September is NATIONAL LIFE INSURANCE AWARENESS MONTH! Now is the best time to evaluate your existing life insurance policy and/or what type of life insurance is best for you and your family and/or business. Life insurance is the most flexible and leveraged product available to humankind!
Let me cover some of the basics before getting into life insurance uses, scenarios and benefits. In general, life insurance (ALL TYPES OF INSURANCE) is state regulated (not Federal), meaning, for example, that New York and New Jersey have different products and pricing. One of the first questions I ask new clients is: “What state(s) other than New York do you have a property or business address?”
This is different than the stock market (FINRA: Financial Industry Regulatory Authority) and the banking industry (FDIC: Federal Deposit Insurance Corporation). Federal rules are the same in every state. It is important to work with an agent or broker that is licensed in multiple states.
AGENT VERSUS BROKER! Independent brokers are in a better position to help you than “captive agents” also known as “career agents.” Independent brokers represent you, the client, and offer numerous insurance companies (we have over 100). They must be well-versed on all policies to find the best fit for you at the right price point. Captive agents (Allstate or New York Life etc.) are employees of their company. They usually offer proprietary products first to qualify for their company-sponsored trips, subsidized health insurance benefits and 401k matches. Make sure your agent places your needs before his or her own!
BIGGEST MYTH: Life insurance ONLY benefits my heirs when I am deceased. FACT: This is false! MY TOP 10 LIFE INSURANCE SCENARIOS LIST:
- NEW PARENTS: Income replacement and financial protection for the loss of a parent, financial breadwinner or stay-at-home-parents.
- HOMEOWNERS: Mortgage protection for families to keep the family in the home after an unexpected loss.
- COLLEGE ENDOWMENT PLANNING: Cash-value life insurance is EXCLUDED FROM THE FAFSA (Free Application for Federal Student Aid)! Life insurance cash-values (as well as annuities) do not count toward the FAFSA (known as FAFSA friendly assets) hence, lowering your EFC (expected family contribution). For example, for every $100,000 a parent repositions from a (mutual funds, stocks, bonds, 529, CD’s, bank account etc.) this will lower your EFC about $5,500. Lowering your EFC by $5,500 can qualify a student for an addition $22,000 (4 years X $5,500/year) of Merit-Based FREE Endowment Grant Money which you do not have to pay back.
- LONG-TERM CARE FUNDING: Long-term care insurance is expensive. It can cost over $5,000/year for someone in their 50’s. Most people do not know that the newer life insurance policies have “chronic illness riders” that can function in a similar fashion to long-term care. These riders allow you to access a portion of your death benefit (usually tax-free) to pay for your chronic illness needs while living. We have access to 2 companies in New York that have these riders FOR FREE on low-cost term insurance policies.
- BUSINESS OWNERS: Key Person Insurance– Many businesses have a “key person” that makes the business go. This insurance gives your business financial protection for the unexpected death of your business’ key person.
- BUSINESS PARTNERSHIP: This works very well when businesses (like law-firms for example) have partners. BUY-SELL AGREEMENT/BUYOUT INSURANCE gives a business financial protection for both the business and that person’s family after an unexpected death. For example, 2 male partners in a business worth $1 million. Each partner A and B buys a policy worth $500,000 each. Partner A dies. Partner A’s wife gets the $500,000 death benefit (TAX FREE) and partner B inherits the business. If there were no agreement or insurance, deceased Partner A’s wife is now Partner B’s new business partner.
- TRADITIONAL BURIAL POLICY: These are small policies designed to cover the cost of burial, casket, funeral etc. We have access to “GUARANTEED ISSUE POLICIES” for people between the ages of 50-80 regardless of health, if they are not currently in the hospital, assisted living or a nursing home.
- SYSTEMATIC SAVINGS PLANS: Cash-value life insurance policies can be set up as a pension plan or supplementary pension. They work well to dovetail with 401k plans because 401k’s are 100% taxable upon distribution, whereas life insurance plans are tax deferred and can be tax free.
- ESTATE PLANNING: Life insurance policies can be owned by a trust hence, not includable in your estate. Life insurance is a great way to leverage off the insurance company (pennies on the dollar) to pay State and Federal Death Taxes, leaving a legacy for the next generation.
- PERMISSION SLIP TO SPEND MONEY: When I meet with clients who have multiple investment accounts, the first thing I ask is “What is the purpose of each account?” Usually 1 or 2 accounts are “for the kids.” Life insurance can replace the investments much cheaper allowing people to start spending those accounts because they now have the piece of mind knowing the kids will receive the tax-free death benefit instead of a taxable investment. Life insurance cash-values are also protected from creditors. The death benefit bypasses probate.
WINDOW OF OPPORTUNITY: Due to Covid-19, most insurance companies have filed with New York State to raise premiums. This is a great time to review NOW before the life insurance premiums rise!
Are you confused yet? You are not alone. Feel free to contact me at 917-359-3985 or Rob@InsuranceDcotor.us for a review at NO COST for Wave readers.
Be Safe and Keep the Faith!