The Purpose of Life Insurance
Article written by Brian Bickett
Do I have enough life insurance? It’s a simple question with a simple answer. However getting from the question to the answer requires a bit of exploration. And that exploration always begins with “Can you tell me why you have life insurance?” Let’s not get bogged down in the weeds of which type, how much and the period. Instead let’s take a strategic perspective as to how is it serving you in your life.
Why should I have life insurance?
As a fee-only financial planner; education, ethics and experience concerning the subject of life insurance have shaped my philosophy that life insurance has four purposes, and four purposes only.
To Replace Lost Income – When beneficiaries are dependent on the income of the insured, the death benefit can be used to help with replacing the lost income upon the insured’s death. The death benefit can be used to create on-going income, to payoff existing debts or a combination of the two.
To Cover Burial Costs – When someone does not have enough assets to cover their burial costs and one of their goals is to not place that burden on their survivors, a life insurance policy can fill this need.
To Transfer Assets to the Next Generation – There are times when using life insurance for wealth transfer is one of the most efficient ways to do so. Life insurance policies can create a fully valued tax-free asset upon receipt of the first premium.
To Fund a Buy-Sell Agreement – Business partners should have a buy-sell agreement in place which outlines the transition of the business ownership when one of the partners passes. Many times, life insurance is the tool utilized to fund the potential purchase of the deceased partner’s share of the business.
Find Your Financial Roadmap.
Ultimately, I advise clients to match life insurance policies with their needs and goals. This includes the type of insurance, the length of the policy, and the amount of the death benefit. There are definitely instances where a client needs more or less death benefit, longer or short length of the policy, and even a different type of life insurance to better match what they are trying to accomplish. The tool that is life insurance needs to fit the task at hand. And the truth is there are situations when life insurance is not needed at all. For people that, for various reasons, do not need to provide for lost income, have sufficient assets to cover their burial costs, and do not have wealth transfer goals; life insurance should not be part of their financial plan.
Life insurance can be a confusing topic simple due to the many different types of policies. Let alone the many life insurance companies that can and do offer different benefit types, options and riders all within the same type of policy. If you would like help planning the ride of your life and would like to feel more confident about the life insurance you have – it’s what I do for a living. Click here to schedule an introductory call.
Develop a roadmap to get you from where you are to where you want to go and then put it in action.
Hire a CERTIFIED FINANCIAL PLANNERTM Professional who can provide you with one-time objective advice.
Additional Articles You May Find Interesting
Article written by Brian Bickett The presidential election is looming next week and, considering the many surprises 2020 has already brought us, the outcome of the election is shrouded with uncertainty, speculation, and angst. Beyond how the election winner will...
Article written by Brian Bickett One of the key provisions of the CARES Act, the coronavirus relief act that took effect this spring, permitted retirement account holders to bypass required minimum distributions (RMDs) for 2020. RMDs are the annual withdrawals...
The Social Security Board of Trustees released their annual report at the end of April once again this year. The report for 2019 spans 276 pages that go into detail about the current financial status, future assumptions, and projections. Once again…
Start your journey to financial freedom and peace of mind today.
Iron Mountain Financial Planning LLC (“IMFP”) is a registered investment adviser offering advisory services in the States of South Dakota and Wyoming and in other jurisdictions where exempted. Registration does not imply a certain level of skill or training. The presence of this website on the Internet shall not be directly or indirectly interpreted as a solicitation of investment advisory services to persons of another jurisdiction unless otherwise permitted by statute. Follow-up or individualized responses to consumers in a particular state by IMFP in the rendering of personalized investment advice for compensation shall not be made without our first complying with jurisdiction requirements or pursuant to an applicable state exemption.
All written content on this site is for information purposes only. Opinions expressed herein are solely those of IMFP, unless otherwise specifically cited. Material presented is believed to be from reliable sources and no representations are made by our firm as to another parties’ informational accuracy or completeness. All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation.