Perlin Estate Planning

Do You Believe These Life Insurance Myths?

“Life insurance can be tricky to figure out, with all its technicalities and rules.”

Investopedia’s recent article entitled “Top 10 Life Insurance Myths” looks at the top 10 misconceptions about life insurance. Hopefully, this information will answer some questions, dispel some incorrect notions and make the process of getting coverage a little easily.

1. “I'm single with no dependents, so I don't need coverage.” Well, even single people need at least enough life insurance to cover the costs of personal debts, medical expenses and funeral bills. If you’re uninsured, you may leave a rash of unpaid expenses for your family or executor to deal with. It can also be a terrific way for low-income singles to leave a legacy to a favorite charity.
2. “My coverage just needs to be twice my annual salary.” The amount of life insurance you need is based on your specific situation, due to the myriad factors to consider. You may need to pay off debts, like a mortgage, and provide for your family for several years.
3. “I have term life insurance coverage at work, so I’m good.” That depends. If you’re single with modest means, your employer-paid or -provided term coverage may do it. However, if you have a spouse and/or children or you’re confident you’ll need coverage when you pass away to pay estate taxes, more coverage may be required.
4. “I heard that the cost of my premiums is deductible.” In most cases, that is not true. The cost of personal life insurance is never deductible, unless the policyholder is self-employed, and the coverage is used as asset protection for the business owner. In that case, the premiums are deductible on Schedule C of Form 1040.
5. “I gotta have life insurance at any cost.” That’s probably accurate for most of us. However, those who have sizable assets and no debt or dependents may be better off self-insuring. If you have your medical and funeral costs covered, life insurance coverage may be optional.
6. “I should buy term and invest the difference.” Not necessarily. There are some distinct differences between term life and permanent life insurance—and the cost of term life coverage can become prohibitively high in later years. Therefore, if you know for certain that you have to be covered at death, look at permanent coverage. The total premium cost for a more expensive permanent policy may be less than the ongoing premiums that could last for years longer with a less expensive term policy. There’s also the risk of non-insurability. That could be disastrous for those who may have estate tax issues and need life insurance to pay them. This can be avoided with permanent coverage, because this policy becomes paid up after a certain amount of premium has been paid and remains in force until death.
7. “Variable universal life policies are always better than straight universal life policies over the long haul.” Many universal policies pay competitive interest rates, and variable universal life (VUL) policies have several layers of fees for both the insurance and securities parts of the policy. Therefore, if the variable sub-accounts within the policy don’t perform well, a variable policyholder may realize a lower cash value than a person with a straight universal life policy. Poor market performance can generate substantial cash calls inside variable policies that mean additional premiums must be paid to keep the policy in effect.
8. “It’s just the primary breadwinners who need life insurance coverage.” Not so. Think of the cost of replacing the services that have been provided by a deceased homemaker. They’re higher than you think. Insuring against the loss of a homemaker may make sense, especially when it comes to the expenses of cleaning and daycare.
9. “I always should buy the Return-of-Premium (ROP) rider on any term policy.” Well, there are typically various levels of return-of-premium (ROP) riders available for policies that offer this. Many financial experts say that it’s not cost-effective and should be avoided. The decision will depend on your risk tolerance and other possible investment objectives. A cash flow analysis will tell, if you might come out ahead by investing the additional amount of the rider elsewhere, instead of including it in the policy.
10. “I'm better off investing my money than buying any kind of life insurance.” Until you reach the breakeven point of asset accumulation, you need life insurance coverage of some sort (except for those who can self-insure). When you have $1 million of liquid assets, you can think about discontinuing or decreasing your million-dollar policy. However, you take a big risk when you depend solely on your investments in the early years of your life, particularly if you have dependents. If you die without coverage for them, there may be no other way to provide for them after the depletion of your current assets.

 This hopefully clears up some of the common misunderstandings about life insurance. Don’t leave life insurance out of your budget, unless you have enough assets to cover your expenses after you're gone.

Reference: Investopedia (July 2, 2018) “Top 10 Life Insurance Myths”

Should I Have Life Insurance?

“Out of all the different types of insurance we can invest in, life insurance seems to be the least important for many people. However, life insurance could be one of the most important policies that we take out.”

Life insurance helps to ensure that all our final expenses are paid, such as burial and funeral services, and that insurance beneficiaries are taken care of.  However, did you know that it can also provide many other benefits while we are alive?

Benzinga’s recent article, “Life Insurance Costs and Payouts at Different Ages,” explains that a life insurance policy is a contract you have with an insurance company. You pay them a premium, and they will give a lump-sum payment to your beneficiaries when you die.

There are basically two kinds of life insurance: term life and whole life. Term gives you coverage for a specific period. Whole life or permanent life insurance provides lifetime coverage that doesn’t expire. In addition, universal life insurance plans are frequently used to help with estate planning and to preserve wealth to be transferred to beneficiaries.

Term life insurance can be used to replace lost income during your employment years. It can provide a safety net for your family and help ensure that your family’s financial goals stay intact without your income, like paying for college tuition or the upkeep of a family business.

Whole life insurance is a type of permanent life insurance designed to provide the owner with lifetime coverage. The payments are usually fixed, and unlike term insurance, whole life has a cash value. The cash value works in the same way as a savings account and accumulates over time. These policies can be used as part of an estate planning strategy and help to preserve the money to be transferred to your family, if you pass away unexpectedly.

Universal life insurance policies can be used as long-term income replacement, which will last longer than your employment years. There are some universal life insurance plans that are created to focus on providing both death benefits and building up cash value over time that the owner of the policy may borrow against, while they’re living.

The amount you pay each year for your term or whole life insurance depends on several factors such as your health, lifestyle, and age. Your age when you apply for term or whole life insurance helps to determine the amount of your premium.

A life insurance policy is a guarantee that your family will be taken cared of when you pass. As noted above, the money they receive can help pay for your burial costs, any bills that you left unpaid, the mortgage, hospital bills, and any other debts.

Reference: Benzinga (April 2018) “Life Insurance Costs and Payouts at Different Ages”

Consider Life Insurance to be a Tool in Your Estate Plan

“Life insurance can be a very powerful financial tool when used properly.  It is often integral to estate planning for wealthy individuals, such as successful entrepreneurs.”

From paying estate taxes to addressing business obligations, life insurance regularly plays a very important role in estate planning, according to a recent Forbes article that asks “What Is Premium-Financed Life Insurance?”

There are many ways to pay for life insurance. One way is to borrow the money, which is called premium financing. There are several different ways to secure premium financing.

When financing life insurance premiums, a wealthy individual may borrow the money from a third-party lender. The borrower is then responsible for paying back the loan with interest. However, the internal tax-free growth of funds inside the life insurance policy can be used to defray some or all of these costs.

When a person borrows the money to pay the premiums, he or she is paying the interest on the loan annually.  However, that interest can also be bundled into the loan. Depending on the way it’s arranged, the life insurance policy can be used as collateral, or other forms of collateral might be used.

It also means that a premium financing arrangement must be monitored, because it’s typical to make adjustments in the deal over time.

There are very few successful entrepreneurs taking advantage of this solution.

In a survey of 262 successful entrepreneurs, only about 10% are using this strategy to purchase life insurance. Part of the reason for the low usage is that it’s not appropriate for a number of entrepreneurs. Another reason is that many financial professionals aren’t knowledgeable about this strategy. In a study of 803 financial advisors, while 40% responded that they are knowledgeable about financing life insurance, fewer than 5% have actually worked with a premium financed life insurance transaction for a client.

It’s crucial to understand the many variations of premium financed life insurance. It is a very versatile way to buy life insurance, with different ways to adjust the arrangement as your situation changes. However, making the strategy work well requires the expertise of a qualified professional with a strong understanding of this solution.

Reference: Forbes (October 20, 2017) “What Is Premium-Financed Life Insurance?”

When Can I Get the Life Insurance Company to Pay Out the Death Benefit?

“If you have the policy and death certificate when you file a claim, it may take as few as five business days to receive a check.”

A common question in settling the affairs of a loved one, is how long it generally will take after that person dies for the life insurance company to pay out the death benefit.

As a follow-up, what happens if the beneficiary doesn't know about the life insurance policy?

As Kiplinger explains in recent article, “How to Speed Up a Life Insurance Payout,” the more information you have about the life insurance policy, the quicker you can get the payout.

If you have a copy of the life insurance policy and a copy of the death certificate when you file a claim, it will expedite the process. If you have these items available, it can take as few as five business days after filing the claim to receive the payout.

If the beneficiaries don't have any idea that they are coming into money from the life insurance policy, the insurer may track them down, but not always.

The Social Security Death Master File will usually have deaths reported. Some state laws also require insurers to compare their files against those records and make contact with the beneficiaries when a death is reported. Some insurers will do this voluntarily.

If you believe the deceased had a life insurance policy but don't know the insurer, you might review their financial records and check for canceled checks, and contact any insurers or agents mentioned.

You can also make a request of the National Association of Insurance Commissioners' policy locator service. This service asks many life insurance companies to check their records for the policies.

You can also consult with the American Council of Life Insurers for more tips on locating a policy.

Reference: Kiplinger (June 7, 2017) “How to Speed Up a Life Insurance Payout”

Planning Ahead with Long-Term Care

“The experiences of people we care about often deeply affect us.”

As we think of our parents aging, we may also start to think about our own aging. Sometimes it takes a negative experience with a parent’s estate planning to motivate us to start planning for our own long-term care and end-of-life decisions.

WTOP’s recent article, “Preparing for old age: Long-term care, insurance and estate planning,” says the first step is to mirror the kind of conversations you held with your parents and have the same conversation with yourself.

Take a look at your vision for how you want to age and how you want to address your end-of-life issues, before you make any moves with your estate plan or insurance coverage. If you have a partner, first work independently on your own wishes, and then have a conversation together.

Working with aging parents can also make you think about your planning for long-term care insurance. Start the process when you’re in your 50s. The older you get, the greater chance you have of running out of time to save or of becoming uninsurable. Recent statistics published by AARP show that 52% of those individuals who turn 65 today, will develop some form of severe disability requiring long-term care support. The average lifetime cost of long-term care in retirement tops $250,000.

The next step is to review your current estate plan in light of your goals. Many individuals or couples who have a plan in place will forget about them, letting their documents become out-of-date. If you don’t have an estate plan yet, getting it completed should be a top priority. Your estate planning attorney is experienced at working with clients to understand their wishes and to create a plan that reflects those intentions.

Before executing a plan, you’ll need to calculate your total level of wealth, create a list of intended heirs and charitable organization names, as well as a divorce decree, if applicable. If you have minor children, you’ll need to designate guardians to act in your absence. It is also necessary to decide whether those same people will manage the inheritance for your children or whether you want someone else to assume that responsibility.

Planning for aging means taking careful consideration of many components of your financial plan. Look at how your retirement lifestyle and legacy plan could be impacted by a long-term care need.

Reference: WTOP (May 3, 2017) “Preparing for old age: Long-term care, insurance and estate planning”

Here’s What an Estate Plan Can Do for You

“It’s common for people to consider how they will eventually like their assets to be distributed among loved ones and ministry organizations. But perhaps you have not developed a comprehensive estate plan because you think that is only necessary for the extremely wealthy.”

The need for an estate plan applies to everyone, says Trust Advisor’s recent article, “Why An Estate Plan Is Beneficial.”

With a small estate, you should be even more careful to avoid unnecessary expenses and to retain the most resources for fulfilling your personal, financial, and charitable goals. The article cites four key reasons why you should have an estate plan:

1. Stipulating Care for Yourself. This includes a healthcare proxy, power of attorney and living will that states how you want to be cared for, if you become incapacitated.
2. Financial Security. Your will lets you specify the way that you want your assets distributed and to whom. Without a will, state probate law will determine who receives your assets.
3. Designating Guardians. If you have minor children, it’s critical to make written arrangements for their care. A will is the only legal way to do so in most states (e.g., California is an exception). You must designate a person that you want to be entrusted with the care of your children.
4. Designating Beneficiaries. Your estate plan will include completing beneficiary forms for insurance policies and retirement accounts. It’s a good idea to review your designated beneficiaries after any major life event, like marriage, divorce, a death in the family or the birth or adoption of a child. Remember, you can also name a charity as a primary beneficiary or contingent beneficiary in your plan.

Reference: Trust Advisor (April 29, 2017) “Why An Estate Plan Is Beneficial”

Even Young Adults Need Life Insurance!

As this recent article from CNBC  notes, even individuals in their 20's and 30's need to consider obtaining life insurance.  While end of life matters may seem a long way off, none of us knows what the future holds, and there are important reasons for young individuals to be protected. 

One very important reason to obtain life insurance at a younger age is to protect your loved ones, should you pass away unexpectedly.  If you have a spouse and/or young children who depend on your income, what would happen to them and their lifestyle if you were no longer able to provide for them?  This is an important question and a very critical reason to obtain life insurance.  Or even if you don't have a family of your own, one in five millennials is financially supporting a parent.  What would happen to that parent if the income stream was no longer available? 

Think also about if you have any debts that are co-signed by another individual.  Should you pass away unexpectedly, that other individual may be held responsible for your liabilities.  Having a good life insurance policy would at least provide funds for your co-signor to pay off that debt.  

Or what if you're going to become an uninsurable candidate through medical issues or career choices?  Then now is the time to set up that life insurance policy!

Term life insurance is a very inexpensive way to obtain a huge gain.  And with the uncertainties of life, there's no good reason not to put that plan in place now.  With a few simple questions, I can get you set up with a policy that can provide you and your loved ones with the peace of mind to know that should the unforeseen occur, you're ready for it.  Give me a call today! 

 

Time to Review your Financial Planning

“There's no time like the present to take stock of your financial life.”

Business Insider’s recent article, “A financial adviser shares a 5-step checklist to complete before the end of 2016,” notes that many folks spend more time planning vacations than they do their finances or retirement. The beginning of the new year is an excellent time to take a comprehensive review of what you have—both assets and liabilities—to prepare for the year ahead and any financial milestones or challenges you may face. These can include things like marriage, a home purchase, adopting a child or retirement.

Here are some important financial steps to at the start of 2017.

Take financial inventory. Consider aggregating your accounts and identifying what you have, such as IRAs, bank accounts, and life insurance. You should take an inventory of your debt and determine how you will pay it off in 2017.

Review your estate plan. OK, it’s not that exciting, but it’s important. Don’t wait until this time next year, because tragedy can strike at any time. If you fail to plan properly, and something unfortunate happens, your family may be left unprepared. It's critical to have control over what will happen to everything that you leave behind.

Update your beneficiary forms. This is a task that should be reviewed periodically—especially if you've been married or divorced, had children or retired in recent years. A designated beneficiary on an insurance policy or an IRA has precedence over a will or a trust. As a result, it's important to make adjustments after major life changes.

Make some smart tax moves. You should know how the taxes work on your 401(k)s and IRAs, so take a look to be certain you're saving effectively. The maximum annual contribution to a 401(k) is $18,000 or $24,000 if you're over 50. Therefore, if you've got a holiday bonus, that’s the perfect reason to add to your retirement accounts.

You should also remember that you can gift as much as $14,000 per person annually to as many people as you'd like without a gift tax liability. In addition, with any tax planning for retirement, you might think about converting your retirement money through a Roth IRA conversion ladder. Money transferred from a traditional IRA to a Roth is tax- and penalty-free after paying taxes on the conversion.

Evaluate your path to retirement. Retirement planning is important at every stage of life, so be pro-active. If you create a plan, it can hold you accountable. It is important to speak with a qualified estate planning attorney. Don’t just “set it and forget it.” Stay on top of issues and continually monitor the situation.

If retirement is in the near future, or if you're planning to retire early, start to have discussions about identifying guaranteed income, social security, your pension options, and how to utilize any or all of them into your overall income plan, along with the tax consequences.

Reference: Business Insider (December 9, 2016) “A financial adviser shares a 5-step checklist to complete before the end of 2016”

Let’s Keep an Easy New Year’s Resolution

“This is the year that you should keep your financial resolutions.”

We all take some time at the end of the year to reflect. As you consider 2016, you can certainly agree that the year had plenty of memorable moments, such as the presidential election, market volatility, as well as a long list of tragic world events.

The US News’ article, “A Simple Resolution for the New Year,” says with 2017 already looking to be a year full of unknowns, you should take a break and think about changes for next year in a New Year's resolution. But this time, you should have a plan to actually stick to.

We all like the idea of making a New Year's resolution…it’s based on our desire to improve. Good intentions go a long way, but we’ve all fought through the jammed gym in January, only to hear crickets while you exercise in March. Instead of biting off more than you can chew—so to speak—find one thing and make that your focus for all of 2017.

While a recent survey found that 40% of respondents put exercise and diet at the top of their resolution lists for 2017, right behind at 37%, was getting a better handle on money and saving more. Regardless of your age, here are simple and obtainable financial resolutions to think about for every generation.

Millennials: Try living on a cash basis for one month. This can be a real eye-opening experience and make you more aware of new debt. In addition, you can see the true cost of living expenses, which can help you to use better budgeting habits.

Generation X: Protect your family and yourself. Many of these folks are now parents and are also focusing on careers. They’re reaching their maximum earning potential. A great resolution for Gen Xers is to purchase life insurance and/or disability insurance, in the event something were to happen to you or your spouse. You should also be sure that your 401(k) is being maxed out to leverage the full employer match. Look into developing a financial plan and examine tax planning to maximize savings.

Baby Boomers: Review your estate plans. Make sure that your estate plan is up-to-date and, at the same time, review all beneficiaries on life insurance policies, IRAs and other plans.

You should also plan for many years ahead, since Americans are living longer. It means a longer retirement for boomers, maybe 20 years or more. Be sure your budget is on track and that investments are keeping pace with cost of living increases.

You can certainly think of numerous other potential financial resolutions that can be made for the New Year. But whatever generational group you’re in, a simple resolution to save even a small amount can make a big difference.

Reference: US News (December 20, 2016) “A Simple Resolution for the New Year”

Estate Planning for New Parents

Think that having an estate plan is only for the super wealthy or those in the final stages of their life?  You’d be wrong!  As explained in greater detail in this article from Nasdaq, a critical time for developing an estate plan is upon the birth of your first child.  Why at this time?  Not only does an estate plan establish your wishes regarding the passing on of assets and end of life decisions, but, most importantly for new parents, an estate plan establishes who will care for your child upon your incapacity or passing.  This ability to name a guardian for your child is of critical importance to new parents.

You probably spent the last nine months – if not years – envisioning the life you would like to give to your child.  While your vision of course never contemplated your passing, in the unlikely event of your passing, what is more important than ensuring your child continues to receive the life you pictured for him or her?  Rather than leaving such a critical decision up to the court – or worse, a family custody battle – it is prudent to discuss your wishes with your family and establish a written estate plan to guide in these circumstances.  Through an estate plan, you can name exactly who you want to care for your child upon your incapacity or passing.  You can also include specifics about how you would like your child to be raised.  Concerned that the selected guardian might not be the best to manage your child’s finances?  No problem!  You can always name a second individual to act as the manager of your child’s financial affairs. 

In addition to this critical step of establishing a guardianship plan for your child in the event of your incapacity or passing, it is also important to speak with your estate planning attorney about the possibility of obtaining life insurance for yourself and/or your spouse as an additional safeguard for your family.  

Your new baby has arrived and you are filled with the love and amazement – and exhaustion – that comes with new parenthood.  But don’t forget, amidst the new parent haze, about the importance of a contingency plan for your child.  Give me a call today and let’s discuss the best way to ensure your child is safe and protected, no matter what the future may bring.