life-insurance

Life Insurance – The Dirty Word in Financial Planning

Resistance to life insurance usually begins with, “What if I don’t need to use it.” You could use the same argument with homeowners insurance, auto insurance and flood insurance. You don’t need it until you need it. It is worth noting that as people age and accumulate wealth, the need for life insurance may diminish. Term life insurance, in most cases, helps bridge the gap to when life insurance will no longer be needed and insures against you dying prior to your life expectancy.

Do I Need Term or Permanent Life Insurance?

Which type of life insurance is best: term or permanent? The answer is that it depends upon the unique parameters of the individual or business. There is no answer that is acceptable without discovering those distinctive needs.

Term insurance is a guaranteed life insurance policy for a specified term elected between 5 to 30 years of coverage. Permanent means the life of the policy is not limited to a specific time horizon. Many permanent plans may be used for advanced estate planning, income planning and business succession planning.

What Is Insurable Interest?

There are rules that must be followed when applying for life insurance, the largest being the need for an “insurable interest.” Insurable interest means there must be a valid reason for buying life insurance. Common examples of insurable interest for individuals are income replacement for a spouse in the event of the breadwinner dying, ensuring child support payments continue and replacing income in retirement.

Life Insurance For Businesses

Life insurance is often used in businesses for protection and business succession planning. The insurable interest rules are still required although they are different with a business. Frequently, insurable interest may be insuring against the demise of a key employee because they are expensive to replace, creating a financial burden for the business. Most businesses have partners, shareholders or members owning a part of the business. This is where buy/sell agreements are arranged with life insurance being a common tool to insure against the death of a partner. It gives the business the ability to buy back shares in that event. In both cases, insurable interest is the need for liquidity to protect the business. There are many additional business planning strategies requiring life insurance for insurable interest, but those mentioned are the most common.

Life Insurance Offers Peace of Mind

Life insurance offers protection in the event of the untimely death of a breadwinner for a family or a key employee or partner in a business, offering peace of mind to individuals and business owners.  Properly utilized, the benefits eliminate the “dirty word” perception created by the improper application of life insurance by a financial planner.

Do You Need Life Insurance

Only a qualified financial planner can answer that question based on your unique needs. A life insurance salesperson may not have those qualifications and may simply be trying to make a sale. As always please consult with an advisor who has your best interest in mind before you make a financial product purchase. Yes, life insurance is a financial product and used wisely and in the correct circumstances, it can enhance your financial picture. When purchased on a whim or as part of a slick sales pitch it can diminish your cash flow and tie up assets that may have been more suitably invested elsewhere.

Please pick up the phone or send me an email if you need assistance making the decision and I can help guide you in the proper direction and determine which products are best for your overall financial plan. The consult is free and could possibly save you money, time and stress.

This is not intended to give specific legal, tax or investment advice. Advisory Services offered through Nepsis Advisor Services, Inc.; An SEC Registered Investment Advisor.

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Rick Torrington

Rick Torrington, CFP® has been offering sound comprehensive financial, retirement, asset protection and wealth management advice to his clients in Sarasota and most of Florida for close to 20 years. He is diligent in his efforts to provide clarity and financial knowledge to the public through his articles and ebooks.