexibility

Cash value is a savings component included in some permanent life insurance policies. It works as an insurance and investment tool. As you pay your premiums, a portion contributes to the death benefit, and the remainder builds the cash value. The savings grow tax-deferred and are accessible during your lifetime. You can use the funds for a home purchase, cover education expenses, or supplement retirement income.

Living Benefits and Riders

Life insurance riders like critical illness or long-term care provide added security beyond traditional coverage. For instance, critical illness riders offer a lump sum payout upon a severe medical condition diagnosis, helping cover treatment expenses. Long-term care riders provide financial assistance for extended care needs, ensuring comprehensive protection for any health challenges that may arise.

Peace of Mind and Emotional Well-Being

Life insurance’s true worth lies in the intangible benefits it brings. It grants peace of mind and lessens anxiety about the unknown future. The emotional well-being it provides is immeasurable. It assures you that your loved ones will be financially secure even in your absence.

life insurance questions

10 Life Insurance Questions You Should Ask Yourself

life insurance questions

Life insurance – we’ve heard of it, we know how important it can be, we think we probably need it, but do we know how it works? What are we paying for when we make monthly policy payments? If you’re single with no children, do you still need life insurance?

Bottom line is, acquiring life insurance is one of the most positive financial moves you can make. It’s an even better decision to get it when you’re young and healthy, resulting in a more affordable rate on your policy. To clarify any confusion on what type of policy to choose or how much coverage to get, we’ve answered a healthy mix of commonly asked questions below.

Which different kinds of life insurance are there, and which one would work best for me?

There are essentially two forms of life insurance: term and permanent (also widely known as “whole life”).

A permanent life insurance policy lasts your entire life, while a term life insurance policy lasts for a specific amount of time — i.e. your policy’s term length. Usually, this can be 10, 15, 20, or 30 years. Typically, term life is a simple, affordable type of life insurance that’s easy to purchase and manage.

The core differences between term and permanent are cost, complexity, and cash value. Permanent life insurance has a cash value component that can allow it to grow over time and be borrowed from while you’re alive. Permanent insurance cash value capability and its lifetime coverage can make it more expensive and more complex to manage.

When it comes to term life insurance, you apply to have coverage in place until a certain point in your life when you would no longer need the coverage. This can include, but is certainly not limited to, your children becoming adults, or paying off your mortgage. Term life insurance’s primary goal is to protect your loved ones in the event of your (or your spouse’s) untimely passing, compared to a permanent life policy which may also be used as a vehicle for cash accumulation and/or estate planning purposes. For many, term life insurance is a sound, cost-efficient choice that protects your loved ones during the years they need it most.

If I’m single or don’t have kids (or both), do I still need life insurance?

If you have any sort of financial obligation — whether it be student loans, co-signed debt, a mortgage, etc. — life insurance is always good to have. That way in the event of an untimely death, someone else will be able to pay these off for you. Especially if you have a partner, whether or not you’re married or have children, you share financial responsibilities. It’s important to have the conversation of who will take on your financial duties should something unexpected happen. Your term life insurance is a way to protect your loved ones, and you control designating beneficiaries.

If I’m married, does my spouse need life insurance too?

Typically, both spouses have a life insurance policy with their partner listed as the beneficiary. You want to avoid your partner grieving and worrying about handling finances all at once.

A common misnomer is stay-at-home parents don’t require coverage since they don’t earn any income. This couldn’t be further from the truth, as a stay-at-home parent has a major impact on a household that is irreplaceable. If he or she were to pass away, extra space would be needed in the surviving partners budget for childcare, household needs, and more.

How much life insurance do I need?

The short answer for “how much” life insurance coverage you need is 5-10 times your income. However, the “optimal” amount depends on your specific circumstances. What’s important is to ensure the policy amount is adequate to cover any major expenses your loved ones would take responsibility for in the wake of your death.

How long should my life insurance policy be for?

The length of your policy depends on how long your loved ones need a financial safety net. For example, if you recently purchased a home and have a 30-year mortgage, you’d want the policy to last until the mortgage is paid off. You’d also need to consider the coverage length for your beneficiaries — how long until your kids are financially independent? How long until your student loans are paid off? These are some things to consider when choosing a term length policy.

What kinds of expenses would life insurance cover should my loved ones ever receive a payout?

A term life insurance payout can be used for anything your loved ones desire. The range includes, but certainly not limited to, funeral/any end of life costs, mortgage payments, childcare or caregiving for your dependents, healthcare costs for your dependents, children’s education costs, or just everyday living expenses.

When you purchase life insurance, try to use it as an opportunity to talk to your beneficiary about the coverage amount and your vision for the proceeds being used. Ensuring your loved ones’ financial stability no matter what happens to you speaks volumes.

How do I start the conversation of life insurance with a spouse or family member?

Death isn’t exactly the most pleasant topic to discuss with anybody – let alone people you’re close with.

However, life milestones are the most ideal starting point to help spark the life insurance conversation. Whether it’s getting married, a new baby on the way, or purchasing a home – all these life events are ideal segues. This approach takes the attention off of death, putting more focus on protecting your loved ones should the unexpected occur, turning it into a positive talk on financial planning.

These conversations also empower your relationship to cultivate positive financial behavior. These discussions open the door for financial planning in all areas of your financial life, not just the morbid ones. Think of life insurance as the contingency plan which compliments the most exciting areas of life and your plan for tomorrow.

What do insurance companies consider when determining your rate?

Life insurance companies consider your age, gender, overall health, coverage amount, and a few other items when determining your premium pricing. Generally, the younger and healthier you are, the more affordable pricing will be.

Am I allowed to modify my life insurance policy?

After purchasing an insurance policy, it’s always a best practice to check in on your coverage needs periodically — especially if you experience a major life change that impacts your financial situation. If you determine you require a longer-term length or a higher coverage amount, you’ll usually need to go through the application process again. Therefore, it’s usually a good idea to keep that policy from when you were younger and healthier and purchase an additional, supplemental policy that fills your coverage gap.

On the other hand, if you discover you require less coverage, you can always reach out to your life insurance provider or financial advisor and request to lower your coverage amount (which will also lower your monthly premiums.)

What’s the best type of life insurance?

Whether it’s a term or permanent [whole] life policy you choose to purchase, the best type of life insurance is the one that’s in force after the insured passes away. It’s the careful attention and detail a financial advisor provides that can help you determine what approach to life insurance would work best for your specific needs.

Have a question? Contact us here and let us know!

Funding a Buy-Sell Agreement

Funding a Buy-Sell Agreement with Life Insurance

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Concept of signing contracts to buy-sell, rent, mortgage, real estate.

As a partner or co-owner (private shareholder) of a business, you’ve spent years building a valuable financial interest in your company. You may have considered setting up a buy-sell agreement to ensure your surviving family a smooth sale of your business interest and are looking into funding methods.

One of the first methods you should consider is life insurance. The life insurance that funds your buy-sell agreement will create a sum of money at your death that will be used to pay your family or your estate the full value of your ownership interest.

How funding with life insurance works with Key Employee Insurance

When using life insurance with a buy-sell agreement, either the company or the individual co-owners buy life insurance policies on the lives of each co-owner (but not on themselves). If you were to die, the policyowners (the company or co-owners) receive the death benefits from the policies on your life.

That money is paid to your surviving family members as payment for your interest in the business. If all goes well, your family gets a sum of cash they can use to help sustain them after your death, and the company has ensured its continuity.

You’ve got a great group working for you now, and business is good. Would your business survive losing a key employee?

Advantages of using life insurance

  • Life insurance creates a lump sum of cash to fund the buy-sell agreement at death
  • Life insurance proceeds are usually paid quickly after your death, ensuring that the buy-sell transaction can be settled quickly
  • Life insurance proceeds are generally income tax free; a C corporation may be subject to the alternative minimum tax (AMT)
  • If sufficient cash values have built up within the policies, the funds can be accessed to purchase your business interest following your retirement or disability

Disadvantages of using life insurance

  • Life insurance premiums are paid with after-tax dollars because the premiums are generally not a tax-deductible expense
  • Premium requirements are an ongoing expense
  • One or more co-owners may be uninsurable due to age or illness
  • If the co-owners’ ages vary widely, younger co-owners will have to pay higher premiums on the lives of the older co-owners
  • If the ownership percentages vary widely, more insurance will be needed to cover the owners with the larger ownership interests, resulting in higher premium costs for those with smaller ownership interests

How to set up different types of buy-sell agreements

In an entity purchase buy-sell agreement, the business itself buys separate life insurance policies on the lives of each of the co-owners. The business usually pays the annual premiums and is the owner and beneficiary of the policies.

In a cross-purchase buy-sell agreement, each co-owner buys a life insurance policy on each of the other co-owners. Each co-owner usually pays the annual premiums on the policies they own and are the beneficiaries of the policies. If your company has a large number of co-owners, multiple policies must be purchased by each co-owner.

A wait and see (or hybrid) buy-sell agreement allows you to combine features from both the entity purchase and cross purchase models. The business can buy policies on each co-owner, the individual co-owners can buy policies on each other, or a mixture of both methods can be used.

The buy-sell agreement should be fully funded

The amount of insurance coverage on your life should equal the value of your ownership interest, so there will be enough cash from the policy proceeds to pay your family or estate in full for your share of the business after your passing. But if all that is affordable is insurance coverage for a portion of your interest, you might want to go ahead and fund that amount. The company may be able to increase the amount of insurance or use additional funding methods and the agreement should specify how your family or estate will be paid.

The value of the business could change over time

What if the insurance proceeds turn out to be less than the value of your business interest because of growth in the business? Your surviving family members might end up getting less than full value for your business interest. Your buy-sell agreement should specify how the valuation difference will be handled.

Conversely, the insurance proceeds might be greater than the value of your business interest when you’ve passed. Your buy-sell agreement should address this potential situation upfront and specify whether the excess funds will belong to the business, the surviving co-owners, or your family or estate.

Should group life insurance be used?

Using a company’s group life insurance plan to fund a buy-sell agreement is generally not recommended. Normally, group life insurance premiums are tax deductible to the company. But premiums are no longer deductible if the business is the beneficiary.

Potential negative tax consequences

  • Life insurance amounts are generally tax-free so long as appropriate procedures regarding notice and consent to the insured employee are followed.
  • Assume your business is a corporation or is taxed as one. When one of your co-owners dies, their estate becomes the owner of the insurance policies covering you and the other co-owners of the business in a cross-purchase agreement. If these policies are then transferred to the surviving co-owners to pay for future buyouts, a transfer-for-value (gain) may occur, and a portion of the proceeds received from the transferred policies may be taxable.
  • If a policy is canceled (surrendered) for cash to buy out your interest while you’re living, any gain on the policy is subject to federal income tax for the policyowner. Gain includes all policy loans outstanding at the time of surrender. Also, the policy may carry surrender charges.
  • The proceeds received by a C corporation under an entity purchase agreement may be subject to the AMT.

Keeping track of your buy-sell agreement

Each year, the premiums on the policies must be paid, or the insurance will lapse. So monitor premium payments carefully. Your buy-sell agreement should include a feature requiring ongoing proof of payment. Also, review the amount of insurance regularly.

The insurance coverage may have to be increased periodically to reflect increases in the value of the business. If additional insurance is not possible, another funding method should be established. Finally, periodically check the financial rating of your insurance company. The policies funding your buy-sell agreement will do your family no good if the insurer becomes insolvent.

Choosing a Life Insurance Provider

7 Tips for Choosing a Life Insurance Provider

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Choosing a Life Insurance Provider

There’s no greater motivation for putting a protection plan in place than for those you love. Among the decisions you need to make when buying life insurance is what company to choose. Here are some tips to help you find the right insurance company for you, your family, and your situation.

Price matters, but it’s not the most important factor

Often, a straight price comparison can cause you to overlook the underlying features of a policy, such as cash value guarantees and return of premium features, that can be of real value over time.

Price quotes may change, so get several of them

Initial price quotes often change after your personal and health information has been assessed. Make sure you get multiple price quotes, so you have choices should some of the final price quotes come back much higher than expected.

Find companies that are financially strong

You want to work with a company that will be around when it’s time to pay the death benefit on the policy. There are a number of independent rating firms, such as Fitch Ratings, Moody’s, A.M. Best Company, and Standard & Poor’s, that issue grades for insurance companies. Additionally, life insurance companies will generally post their ratings on their website. Each rating firm has a different scale, but generally you want to look for a rating in the A range.

Evaluate each company’s menu of offerings

Although many companies sell similar polices, some focus on certain products (i.e. whole life), certain market segments (i.e. seniors, young professionals), or specific careers (i.e. medical professionals).

Look at customer satisfaction scores

You want to work with a company that is going to provide good service and support. One way to gauge an insurer’s reputation is through complaints filed with state regulators. You can access them on the National Association of Insurance Commissioners website. The National Association of Insurance Commissioners is an industry association dedicated to protecting consumers and ensuring fair, competitive, and healthy insurance markets.

Consider using a mutual company

Unlike publicly traded insurance companies which are owned by stockholders, mutual life insurance companies exist to serve the insurance needs of their policyholders who may share in the profits in the form of policy dividends.

Leverage life insurance experts

There are many financial advisors who specialize in life insurance. They have not only an in-depth knowledge of all the various policies available but also access to a wide range of carriers, and they can do the work of matching you with the company and policy that best suits your needs.

We hope you find this list helpful and consider using it as a catalyst to either purchasing life insurance for the first time or reevaluating the coverage you currently have to ensure it still meets your protection needs.

We leave you with a few words of wisdom from LIAM Spokeswoman Kelly Rowland: “Having life insurance truly eases my heart and mind. It means that no matter what, my family can keep looking toward the future.”

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