What to Consider When It Comes to Life Insurance + Estate Planning

John Lennon said it perfectly: “Life is what happens to you while you're busy making other plans.” As we grow, building our families and making future plans, life insurance may not be at the top of our to-do lists. Perhaps it has crossed your mind though, and now may be the time to start thinking about the next step more seriously. 

Today, we’re chatting with Tim Wells, Executive Vice President at Crane Agency, about the top things an individual or business should consider when evaluating the need for life insurance, and some other additional considerations when it comes to estate planning. 

Q: Who is life insurance best suited for?

Virtually anybody. The purpose of life insurance is not to replace the person who is taking out the policy, but rather, to help cover what the person provided. That could be a portion of the household’s income, or for parents, the ability to cover childcare expenses or secondary education.

There are very few individuals with whom we speak that opt out of life insurance because it is relevant for everyone at various stages of life. One might think life insurance is only for those who are married or have children, but it also can cover debts that are accrued independently. 

Q: What are the top three factors to consider when shopping for life insurance?

The top three factors to consider when purchasing a life insurance policy are:

• Cost of the policy.

• Financial strength of the insurance company from which you are purchasing it. To this end, there are different ratings for insurance agencies that are available. When we discuss life insurance with a client, we share an aggregate rating called the Comdex ranking -- a composite score averaging the ratings of the major insurance rating organizations, including AM Best, Fitch, Moody's, and S&P. We don’t advise purchasing from a company whose rating is below 85 because that indicates a weakness in financial strength. 

• Working with a trusted broker on your specific needs. We ask our clients to assess what they’re looking to accomplish with the policy, and then we help ensure the product can meet those needs. At the onset of the conversation, we want to make sure their goals are aligned with what they’re purchasing. And, it’s imperative to work with a trusted broker. Life insurance policies are purchased in hopes that they’re never needed, but when a person passes away, a trusted broker can help advocate for the beneficiary/family and help them properly file their claim to ensure they are protected. 

Q: At what age or life stage should I be considering life insurance? 

In simple terms, the need for life insurance ramps up as you develop more responsibilities and obligations. That could mean marriage and when you’re considering having children, but it can also mean when you are accumulating debts -- car loans, mortgages, student loans, etc. 

A question to ask yourself is: who would be saddled with those debts in the event of an untimely death? Life insurance can help protect one’s parents who might be responsible for a grown child’s private student loan, for instance.

Q: What exactly is life insurance used for?

In addition to what we’ve discussed above, there are living benefits within life insurance! Most people think of life insurance as something that only matters upon death. But there is a component called “AD&D,” which stands for Accidental Death and Dismemberment. AD&D covers unintentional death or dismemberment (loss or loss of use of body parts, e.g., eyesight, loss of limbs, etc.) of the insured. 

What’s more, if you have this policy, AD&D may pay a benefit equal to or a multiple of (usually two times ) the regular insurance's face amount. Life insurance can also include other protections, such as “repatriation.” If someone passes away in another state, repatriation will cover the costs to transfer the person back to their home state for proper arrangements.

Q: What is the difference between term and permanent life insurance?

The biggest difference between term and other more permanent life insurance options is the concept of cash accumulation.Traditionally, there is no cash accumulation on a term life policy. If you’re paying $1,000/year for this policy, that $1,000 is not something you can take out of the policy. It’s simply what you’re paying for; nothing more or less. A term-life policy is the most simple and least expensive  option.

Other vehicles, such as whole, universal and variable life insurance policies, may have cash accumulation tied to them -- and are obviously more expensive options. In a whole-life policy, for instance, a portion of what you pay for the policy goes into an interest account so that you can take out money while you are alive. Some other policies require that you pay premiums and in turn, receive dividends. 

For more information on the differences between different types of life insurance policies, you can read more here or contact The Concannon Agency to discuss the best options for you.

Q: Talk to us about estate planning: what exactly does this entail and who is it for?

Estate planning is for anyone who has the intent of transferring wealth or assets to another individual to help his/her family continue living a certain lifestyle. More often than not, estate planning comes up as one discusses life insurance with a broker. Estate planning can help a family overcome the financial burden of taxes with estate transfers. Life insurance can offset taxes that would normally be incurred when one dies and plans to pass his or her assets on, and helps ensure the estate is kept whole upon transfer. 

The topic of estate planning usually comes up when you talk to your broker about purchasing life insurance. When having this conversation, we recommend involving your family as well as your trusted advisors (if you have an attorney, accountant, etc.) so that everyone is on the same page with the agreements you come up with and can avoid confusion in the future. 

Q: Do employers usually provide life insurance coverage as a benefit? If I’m a business owner, should I?

Typically yes, most employers do offer life insurance to their employees. When business owners ask us if they should offer this, we recommend it as it’s inexpensive and very valuable. 

Something we communicate to our businesses that are seeking coverage for their employees is that employer-paid life insurance above $50,000 creates a taxable event for policyholders. Because of this, some businesses choose to let their employees purchase their own policies for voluntary programs. 

This post has covered some broad topics relating to life insurance and estate planning. Ready to talk to a trusted insurance advisor about your specific needs? Contact The Concannon Agency to get started by calling (636) 537-5611 or emailing: contactus@concannonagency.com.