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© AWSCPA E-Newsletter By Martin Solutions Group |
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AWSCPA's Financial Services Corporate Sponsor:    |
INSURANCE PROTECTION FOR LIFE’S KEY STAGES
An article from Corporate Financial Services Partner - MassMutual
Whether you are just getting started in life, are in your peak earning years, or are nearing or in retirement, the need for insurance protection may change. Life cycle planning helps identify insurance needs that are common to particular stages of life.
Starting Out
Between the ages of 25 to 35, many of you are just getting started in life—marrying, establishing families, and building careers. During these years, the untimely death of a primary breadwinner, or one partner in a dual income couple, could seriously jeopardize a surviving spouse’s or family’s financial future. For those in this age bracket, life insurance can be used to help replace a lost spouse’s earning potential. In the event of a premature death, a life insurance policy death benefit can be a source of funds to help provide a continuing source of income, to pay off a mortgage, or to save for a child’s college education.
The Peak Earning Years
During the period between the ages of 35 and 55, as a family’s assets increase, its need for life insurance may also change. At this point, those of you who own term policies may wish to convert to permanent insurance. Permanent insurance offers the potential for tax-deferred cash accumulation. The cash value can be accessed through a policy loan, free of taxes or penalties. The loan interest rate generally is comparable to traditional lending rates. However, it is important to note that any policy loan that is outstanding when the insured dies will reduce the policy’s death benefit amount.
Another concern during this period is protecting one’s ability to earn income. According to the Life and Health Insurance Foundation for Education (LIFE), before the age of 65, approximately one out of five Americans will suffer a disability with a duration of at least one year (LIFE, 2006). Women between the ages of 35 and 65 are 40 percent more likely than men to become disabled for 90 or more days (www.halfapaycheck.com/stats.html). Since even one year of disability could easily wipe out many years of savings, it is important to plan ahead with individual disability income insurance.
Some life insurance policies also allow a rider called a waiver of premium. With this additional coverage, at an additional cost, if the insured becomes disabled, the insurer will pick up the cost of the premiums with no repayment required. Thus, despite a disability, the insured can rest assured that life insurance coverage won’t be adversely affected.
Nearing Retirement
As retirement approaches, generally between the ages of 55 to 67, women with assets in excess of $2,000,000 (in 2006) may be subject to estate taxes. Life insurance offers a practical and affordable means of creating liquidity at death to help pay estate taxes. One approach is to establish an irrevocable life insurance trust (ILIT). When properly executed, the trust purchases a life insurance policy in an amount at least equal to the projected estate taxes. The policy premiums are paid with gifts from the insured to the trust. At the insured’s death, the trust provides tax-free funds to help cover the estate tax liability.
The Retirement Years
After retirement, a fresh concern may arise. Personal assets that have been accumulated could be easily depleted if the need for long-term care should occur. Nursing home costs now average more than $50,000 per year, according to the American Association of Retired Persons (AARP, 2006) and could be as much as twice that amount in some states (www.notaburden.com/producers/generalinformation.php). Although Medicare typically commences at age 65, it generally does not cover the cost of long-term care. Medicaid, the U.S. government program established to pay health-related expenses of the poor, will pay for long-term care. But, to qualify, you must meet Medicaid’s very low income and asset tests. Long-term care insurance provides the resources to pay for health care expenses should the need arise, along with the opportunity to maintain personal and financial independence. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel.
A sound insurance protection plan can help bring financial security and peace of mind throughout life. By understanding the concerns that are common at each life stage, women and their families may be in a better position to anticipate their needs and to take steps to plan accordingly.
Copyright 2006 Liberty Publishing, Inc. All Rights Reserved.
An article from Corporate Financial Services Partner - MassMutual
Whether you are just getting started in life, are in your peak earning years, or are nearing or in retirement, the need for insurance protection may change. Life cycle planning helps identify insurance needs that are common to particular stages of life.
Starting Out
Between the ages of 25 to 35, many of you are just getting started in life—marrying, establishing families, and building careers. During these years, the untimely death of a primary breadwinner, or one partner in a dual income couple, could seriously jeopardize a surviving spouse’s or family’s financial future. For those in this age bracket, life insurance can be used to help replace a lost spouse’s earning potential. In the event of a premature death, a life insurance policy death benefit can be a source of funds to help provide a continuing source of income, to pay off a mortgage, or to save for a child’s college education.
The Peak Earning Years
During the period between the ages of 35 and 55, as a family’s assets increase, its need for life insurance may also change. At this point, those of you who own term policies may wish to convert to permanent insurance. Permanent insurance offers the potential for tax-deferred cash accumulation. The cash value can be accessed through a policy loan, free of taxes or penalties. The loan interest rate generally is comparable to traditional lending rates. However, it is important to note that any policy loan that is outstanding when the insured dies will reduce the policy’s death benefit amount.
Another concern during this period is protecting one’s ability to earn income. According to the Life and Health Insurance Foundation for Education (LIFE), before the age of 65, approximately one out of five Americans will suffer a disability with a duration of at least one year (LIFE, 2006). Women between the ages of 35 and 65 are 40 percent more likely than men to become disabled for 90 or more days (www.halfapaycheck.com/stats.html). Since even one year of disability could easily wipe out many years of savings, it is important to plan ahead with individual disability income insurance.
Some life insurance policies also allow a rider called a waiver of premium. With this additional coverage, at an additional cost, if the insured becomes disabled, the insurer will pick up the cost of the premiums with no repayment required. Thus, despite a disability, the insured can rest assured that life insurance coverage won’t be adversely affected.
Nearing Retirement
As retirement approaches, generally between the ages of 55 to 67, women with assets in excess of $2,000,000 (in 2006) may be subject to estate taxes. Life insurance offers a practical and affordable means of creating liquidity at death to help pay estate taxes. One approach is to establish an irrevocable life insurance trust (ILIT). When properly executed, the trust purchases a life insurance policy in an amount at least equal to the projected estate taxes. The policy premiums are paid with gifts from the insured to the trust. At the insured’s death, the trust provides tax-free funds to help cover the estate tax liability.
The Retirement Years
After retirement, a fresh concern may arise. Personal assets that have been accumulated could be easily depleted if the need for long-term care should occur. Nursing home costs now average more than $50,000 per year, according to the American Association of Retired Persons (AARP, 2006) and could be as much as twice that amount in some states (www.notaburden.com/producers/generalinformation.php). Although Medicare typically commences at age 65, it generally does not cover the cost of long-term care. Medicaid, the U.S. government program established to pay health-related expenses of the poor, will pay for long-term care. But, to qualify, you must meet Medicaid’s very low income and asset tests. Long-term care insurance provides the resources to pay for health care expenses should the need arise, along with the opportunity to maintain personal and financial independence. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel.
A sound insurance protection plan can help bring financial security and peace of mind throughout life. By understanding the concerns that are common at each life stage, women and their families may be in a better position to anticipate their needs and to take steps to plan accordingly.
Copyright 2006 Liberty Publishing, Inc. All Rights Reserved.
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