As part of our financial planning process, we examine and quantify our client's assets in relation to their stated goals and objectives. When we uncover a need for life insurance, we will make a recommendation as to the amount and type of insurance that is appropriate.
There is no obligation to purchase life insurance through Capital Strategies. However, since we have no direct affiliation with any particular carrier, we can solicit quotes on behalf of our clients from numerous carriers, to obtain the most appropriate coverage at the most competitive rates.
The following are four examples to illustrate how different types of insurance may be used based on different situations:
Highlighted below are some of the primary types of insurance with a brief description.
- For a young family, it could be for family protection or mortgage insurance. Term insurance is often used for this purpose because it is the least expensive and is only needed for a specified period.
- A retiring executive, might choose the "single life" pension option, and purchase insurance for less than the contingent annuitant option under the plan, to protect the spouse in the event of premature death. Universal Life insurance is often used for this purpose to assure coverage won't be outlived or to leave an inheritance for children.
- A couple, with an estate exceeding the amount which can be left estate tax free, may choose a survivorship or 2nd to Die policy, and place it in an irrevocable trust, to assure tax free dollars to preserve the estate for their heirs.
- A family with charitable goals may use insurance to leave an inheritance to the next generation replacing substantial assets gifted to charity.
Term life insurance is temporary insurance and has no cash value. Premiums can increase each year, for Annually Renewable Term (ART), or remain level for a fixed number of years, say 5, 10, 15, 20, 25 or even 30 years. These policies are inexpensive and can meet goals of a finite duration.
Whole life insurance is a form of permanent insurance, designed to remain in effect for life. It is suited to permanent needs such as the payment of estate settlement costs and taxes. Premiums do not change and the cash value is known based on a guaranteed rate. Because there is no risk to the insured that the premiums will increase or that the cash value won't accumulate, these policies are usually more expensive.
Universal life insurance differs from Whole Life in that, in exchange for the potential to pay less for the coverage, the insured takes on some investment risk. For example, these policies can pay more market-like interest rates. When interest rates are high, cash value can accumulate more quickly and offset the amount or time frame for paying premiums. Conversely, when rates are low, you may have to pay more, or for a longer period. This flexibility allows (within guidelines) the policy owner to modify the face amount or premium in response to changing circumstances.
Survivorship or 2nd-to-die coverage can be Universal Life or Whole Life and pays a death benefit only when the second person dies. As a result of the unlimited marital deduction instituted by Congress in 1981, estate taxes can be postponed until the second death. These policies create the dollars to pay the taxes when needed and can be substantially less expensive than individual coverage on either spouse.
Life insurance, without a doubt, is the most effective way to manage the financial risk of death. By leveraging a small percentage of one's estate, capital is instantly available to compensate for lost income, provide liquidity for estate taxes and last expenses, cover a buy/sell agreement, etc. It provides peace of mind, and security if properly coordinated with your estate planning.
Please contact us to discuss your needs today.