Financial Planning with Life Insurance

Many people are familiar with the basic concepts of life insurance and understand that some level of protection is a necessary part of modern financial life.  The question of what life insurance can actually accomplish, when considered as part of an overall financial plan, is more involved and worth a closer look.

When considering life insurance start by reviewing your goals

A good life insurance plan starts with your goals in mind and a conversation between you and your financial planner. Instead of limiting the scope of what you discuss with your financial planner try to apply as broad a perspective on this goals conversation as you can. Examples of common goals include things like;

• Debt reduction
• Income replacement
• Business continuity planning
• Charitable giving
• Providing for the next generation

Life insurance can be a great way to accomplish any of the above goals and a whole host of others not mentioned here.

 A multi-faceted approach to your insurance portfolio

What about when you have multiple goals to achieve? This is where insurance and proper planning come together to meet even the most complex needs.

Some individuals may have mortgages they want paid off using the proceeds from life insurance, but also want to leave money for children when they are old enough to put it to good use. Simply buying a larger life insurance policy than is needed to retire the mortgage probably isn’t the right answer, but neither is locking all the future proceeds in a trust for the future and not having a plan for paying off the mortgage ASAP.

In these instances having multiple policies with different features and benefits may be the right approach. Immediate needs can be met with one pool of insurance, while more distant goals are accomplished with another dedicated insurance policy. As an alternative your planner may still recommend a single insurance product but that it is used in conjunction with various trust and estate planning tools so as to meet the needs of the family over the long term.

What can life insurance do while I’m still alive?

The death benefits of life insurance are often publicized, and for good reason, as they provide protection when families are at their most vulnerable. That said one of the great but often underutilized benefits of life insurance is what it can do for you while you are still alive.

Permanent life insurance can act as a kind of forced savings, allowing the cash value of the policy itself to accumulate over time and provide another source of liquidity for important goals like education or retirement. Oftentimes these policies offer relatively attractive interest rates, meaning that the policy can accrue significant value over time. This isn’t to say that raiding the life insurance piggy bank is a good idea in all circumstances, but it’s nice to have an option within your financial plan that can provide for the future while managing cash needs today.  

Please keep in mind that insurance companies alone determine insurability and some people may be deemed uninsurable because of health reasons, occupation, and lifestyle choices. Guarantees are based on the claims paying ability of the issuing company.

*This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel. Neither the information presented nor any opinion expressed constitutes a representation by us of a specific investment or the purchase or sale of any securities. Asset allocation and diversification do not ensure a profit or protect against loss in declining markets. This material was developed and produced by Advisor Websites to provide information on a topic that may be of interest. Copyright 2014-2015 Advisor Websites.