SERVICES
LIFE INSURANCE
What is Life Insurance?
Life insurance is a contract between an insurance policy holder and typically an insurance company. An insurance company promises to pay a designated beneficiary a sum of money in exchange for a premium, upon the death of an insured person.
History of Life Insurance
Life insurance, in some form, has been in existence for hundreds of centuries. Benjamin Franklin organized the first American insurance company in 1752 as The Philadelphia Contributionship. Organized in 1759, the first life insurance company in the American colonies was the Presbyterian Ministers’ Fund. After 1910, life insurance had a steady growth in the United States. By 1989, 2,270 life insurance companies were in business employing almost two million workers.[1] In 2019, U.S. insurance industry net premiums written totaled $1.32 trillion with premiums by life/annuity insurers accounting for 52%, according to S&P Global Market Intelligence.
[1] https://www.britannica.com/topic/insurance/Historical-development-of-insurance
What is the Purpose of Life Insurance?
Life insurance is purchased to protect the ones we love in the event we pass away prematurely. The main purpose of life insurance is providing a Death Benefit.
Some other reasons include:
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1. Coverage Is Affordable
2. Cover Burial Expenses
3. To Replace Lost income
4. Pay Off Debt
5. Build A Cash Value
6. College Planning
7. Business Planning
8. Cover Inheritance/Estate Taxes
9. Create A Legacy
10. Peace of Mind
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Depending upon your need, there are several types of life insurance to accomplish your goals.
Different Types of Life Insurance for Different Needs
When it comes to estate plan, life insurance can be a valuable tool. There are basically two categories of life insurance, term and permanent life insurance. Term life is designed to provide coverage for a specific period of time and expire at the end of the term. A permanent life insurance contract is designed to last for your entire lifetime. Certain fees and expenses will reduce the cash value. If the policy is surrendered during the surrender period, surrender charges may apply. For information on how life insurance works, including fees and expenses, as well as your specific circumstances, please contact us.
Term Life
Term life insurance, also known as pure life insurance, is a type of life insurance that guarantees a tax-free payment of a stated death benefit if the covered person dies during a specified term. Once the term expires, the policyholder can either renew it for another term, convert the policy to permanent coverage or allow the term life insurance policy to terminate.
Term life policies have no value other than the guaranteed death benefit. There is no savings component as found in a whole life insurance product.
Typically, Term life insurance is purchased by young people with children and/or a home mortgage. Individuals may obtain large amounts of coverage for reasonably low costs. Upon the death of a parent, the significant benefit can replace the lost income.
Whole Life
Whole Life Insurance is a type of life insurance that you own for your entire lifetime. The amount of the death benefit or face amount can be selected to meet your needs.
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Premiums are fixed and can be paid monthly, quarterly, semi-annually, or annually. As more premiums are paid, your policy builds cash value that grows on a tax-deferred basis. Prior to the 1970’s, premium payments for whole life contracts were collected weekly, at the home of the owner of the policy, by the agent who sold the contract.
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The monthly cost for a whole life policy is higher than it would be for a term life policy, but with each payment you make you gain cash value that grows at an interest rate set by your insurer. You can borrow against a Whole Life policy for any purpose. Loans, however, require you to pay interest and any borrowed amount you do not pay back is deducted from the payout to your beneficiary at the time of your death.
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Whole life policies were very popular prior to the advent of Universal Life.
Universal Life
Universal life (UL) insurance is permanent life insurance that has the potential to, like whole life insurance, accumulate cash value. Most UL insurance policies contain a flexible-premium option. However, some require a single premium (a one-time lump sum premium payment) or scheduled fixed premium payments. You may also increase or decrease the dollar amount of your premium payments and make additional lump sum payments to your policy. You have the option to skip premium payments if your account has built sufficient value because the premiums will be taken from the accrued value. Since a Universal Life policy accrues cash value, you can borrow against this cash value for any purpose. A Universal Life policy also has the potential to earn a higher rate of return than a whole life policy, although there is a risk that your rate of return could drop. This typically occurs in a falling interest rate environment. Policy loans and withdrawals will reduce available cash values and death benefits, and may cause the policy to lapse or affect any guarantees against lapse. Additional premium payments may be required to keep the policy in force.
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One type of universal life contract we use often in our practice is called Survivorship Universal Life.
Survivorship Universal Life
Survivorship Universal Life (SUL), also called joint second-to-die insurance, is a type of permanent life. It covers the lives of two or more individuals, and only pays out to the beneficiaries when all the insureds have passed away. This type of policy offers the flexible premium payments and investment options of a universal life policy.
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We at Legacy Planning Services, LLC have been utilizing SUL contracts to help families grow and protect their legacy. In the case of business partners, this type of insurance may be used to cover the costs of transferring the ownership of a business.
For the past four decades we have been utilizing SUL insurance in our practice as an estate strategy for couples looking to mitigate the cost of estate/inheritance tax and other liabilities of their estate for their heirs. In addition, the death benefit provided by SUL insurance has been a great tool for potentially helping families create hundreds of thousands of dollars of tax free wealth to leave behind for their loved ones.
Final Expense
Your family means the world to you. The last thing you want is to leave them with major expenses after you’re gone. Final Expense insurance is life insurance that helps provide the money they may need to pay medical bills, funeral expenses, legal fees or unpaid bills. It is an insurance policy that lets you decide how your assets are distributed. By preparing in advance, you can help protect your loved ones from unnecessary financial hardship and stress when you die. You also can distribute your assets in the manner you decide!
Tax Free Inheritance
If you are a senior or boomer, wealth accumulation and asset preservation are important concepts you’ll want to know more about. If you don't have a lot of
wealth built up or are looking to increase the value of the legacy you’ll leave for your family, then a Wealth Creation Transfer Strategy may be one way to substantially increase the value of your estate. With the help of a savvy estate preservation consultant, a Wealth Creation Transfer Strategy allows individuals to sometimes double or triple the value of an asset by simply repositioning it into either an individual life or SUL insurance policy. Up until now it was thought of as
a strategy that only benefited the wealthiest of estates. In many cases, utilizing this strategy will result in these funds passing to your family TAX FREE!
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In Conclusion
When determining if your estate plan could benefit by including life insurance, I suggest you consider the following:
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When you die, will your heirs have to pay estate/inheritance taxes?
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If you own a family business, do you know how you’ll leave ownership interest in a way that protects your family’s interest?
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Do you have a special needs child who will need lifelong financial support?
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Are you looking to leave a larger legacy behind for your family or a charity?
To learn more about protecting your family and growing your legacy by including life in your planning strategy Click Here
Any Wealth Creation Transfer Strategy introduced is not intended to provide specific legal or tax advice and cannot be used to avoid tax penalties or to promote, market, or recommend any tax plan or arrangement. Please note that Legacy Planning Services, LLC and its representatives do not give legal or tax advice. You are encouraged to consult your tax advisor or attorney.
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Keep in mind that most life insurance policies require health underwriting and, in some cases, financial underwriting. Guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company.