Q; What Is Life Insurance?

A: Life insurance is a type of insurance that pays money when someone passes away. That’s simple.  Life insurance, like any other financial product, is a tool to assist the beneficiary when there is an economic loss, due to the death of the insured that extends well beyond just funeral or final medical expenses.

Q: Why should I care to have Life Insurance?

A: The loss of future income, due to the death of a breadwinner, can have a severe impact on the lifestyle of the surviving family members. Debt owed by the deceased may become due and payable as well as possible estate or inheritance taxes.  Life insurance can create an immediate source of funds to enable the payment of expenses and to provide a source of future income for your survivors.

Q: Why do People Buy Life Insurance?

A: Times have changed, and the reasons people buy life insurance have grown from the original purpose. The following is a list of some of the more common reasons:

• Income Replacement- Protect the premature death of a spouse or parent so that the loss of income is not devastating to the family.

• Payment of Outstanding Debts- Such as mortgages, car payments, and credits.

• Final Expenses- Funeral and other administrative expenses.

• Education Funding- The death of a parent may mean that the quality of education, intended for a child, may be out of reach.

• Emergency Fund- Any adjustment expenses, such as time off work and medical and counseling expenses.

• Special Needs Child- Life insurance provides a guarantee that the funds will be there to care for those special needs.

• Business Continuation- To provide funding to assist in orderly transfer of business ownership in the case of an owner’s death- life insurance guarantees that the business is transferred as intended.

• Business Insurance- Key Person, Executive Bonus, Split Dollar, and Deferred Compensation funded with life insurance.

• Estate Taxes- Under current tax law, life insurance can provide liquidity at death to pre-fund the estate tax liability. This may not be necessary if the Estate Tax is permanently repealed.

• Charitable Giving- A charitable-minded client may leave a gift to a favorite organization, without significantly reducing the size of the estate, by using the death benefit to replace the value of the property gifted to heirs.

• Equalizing Inheritance- Provides additional liquidity to assist in providing each child with equal shares of their parents’ assets.

• Income In Respect of a Decedent- People die owning assets that have not yet been taxed; these taxes then become the obligation of the beneficiary. Life insurance provides liquidity to assist in the payment of these taxes.

• Second Marriages- There can be conflict when a parent with children remarries. Life insurance on the parent provides the new spouse financial security from the insurance coverage. At the same time it allows the children to receive the parent’s estate immediately. This can avoid unwanted animosity between the children and the new spouse and allow them to live in harmony.

Q: Is proper planning for everyone?

A: As the famous saying goes, only two things in life are certain: death and taxes. And we all want to protect both. With proper planning, we can minimize the risks associated with the financial impacts of both scenarios: death and taxes. Talking to a licensed financial advisor will allow you to plan ahead and take action steps towards achieving your goals.