Life Insurance Planning

What Is Life Insurance?

Life insurance is a contract between a life insurance company and a policy owner. A life insurance policy guarantees the insurer pays a sum of money to one or more named beneficiaries when the insured person dies in exchange for premiums paid by the policyholder during their lifetime.

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Life insurance is a legally binding contract that pays a death benefit to the policy owner when the insured person dies. For a life insurance policy to remain in force, the policyholder must pay a single premium upfront or pay regular premiums over time (e.g., monthly through bank drafts, debit, credit or in some cases social security). Employer sponsored life insurance allow payroll deduction in some cases for premium pay.

When the insured person dies, the policy’s named beneficiaries will receive the policy’s face value, or death benefit. Term life insurance policies expire after a certain number of years based on the policy term decided upon at time of application. Permanent life insurance policies remain active until the insured dies, stops paying premiums, or surrenders the policy. A life insurance policy is only as good as the financial strength of the company that issues it. State guaranty funds may pay claims if the issuer can’t.

Who Needs Life Insurance?

Life insurance provides financial support to surviving dependents or other beneficiaries after the death of an insured policyholder. Here are some examples of people who may need life insurance:

• Parents with underage or dependent children. If a parent dies, the loss of their income or caregiving skills could create a financial hardship. Life insurance can make sure the children will have the financial resources they need until they are of age that they can support themselves.
• Parents with special-needs adult children. For children who require lifelong care and will never be self-sufficient, life insurance can make sure their needs will be met after their parents pass away. The death benefit can be used to fund a special needs trust that a fiduciary will manage for the adult child’s benefit
• Adults who own property together. Married or not, if the death of one adult would mean that the other could no longer afford loan payments, upkeep, and taxes on the property, life insurance may be a good idea. One example would be an engaged couple who take out a joint mortgage to buy their first house.
• Seniors who want to leave money to adult children who provide their care. Many adult children sacrifice time at work to care for an elderly parent who needs help. This help may also include direct young adults whose parents incurred private student loan debt or cosigned a loan for them. Young adults without dependents rarely need life insurance, but if a parent will be on the hook for a child’s debt after their death, the child may want to carry enough life insurance to pay off that debt.
• Children or young adults who want to lock in low rates. The younger and healthier you are, the lower your insurance premiums. A 20-something adult might buy a policy even without having dependents if there is an expectation to have them in the future.
• Stay-at-home spouses. Stay-at-home spouses should have life insurance as they have significant economic value based on the work they do in the home. Insure.com figures the wage a mom should earn for the 18 or so jobs she must tackle throughout the day is $126,725 in 2022, which is 9.2% higher than last year’s findings of $116,022. And according to Salary.com’s Annual Mom Salary Survey from May 2021, moms should be paid even more — $185,000! You might thing amount is unreasonable so lets compromise and use 50% of that figure which would amount to $92, 500. At any rate whether it’s a stay-at-home mother or in many cases today a stay-at-home dad, they have economic value, and that value should and needs to be insurance.
• Wealthy families who expect to owe estate taxes. Life insurance can provide funds to cover the taxes and keep the full value of the estate intact.
• Families who can’t afford burial and funeral expenses. A small life insurance policy can provide funds to honor a loved one’s passing and eliminate the need for a GOFUNDME campaign or pass the collection plate at church fund. It’s called FINAL EXPENSE LIFE INSURANCE.
• Businesses with key employees. If the death of a key employee, such as a CEO, would create a severe financial hardship for a firm, that firm may have an insurable interest that will allow it to purchase a life insurance policy on that employee.
• Married couples who retire and have a decision to make with Pension Pay-out (Single vs. Joint). Instead of choosing between a pension payout that offers a spousal benefit and one that doesn’t, pensioners can choose to accept their full pension and use some of the money to buy life insurance to benefit their spouse. This strategy is called pension maximization. We have an excellent strategy for this need!
• Those with preexisting conditions. Such as cancer, diabetes, or smoking. Note, however, that some insurers may deny coverage for such individuals, or else charge very high rates. However, we do have what is called GUARANTEED ISSUE LIFE POLICIES that require no examination OR HEALTH QUESTIONS. Anyone can get a policy regardless of health. There are in some cases a 1 or 2 year wait period before the full death benefit is paid with the exception of upon accidental death.

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Each policy is unique to the insured and insurer. It’s important to review your policy document to understand what risks your policy covers, how much it will pay your beneficiaries, and under what circumstances.

What Are the Benefits of Life Insurance?

• Payouts are tax-free.
• Life insurance death benefits are paid as a lump sum and are not subject to federal income tax because they are not considered income for beneficiaries
• Dependents don't have to worry about living expenses. Most policy calculators recommend a multiple of your gross income equal to seven to 10 years that can cover major expenses like mortgages and college tuition without the surviving spouse or children having to take out student loans. We have multiple ways to calculate the individuals needs based on a simple “NEEDS ANALYSIS”
• Final expenses can be covered. Funeral expenses can be significant and can be avoided with a burial policy or with standard term or permanent life policies
• Policies can supplement retirement savings. Permanent life policies such as IULs (Indexed Universal Life), can offer cash value, critical illness, and chronic illness in addition to death benefits, which can augment other savings in retirement as well as serve and an excellent alternative to the notorious 401k plan

How Does Life Insurance Work?

Life insurance works by providing a death benefit in exchange for paying premiums. Whether term life insurance which only lasts for a set amount of time, such as 1, 5, 10, 20 or 30 years then expires and has no cash value or permanent life insurance such as Whole Life which also features a death benefit but lasts for the life of the policyholder as long as premiums are paid.

A life insurance policy has two main elements —a death benefit and a premium. Term life insurance has only two main elements (death benefit and premium), but permanent life insurance policies also have a cash value element.

Death Benefit. The death benefit or the face value is the amount of money the insurance company guarantees to the beneficiaries identified in the policy when the insured dies. The insured might be a parent, and the beneficiaries might be their children, for example. The insured will choose the desired death benefit amount based on the beneficiaries’ estimated future needs. The insurance company will determine whether there is an insurable interest and if the proposed insured qualifies for the coverage based on the company’s underwriting requirements related to age, health, and any hazardous activities in which the proposed insured participates.

Premium. Premiums are the money the policyholder pays for insurance. The insurer must pay the death benefit when the insured dies if the policyholder pays the premiums as required, and premiums are determined in part by how likely it is that the insurer will have to pay the policy’s death benefit based on the insured’s life expectancy. Factors that influence life expectancy include the insured’s age, gender, medical history, occupational hazards, and high-risk hobbies. Part of the premium also goes toward the insurance company’s operating expenses. Premiums are higher on policies with larger death benefits, individuals who are at higher risk, and permanent policies that accumulate cash value.

Cash Value. The CASH VALUE of permanent life insurance serves two purposes. It is a like a savings account that the policyholder can use for emergencies or other cash needs. The cash accumulates on a tax-deferred basis and can be used as collateral against a loan from the insurance company. Some policies may have restrictions on withdrawals depending on how the money is to be used. For example, the policyholder might take out a loan against the policy’s cash value and have to pay interest on the loan principal. The policyholder can also use the cash value to pay premiums or purchase additional insurance. The cash value is a living benefit that remains with the insurance company when the insured dies. Any outstanding loans against the cash value will reduce the policy’s death benefit.

Let me note at this point without going into detail. The is a term called arbitrage that is a little-known banking secret that the average policy holder can use to leverage their saving like banks do. Arbitrage is the simultaneous purchase and sale of the same or similar asset in different markets to profit from tiny differences in the asset's listed price. It exploits short-lived variations in the price of identical or similar financial instruments in different markets or in different forms.

Banks don’t loan their money they loan out ours that we deposit with them in the form of checking, savings accounts, or certificates of deposits (CDs), etc. Then they loan our money back to us or others at a much higher rate than they pay use for the use of ours. Well, as a policy holder it is possible to borrow money from the insurance company (as long as you have the collateral cash value to cover it) at a say 4% interest rate and still leave your money with the insurance company that may earn what we call a “spread” of say 2-3% and actually accumulate more money than you may have to pay back including the interest. This is a simplified explanation but can be demonstrated with the math from one of our proprietary calculators.

What Factors Affects My Life Insurance Premiums?

• Age (Very simply the older you get. The more it costs!
• Gender (female tends to be less expensive due to on an average living longer than males)
• Smoking (smoking increases premiums, smokers are at risk for shorter life spans
• Health (poor health can raise premiums
• Lifestyle (risky activities can increase premiums)
• Family medical history (chronic illness in relatives can raise premiums)
• Driving record (good drivers save on premiums)

How Do I Qualify for Life Insurance?

Insurance carriers evaluate each life insurance applicant on a case-by-case basis, and with hundreds of insurers to choose from, almost anyone can find an affordable policy that at least partially meets their needs. Applicants can work with an independent broker free of charge to find the insurance they need. This means that almost anyone can get some type of life insurance policy if they look hard enough and are willing to pay a high enough price or accept a perhaps less-than-ideal death benefit. Insurance is not just for the healthy and wealthy, and because the insurance industry is much broader than many consumers realize, getting life insurance may be possible and affordable even if previous applications have been denied or quotes have been unaffordable.

In general, the younger and healthier you are, the easier it will be to qualify for life insurance, and the older and less healthy you are, the harder it will be. Certain lifestyle choices, such as using tobacco or engaging in risky hobbies such as skydiving, also make it harder to qualify or lead to higher rates. I always advise people to get as much life insurance as they can possibly afford when they are young and healthy.

Some of the uses of the death benefit include, but are not limited to:

• CREATE AN ESTATE: Where time or other circumstances have kept the estate owner from accumulating sufficient assets to care for his or her loved one, life insurance can create an immediate or instant estate.
• PAY DEATH TAXES AND OTHER ESTATE SETTLEMENT COSTS: These costs can vary from a low of three to four percent to over 35 percent of the estate. Federal Taxes are due nine months after death.
• FUND A BUSINESS TRANSFER: Business owners often agree to buy a deceased owner's share from his or her estate after death. Life insurance provides the ready cash to finance the transaction.
• PAY OFF A HOME MORTGAGE: Many people would like to pass the family residence to their spouse or children free of any mortgage debt. Often, a decreasing term policy is used, which decreases the face amount as the mortgage balance is paid down.
• PROTECT A BUSINESS FROM LOSS OF KEY EMPLOYEE: Key employees are difficult to attract and retain. Their untimely death may cause a severe financial strain on a business. Life insurance proceeds can be used to attract another key employee and offset any business losses.
• REPLACE A CHARITABLE GIFT: Gifts of appreciated assets to a charitable remainder trust can provide income and estate tax benefits. Life insurance can be used to replace the value of the donated assets. Proceeds from Life Insurance policies can be paid directly to a charity.
• PAY OFF LOANS: Personal or business loans can be paid off with life insurance proceeds.
• EQUALIZE INHERITANCES: When the family business passes to children who are active in that business, life insurance can give an amount equal to the value of the business to the other children or child who has not been involved. This avoids sibling strife when the owner passes away.
• CREATE AN ESTATE: Where time or other circumstances have kept the estate owner from accumulating sufficient assets to care for his or her loved one, life insurance can create an immediate or instant estate.
• PAY DEATH TAXES AND OTHER ESTATE SETTLEMENT COSTS: These costs can vary from a low of three to four percent to over 35 percent of the estate. Federal Taxes are due nine months after death.
• FUND A BUSINESS TRANSFER: Business owners often agree to buy a deceased owner's share from his or her estate after death. Life insurance provides the ready cash to finance the transaction.
• PAY OFF A HOME MORTGAGE: Many people would like to pass the family residence to their spouse or children free of any mortgage debt. Often, a decreasing term policy is used, which decreases the face amount as the mortgage balance is paid down.
• PROTECT A BUSINESS FROM LOSS OF KEY EMPLOYEE: Key employees are difficult to attract and retain. Their untimely death may cause a severe financial strain on a business. Life insurance proceeds can be used to attract another key employee and offset any business losses.
• REPLACE A CHARITABLE GIFT: Gifts of appreciated assets to a charitable remainder trust can provide income and estate tax benefits. Life insurance can be used to replace the value of the donated assets. Proceeds from Life Insurance policies can be paid directly to a charity.
• PAY OFF LOANS: Personal or business loans can be paid off with life insurance proceeds.
• EQUALIZE INHERITANCES: When the family business passes to children who are active in that business, life insurance can give an amount equal to the value of the business to the other children or child who has not been involved. This avoids sibling strife when the owner passes away.
• COLLEGE FUNDING FOR CHILDREN OR GRANDCHILDRREN: Cash Value increases in policy on a minor’s life (or the parent’s life) and can be used to pay college expenses and are have advantages that the traditional 529 college plans don’t provide. In addition, if the child decides not to attend college the cash value can be used for purposes other than college unlike the traditional 529 college plan. 
• SUPPLEMENTAL RETIREMENT PLAN: The NEW TYPE of life insurance can be designed as a Private Retirement Plan and be an alternative your current lousy 401k plan that has been termed as a “FINANCIAL FLOP [“ by the “father’ of the plan itself Ted Benna ( see Bloomberg BusinessWeek, May 20, 2016)
• EMERGENCY FUND: The CASAH VALUE of a permanent life insurance policy can serve as an emergency fund that is still lacking in so many homes which is one of the basic recommendations we make as financial planners.

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Various riders that can be added to most of our life insurance plans at a small premium. Here are a few:

• CTR: Child Term Insurance (5,000 – 20,000)
• DI- Disability Income Rider: Replaces a good portion of your income should you become disabled and can’t work. We call it “PAYCHECK” Insurance!
• CIR-Accelerates the Death Benefit should you become ill dues to a heart attack, stroke, cancer, paralysis, blindness, contact HIV while performing your duties as a healthcare worker, Kidney Failure, Major organ transplant, Coronary Artery Bypass Graft, and major burns
• Chronic Illness Rider-Accelerates the death befit should you become chronically ill and unable to perform 2 of 6 ADLs.
• WP- Waiver of Premium Rider- This rider will auto pay your premium by the insurance company should you become disabled and unable to or in some cases lose your job. 
• Spouse Rider-This allows a life insurance policy to be added to the base policy for your spouse
• ROP-Return of Premium-This rider can be added to one of our term policies that will guarantee you up to 75% of the return of premium paid into the policy at maturity. Call our team and we will find you the best life policy to fit your needs and your budget. We represent multiple companies and offer various types of life insurance policies. 

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