Brian Gruss Licensed Insurance Planner

You Never Out Grow Your Need for Life Insurance

The insurance rating company, A.M. Best & Co, reported that less than half of all American households have any life insurance other than that provided by an employer. Why have so many Americans turned their backs on life insurance? There are several answers to that question.

With all of the media focus on living longer and preparing for retirement, Americans have shifted their concentration toward saving for retirement by putting their money into tax-favored accounts. Life insurance companies have been marketing the investment aspects of policies rather than death benefits in spite of the fact that most consider life insurance a poor investment choice. Class-action lawsuits against insurance companies alleging product misrepresentation have also contributed to life insurance earning a bad reputation.

The chief reason to buy life insurance is the protection it provides through the death benefit. The proceeds your beneficiaries receive can replace the income they lost as a result of your death and provide for future needs, such as paying for a child’s education. Investing in the stock market is not a substitute for life insurance. For one, life insurance guarantees a return for the money you pay in premiums. Even under the best market conditions, you are never guaranteed a return on the money you invest in stocks or mutual funds. In fact, most brokers advise that you invest only money you can afford to lose. Even if you do manage to assemble a stock portfolio that provides a reasonable rate of return, that return must accumulate over time in order to grow large enough to cover your family’s long-term needs. The problem arises if you die before amassing the amount needed. With life insurance, the death benefit is available whenever you die.

The other issue with leaning on a stock portfolio to cover long-term financial needs is that portfolio values never remain constant. As market conditions change, so does the value of your stock portfolio. If the market happens to be in a down cycle when you die, asset values will be reduced at the time your family needs them the most. If they have to sell assets, not only will they fail to net as much money as you would have hoped, they will also have to pay taxes on any capital gains. With life insurance, they can receive death benefits tax-free and with proper planning, they will avoid paying estate taxes on the money as well.

Talk with your insurance agent, Brian Gruss, to determine how much insurance you need to best protect your family’s finances in the event of your death. And never overlook the death benefit value of life insurance.

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Why You Need Life Insurance Even After Your Children Are Grown

According to a study conducted earlier this year by the Insurance Information Institute, couples that feel they no longer need life insurance after their children are grown could leave themselves vulnerable to major financial problems. The research noted that life insurance is most often purchased to protect a surviving spouse and minor children. However, these policies are typically allowed to lapse after a couple’s youngest child reaches 18.

The study went on to recommend that even though the children are grown, college tuition has been set aside and the mortgage is almost paid, couples should still discuss with their insurance agent the benefits of continuing their current coverage or purchasing another life insurance policy before their existing one expires. The most important reason for doing so is income replacement. A surviving spouse must be at least 60 years old before becoming eligible for Social Security survivor benefits. However, these benefits are allocated on a reduced basis because a surviving spouse must be 65 or older, depending on their late spouse’s birth year, to be eligible for full Social Security survivor benefits. Life insurance can help replace lost income for the surviving spouse when a wage earner dies.

When a couple is considering how much life insurance to buy, the Institute recommends they determine how much they will need to replace what is referred to as the “hidden” income that is lost when a wage earner dies. Hidden income is money an employer contributes to a 401(k) or similar savings plan, or uses to pay for employee health insurance coverage.

Other important factors to consider include the financial condition and physical health of an elderly parent, any financial commitments made when there were two incomes, such as the purchase of a second home, and the needs of grown children still living at home.

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When Planning Wealth Transfer Be Sure to Consider Asset Protection

When planning for your family after you have passed, you should ensure the assets you leave behind are not subject to the claims of creditors.  Life insurance is a unique way to protect your dependents, and many state laws provide protection by exempting insurance proceeds from the claims of creditors.  Some state laws even protect policy cash values during the lifetime of the owner.

Added protection can be achieved by owning a life insurance policy within an irrevocable trust.  A trust can hold life insurance outside the reach of an insured’s creditors.  This will protect the beneficiaries from paying the debt of the insured with the death benefits received, which could leave them with nothing.  A trust can also include “spendthrift” provisions, which may help protect the trust from the claims of the beneficiary’s creditors.  These provisions allow the trustee discretion in providing trust distributions to beneficiaries.

Asset protection is not intended to hide money from creditors, but to isolate and protect valuable assets from being subjected to several events, such as a lawsuit, asset freeze, or bankruptcy.  Basically, asset protection maximizes the allowed exemptions in accordance with state or federal law, while legally protecting assets.

However, a caveat: asset protection is not intended for hiding assets from ex- or current spouses, business partners, legitimate creditors, investors and the like.  In fact, if a person is discovered to be concealing assets from such entities, they will be subject to harsh punishment by law.

A recent use for asset protection has accompanied the increase of identity theft: by keeping certain assets “under the radar,” there is no way to link protected assets by using your personal information, such as your social security number or personal name.  Thus, should you become a victim of identity theft and find yourself without funds while the bank takes months to investigate your case, you will still have the protected assets to live off and will not be severely affected.

There are several different ways to utilize asset protection; even if you are not in debt and never plan to be, you would still find great value in an asset protection policy.

Laws vary between states, so it is important to consult with legal counsel about protections offered in your state.

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