Life insurance reinvented
Life insurance has been reinvented in the last 50 years and can be a fundamental cornerstone of a financial plan because of its many features and benefits. There are many compelling strategies available using modern life insurance that can enhance and improve a financial plan.
Features
Life insurance can be used just for protection purposes or can also be used as part of an asset accumulation strategy. The death benefit from all life insurance policies is generally received tax-free by the beneficiary.1 Some types of life insurance policies also offer the potential to accumulate cash value. The cash value in a policy, if sufficiently funded, can be accessed using tax-free loans and withdrawals for any purpose, including to supplement retirement income.2 Some insurance companies also offer an enhanced feature, called a rider, that can provide lifetime income.3 The cost of coverage can be customized to fit the coverage needs and ability to pay for the coverage. Term life insurance is generally less costly than permanent life insurance, because there is no cash value accumulation.
Benefits
In addition to tax free death benefits, the cash value accumulation in life insurance grows tax deferred, and the accumulation can then be withdrawn tax free, using policy loans. Living benefits are also available in the form of accelerated death benefit riders. These riders allow access to the death benefit in the event of a qualifying terminal, chronic or critical illness.4
How it fits into a financial plan
Protection is the primary purpose of life insurance. Lost income, asset loss, key employee coverage and estate equalization are examples of protection that life insurance can be used for. Examples of lost income are the unexpected death of an income provider, and a loss of social security income when one spouse dies. Asset loss could occur due to the cost of long-term care which could put a spouse in financial peril who doesn’t need the care. Business’s’ need to protect them selves from the loss of a key employee due to a death or disability. Life insurance is a useful tool to equalize estates if some family members are not included in the family business for the next generation.
1 Internal Revenue Code § 101(a)(1). There are some exceptions to this rule. Please consult a qualified tax professional for advice concerning your individual situation.
2 The use of cash value life insurance to provide a tax-free resource for retirement assumes that there is first a need for the death benefit protection. The ability of a life insurance contract to accumulate sufficient cash value to help meet accumulation goals will be dependent upon the amount of extra premium paid into the policy, and the performance of the policy, and is not guaranteed. Policy loans and withdrawals reduce the policy’s cash value and death benefit and may result in a taxable event. Withdrawals up to the basis paid into the contract and loans thereafter will not create an immediate taxable event, but substantial tax ramifications could result upon contract lapse or surrender. Surrender charges may reduce the policy's cash value in early years.
3 Life Insurance income riders typically have limitations and restrictions to exercising them, including but not limited to, minimum and maximum age requirements, years policy has been in force and minimum policy values. Receipt of other policy benefits that reduce policy values may also reduce the ability to exercise the income rider. Receipt of income benefits will reduce the policy’s cash value and death benefit, may reduce or eliminate the availability of other policy and rider benefits, and may be taxable.
Riders are supplemental benefits that can be added to a life insurance policy and are not suitable unless you also have a need for life insurance. Riders are optional, may require additional premium and may not be available in all states or on all products. This is not a solicitation of any specific insurance policy.
4 Payment of Accelerated Benefits will reduce the Cash Value and Death Benefit otherwise payable under the policy. Receipt of Accelerated Benefits may be a taxable event, may affect your eligibility for public assistance programs, and may reduce or eliminate other policy and rider benefits. Please consult your personal tax advisor to determine the tax status of any benefits paid under this rider and with social service agencies concerning how receipt of such a payment will affect you.
Securities and investment advisory services are offered solely through registered representatives and investment adviser representatives of Equity Services, Inc. [ESI], known as Vermont Equity Services in WI, NH, CO & MO, Member FINRA/SIPC, 1 N. Franklin Street, Suite 3450, Chicago, IL 60606. PH: 312-236-2500. Weyers McKeever Financial Partners is independent of ESI.
TC7429068(1224)3