Great Information on Insurance Planning From Erin Tatham - Providence Capital Advisors
A solid financial plan will continuously evolve to address the different challenges and goals you face professionally and personally. While many families wisely focus on savings and spending throughout their various stages of life, it’s easy to overlook another valuable approach – insurance.
While every stage of life will have its own unique financial needs, the proper use of insurance can be beneficial throughout the entirety of your long-term financial plan. Strategically, there are far more ways to use insurance wisely than can be explained in one blog post, but here are a few ideas every individual and family should consider.
Insurance as a Protectionary Measure. For any family, it is critical to identify situations that could derail your financial future and those that could create financial catastrophe. For example, the loss of a family’s primary income provider can create a heavy financial burden for a surviving spouse. The good news is this can, and should, be easily addressed. An advisor can help you understand how much life insurance you may need, and which type best addresses your objectives. You should also consider purchasing long term disability coverage. Statistics show one-in-four Americans will experience a long term disability, making it a real possibility your family will need the income from this type of benefit. Aside from life and disability insurance, it’s also prudent to make sure you have a proper understanding of your personal insurance policies – homeowners, auto, personal property, and especially liability/umbrella.
Insurance as a Vehicle for Building Wealth. Insurance can be used as part of a comprehensive financial plan to help increase the amount you can leave to beneficiaries and to cover final expenses. While term life insurance can be used for these purposes, more complex planning can include permanent life insurance to aid in wealth accumulation.
Permanent life insurance offers unique benefits that do not exist with term life insurance. Permanent policies provide a death benefit but also accumulate savings (cash value) that can grow with favorable tax treatment. Growth of the cash value is generally tax-deferred, meaning you don’t pay taxes each year on its earnings and income as long as it adheres to certain terms. There is further value in this type of insurance as you have the ability to take potentially tax-free policy loans. With this opportunity to use insurance as a savings tool, you can consider permanent life insurance as tax advantaged long-term investing that can be used for future expenses like estate taxes or even college education.
It’s important to note that permanent life insurance is not appropriate for everyone. There are a lot of considerations, and you should fully understand the costs and restrictions. It is best to consult with a financial professional to see if this strategy makes sense for you.
Insurance as an Estate Planning Tool. Life insurance is commonly discussed in estate planning because it can provide financial support for heirs. Benefits are typically received tax free and can be used for final taxes and expenses, college education, funding business buy-sell agreements and providing financial support for survivors. For most families, the focus of insurance is to make sure survivors can cover significant expenses such as paying for their home or college tuition. It’s also a strategic way to provide a lump sum that can be invested to generate ongoing income for a surviving spouse.
Erin Tatham, Providence Capital Advisors