Protection Planning: Life Insurance Facts

Who needs Life Insurance?

There is a very good chance that you do. If you are married, in a committed relationship or are single, you most likely need Life Insurance. If someone depends on you financially, you probably need Life Insurance. It goes without saying that Life Insurance is designed to cover expenses tied to funeral costs and temporary income replacement for the loved ones you leave behind. It can help ascertain that certain life goals are not suddenly rendered unattainable in your absence. It can keep another jarring life change (downsizing, employment, lifestyle) at bay while your family, spouse, children, etc. adjust to life without you.

It’s not about how much Life Insurance you need, but how much your family needs if you aren’t here.

LIFE INSURANCE FACT

  • Over 80% of people overestimate the cost of Life Insurance, but depending on your circumstances it could cost around $1 a day.
  • Term Life Insurance provides protection for a specific period of time—the “term”—and is designed for temporary circumstances.
  • Permanent Life Insurance offers lifelong protection, and you can accumulate cash value on a tax-deferred basis. There are four main categories of permanent life insurance- whole, variable, universal, and variable universal.
    • Living Benefits & Access to Cash- A policy’s cash value can be surrendered, partially or totally, for cash that can be directed to other important uses like a child’s (or grandchild’s) education, a business opportunity or supplemental retirement income. It is also possible to borrow or withdraw funds from your insurer at relatively low interest rates.
    • If at anytime you need to stop paying premiums, the cash value can keep your insurance protection in force for a period of time.
    • Cash value accumulates on a tax-deferred basis, similar to assets in most retirement and college savings plans.
    • As long as you don’t allow your policy to lapse, you have coverage for life and won’t need to worry about being unable to afford coverage should your health deteriorates.
    • With many policies premiums remain constant and stable over your lifetime, whereas with term insurance premiums often increase as you age.

Did you know… the death-benefit proceeds of a Life Insurance policy are almost never subject to federal income taxes.

RETIREMENT & LIFE INSURANCE

If your children are on their own and your mortgage and debts are paid off, you might feel your need for life insurance has passed. But if you died today, your spouse or partner could outlive you by 10, 20, or even 30 years. Would they have to make drastic lifestyle adjustments to make ends meet or adequately adjust to their new reality? Adequate Life Insurance coverage can help widows and widowers avoid financial struggles in retirement.

HOW MUCH DO YOU NEED

The most important part of buying Life Insurance is determining how much you need. A good rough estimate for coverage is 8x – 10x your salary, but this may be too much or too little depending on your individual circumstances. The simplest equation to calculate your Life Insurance needs is to subtract your spouse’s earnings, savings, investments and Life Insurance you already own from your current and future financial obligations.

MORE TO KNOW

We have a helpful booklet with further details on what you want to know about Life Insurance. Adding Life Insurance to your Protection Plan is as easy as contacting the team at LBDIAS to answer three questions (that’s about five minutes!) to get started. Click the button below to view, download or print the What You Need to Know About Life Insurance booklet.

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Life By Design Investment Advisory Services is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein.

 

Life Insurance with Affordable Long-Term Care

Hey Baby Boomers…

Are you in the final years of planning your retirement? How prepared are you for long-term retirement needs? We’d encourage you to implement a plan now and not wait until it’s too late.

In an unpredictable world, it is essential to plan for the future and protect ourselves and our loved ones from unforeseen circumstances. As we age, the need for long-term care becomes increasingly important, but the rising costs associated with it can be a cause for concern. Fortunately, there is a solution that provides both financial security and peace of mind: combining life insurance with affordable long-term care coverage. In this blog post, we will explore the benefits and options of this approach and how it can safeguard your future.

It is a common belief that Long-Term Care Insurance is too expensive (though it’s in many cases less expensive than your coffee habit). In addition, we find clients often worry about paying for a product that they may not even need, or end up using. Thankfully, the Long-Term Care market has changed drastically over the last several years. There are many possibilities open to you that could address and overcome your reasons for hesitating in placing your protection.

Types of Life Insurance Policies with Long-Term Care Riders:

Several life insurance policies include long-term care riders or add-ons that can be a cost-effective way to secure long-term care coverage. These riders allow policyholders to access a portion of their death benefit while they are alive, specifically for long-term care expenses. There are two primary types of policies to consider:

  1. Traditional Long-Term Care Riders: These riders are added to permanent life insurance policies and provide long-term care coverage. They offer the flexibility to use the benefits for various types of care, such as nursing homes, assisted living facilities, in-home care, and adult daycare centers.
  2. Hybrid Long-Term Care Policies: These policies combine life insurance with long-term care benefits. They provide a death benefit to beneficiaries if the policyholder passes away but also include a long-term care component. If long-term care is needed, the policyholder can access a certain percentage of the death benefit to cover those expenses.

For example depending on your unique situation we may consider pairing a Permanent Life Insurance Policy with Long-Term Care Rider to affordably cover all your needs.

For example:

John Doe- male, age 45, in good health- can purchase a $300,000 universal life insurance life policy for family income replacement for $182 per month. For an additional $15 per month John can add a long-term care rider that can accelerate the $300,000 death benefit at 2% per month ($6,000) while living to pay for qualified long-term care expenses.

Now what exactly does that mean?

John has life insurance to protect and provide for his family- and the ability to use the death benefit while living (no death necessary!) for long-term care expenses should the need arise. This means, no matter what the future holds for John his single policy covers his expenses.

Advantages of Combining Life Insurance and Long-Term Care

By combining life insurance with long-term care coverage, you can enjoy several benefits, including:

  1. Cost-effectiveness: Compared to purchasing separate life insurance and long-term care policies, combining them can be more affordable in the long run.
  2. Financial security: You have the peace of mind knowing that both your loved ones and your long-term care needs are covered.
  3. Flexibility: The funds can be used to cover a range of long-term care services, giving you the freedom to choose the care that suits your needs best.
  4. Asset preservation: Accessing the long-term care benefits through a life insurance policy can help protect your other assets, such as savings and investments.

For more information about life insurance with living benefits for long-term care contact us and ask about Protection Planning. Life By Design Investment Advisory Services can help you find the Protection Planning options that make the most sense for you and that can offer you peace of mind.

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Life By Design Investment Advisory Services is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein.

 

How to Safeguard Your Financial Future with an Income Protection Plan

In today’s uncertain world, it has become increasingly important to protect ourselves and our loved ones from unforeseen circumstances that could impact our financial stability. One such crucial measure is an income protection plan, which provides a safety net in the event of an inability to work due to illness, injury, or disability. In this blog, we will delve into the concept of an income protection plan, its benefits, and why it should be a vital part of your financial strategy.

What is an Income Protection Plan?

An income protection plan, also known as disability income insurance, is a type of insurance policy that replaces a portion of your income if you are unable to work due to a covered illness, injury, or disability. Unlike other forms of insurance that cover specific medical expenses or physical damages, income protection plans focus on maintaining your regular income stream during your recovery period.

How Does it Work?

Income protection plans typically provide a percentage of your pre-disability income as monthly benefits, allowing you to meet your financial obligations and maintain your standard of living. The coverage amount is determined by factors such as your occupation, income level, and chosen policy terms. It is essential to review the policy terms carefully to understand any waiting periods, benefit duration, and exclusions that may apply.

Benefits of an Income Protection Plan

  1. Income Replacement: The primary benefit of an income protection plan is the assurance that a significant portion of your income will continue to be paid even if you are unable to work. This ensures financial stability for you and your family during challenging times.
  2. Flexibility: Unlike worker’s compensation or social security disability benefits, which have specific eligibility criteria, an income protection plan is often more flexible. It covers a broad range of illnesses, injuries, and disabilities, offering you greater peace of mind.
  3. Customization: Income protection plans can be tailored to suit your unique circumstances. You can choose the coverage amount, waiting period, and benefit duration that aligns with your financial goals and needs.
  4. Tax Benefits: In many countries, the premiums paid for income protection plans are tax-deductible. This can help reduce your overall tax liability while ensuring comprehensive coverage.
  5. Holistic Financial Protection: By providing a steady income during your recovery period, an income protection plan safeguards your ability to meet financial commitments, such as mortgage payments, utility bills, and educational expenses. It prevents the need to dip into savings or rely on loans, preserving your financial well-being.

In an unpredictable world where accidents, illnesses, and disabilities can disrupt our lives, having an income protection plan is a wise financial decision. It offers an essential safety net, ensuring that you can maintain your lifestyle and support your loved ones during difficult times. By customizing your plan to fit your unique circumstances and carefully reviewing the policy terms, you can establish a strong foundation for your financial future. Prioritizing an income protection plan is a proactive step towards securing your livelihood and providing peace of mind for you and your family. Life By Design Investment Advisory Services can help you understand how much protection you need and with getting an Income Protection Plan in place. Book your appointment now.

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Life By Design Investment Advisory Services is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein.

 

Securing Your Future: Exploring The Importance of Life Insurance and Available Options

Life insurance is universally recognized as an essential pillar of a financial plan for providing much needed capital in the event of loss of a breadwinner. It is also fundamental to other planning needs, such as estate planning to pay for settlement costs and taxes, and business planning for business continuation or key person protection. However, considering the remarkable tax properties of permanent life insurance, it should also be considered as foundational planning tool for an entire financial plan.

The thought of buying life insurance is not something that most people relish, yet, if it is done right, it can provide the greatest peace-of-mind a person can have. An untimely death can have a major financial impact on those left behind, particularly if there is a mortgage to pay, credit card debt, or an outstanding auto loan. Even final expenses can be a burden. The key to life insurance is to do it right. Following this helpful advice may ease the burden and have you feeling good about your purchase right from the beginning.

Life Insurance Options

There are a variety of life insurance policy options that you can choose from, with each designed for the specific needs of the insured. The more common types of life insurance include:

Term Life Insurance

Term life insurance provides protection for a very specific period, with the premium typically remaining the same throughout that period. For instance, if you take out a $500,000 term life insurance policy for 20 years, and die in year 19, your designated beneficiary will receive the $500,000 tax free. However, if you do not die during that 20-year term, the policy simply expires. Most term life policies offer an extension at the end of the term, but the premium will rise substantially if the policy is extended.

Universal Life Insurance

Universal life insurance offers a lot of flexibility that a term policy does not, though premiums are much higher for a universal life policy than a term life policy. The reason for the higher premiums is that a portion of the premium paid monthly or yearly is divided between the cost of the insurance, and a cash value policy. The cash value policy allows the policy cash value to build over time, on a tax-deferred basis, while also allowing policy holders to determine the level of death benefits they wish to derive from the policy. In addition, upon your death, beneficiaries will receive the death benefit as well as the cash value portion of the policy. Another nice feature is that universal life policy holders can change the amount of the premium by changing the amount of death benefit, and can move funds between the insurance portion and the cash value portion of the policy.

Whole Life Insurance

Whole life insurance is permanent; designed to remain in force throughout the life of the policy holder, provided that premiums are paid on a timely basis. Like universal life, whole life insurance premiums are typically mush higher than term life premiums. Like universal life, whole life policies also have a cash value, with part of the premium being invested. However, unlike universal life, beneficiaries will only receive the death benefit portion of a whole life policy upon your death, as the cash value of a whole life policy is designed to be used by the insured during his or her lifetime.

Financial Benefits of Life Insurance

Increased After-Tax Income in Retirement

While IRAs and 401(k) plans are considered essential retirement planning tools, they have several disadvantages. The first is they are merely tax-deferred vehicles. Although that is an advantage while accumulating capital, it can be a big disadvantage during the distribution phase. Taxes are due on distributions when the money is needed most and at an uncertain tax rate. That makes these traditional retirement vehicles uncertain at best and a diminishing asset at worst.

By converting these accounts over time into a permanent life insurance plan, tax-deferred becomes tax-free when the income is needed. Also, income taken from cash value life insurance is not included in the Social Security tax calculation as is the income from IRAs and 401(k) plans.

This can be especially advantageous when having to deal with required minimum distributions at age 73 (this changes to age 75 starting in 2033), which can force you into a higher tax bracket. By taking distributions from an IRA or 401(k) plan and funding a life insurance policy, you can reduce your retirement plan balances to avoid a possible RMD problem while creating a reservoir of tax-free income.

Improved Investment Performance

You might be wondering if life insurance should ever be used as an investment. Some advisors view life insurance as an expense. While there are additional costs associated with life insurance, there is no other asset that can perform the way a permanent life insurance plan can, especially for long-term objectives such as retirement.

As an investment, life insurance not only removes the tax risk associated with most other vehicles, it provides a valuable hedge against stock market volatility and interest rate risk associated with bonds. Depending on the type of permanent life insurance, it also provides guaranteed returns. Investment models have shown that, when cash value life insurance is included as an asset in an investment portfolio, it can increase long-term investment performance while reducing portfolio volatility. By any measure, that is not an expense.

More Control Over Income and Taxes

Most people don’t think of life insurance in terms of what it can do for them while they are living. However, considering that cash value life insurance is the only type of asset that can allow you to accumulate capital tax-free and take tax-free withdrawals (up to the cost basis and thereafter as tax-free loans) anytime without penalty, it is unparalleled in its planning opportunities.

Most investment income can potentially trigger stealth taxes, such as alternative minimum tax, Social Security tax on income, or the 3.8% additional tax on net investment income. It can also increase taxes by pushing your income up through qualification thresholds for phased-out deductions, tax credits and exemptions. Income taken from life insurance is not considered investment income; therefore it can actually lower your taxes.

By the way, all the while you have been enjoying the tax benefits of life insurance, you have substantially expanded your legacy estate with a tax-free death benefit.

While life insurance should be viewed by most people as an essential protection vehicle, when used in the right situations, the remarkable properties of life insurance should be viewed as a gift for people who have portfolios to protect and taxes to save.

Choosing the Right Option

Buying a life insurance policy can be an intimidating experience, which is the main reason why people procrastinate. Armed with the fundamental knowledge about your own needs, the different types of policies and how the process works, you should be able to enter the process in control and with greater assurance that your life insurance needs will be met.

With so much at stake for you and your family, it doesn’t make sense to simply guess at the amount of life insurance they will need. Simple formulas, such as a multiple of annual earnings, are likely to fall short of the actual need. It’s also not very comforting if you feel you own too much life insurance. By taking a little extra time up front, you can arrive at an amount that you and your family know will provide the right amount of financial security. Several factors need to be considered:

  • current assets and current liabilities
  • earning capabilities of the surviving spouse
  • income available from other sources
  • future income needs of dependents at all stages of life
  • important family obligations such as college education
  • protection of a family owned business

Your financial advisor can provide you with a no obligation analysis which can crunch the numbers based on a few different scenarios and help you determine what protection option makes the most sense for you. If you don’t have a life insurance protection plan in place or you haven’t reviewed your coverage recently in relation to your current life circumstances, contact us today. Life By Design Investment Advisory Services can help you take the first step in getting the coverage you need with minimal time investment on your part.

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Life By Design Investment Advisory Services is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein.

 

Talking to your Aging Parents about Finances

For many families, finances are rarely discussed in detail, even as children mature into adulthood. But as your parents age, especially if they live into their 80s and 90s, there’s a chance that they may lose their cognitive function and be less capable of managing various tasks. This can be upsetting for some parents and they may try to fight it, or deny that it’s happening.

While you may encounter some resistance, it’s important to talk to your parents about their finances and work through potential issues they may face as they age. Waiting until past due notices start piling up, or worse, your parents fall prey to a scam, can make life more difficult for everyone. Preparing now to try to prevent these problems is easier than trying to pick up the pieces after everything falls apart. Once your parents understand that you’re coming from a place of love and understanding, they will slowly come around.

Here are some suggestions for preparation steps you can take right now.

Get Your Own Financial House in Order

If you plan on helping your parents later in their lives, you should try to be in a financially secure place yourself. Check that your current financial strategy considers contingencies like assisting your aging parents.

Read the Room

You know your parents, so you know how they may react to a conversation about their finances. If you feel they wouldn’t react well to a scheduled meeting, try to work finance-related topics into your regular conversations. Be patient, as it may take a few conversations before your parents open up.

Discuss Financial and Estate Planning Goals

Talk to your parents about their lifestyle, needs, and priorities as they age. Check if they have an estate plan in place, or are working with an estate planning professional. If they haven’t done so recently, they may want to look into hiring a financial professional to review their retirement planning strategy.

Make a Checklist

Determine what your parents have in place, and check that they have proper, up-to-date documentation. Some of the main documents they may have are:

  • Current will
  • Living trust
  • Durable powers of attorney
  • Medical directives
  • Insurance policies
  • Health records
  • Tax returns
  • Credit card and loan documents
  • Bank and investment statements
  • Social Security information
  • Location of safe deposit boxes and their keys
  • Contact information for all professionals

Enlist Some Help

If you have siblings, include them in your conversations. They can help relieve some of the emotional burden on you and provide support while you talk to your parents. You may want to consider including a financial professional in your conversations as well. They can act as an objective third-party as you navigate some of the more emotional conversations around aging and finances.

Explore Long-Term Care Insurance

Insurance is one way to help offset the financial burden of long-term care if one or both of your parents need it. A private room in a nursing home could cost over $108,000 a year, and if paying out of pocket, that can quickly deplete assets. Learn More

Research Senior Assistance Programs

Investigate the service and resources available to seniors, both government and community-provided programs. If you aren’t sure where to start, the ACL Eldercare Locator can help you find programs in your area.

Respect Their Dignity

It can be hard for parents to let their children help with their finances, especially if they’ve been independent for several decades. They’ve spent a large part of their lives managing a household and being in charge. Many of these suggested steps can be taken gradually, and you can adjust as your parents become more comfortable with discussing their financial picture.

Sources
“Nursing Home Costs in 2022”, SeniorLiving.org, April 20, 2022, https://www.seniorliving.org/nursing-homes/costs/

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Life By Design Investment Advisory Services is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein.