MONEY 26 - INSURANCE

THIS IS MY 26^TH POST ON UNDERSTANDING MONEY TOOLS

Money, Money, Money.  Let’s talk about insurance.  Several years ago the trust company I worked for wanted me to have several national and state licenses more for knowledge, and not to necessarily sell products.  The reason for this being that I assisted the company in joining lawyers and other professionals on a regional lecturing platform.  Some of these licenses included  Life, Health and Disability licenses. That knowledge remains with me today as a useful tool for myself, and hopefully others who ask for advice.

As with all financial matters, please seek out professional advice from experts who are respected, full time people in the business.  Below is a personal example and perhaps can help you.

Let’s start with life insurance.  There are several types.  A friend recently told me he didn’t think he needed life insurance, and asked for my suggestions.  He is a divorced single man, with one child and has a successful business. Let’s look at this from different angles.  First, and foremost, he has a child to protect.  He can buy life insurance for himself at a relatively low cost as he is in his mid-thirties and hopefully insurable as he appears to be in good health.  Depending on the insurance company and amount of insurance he may need to have a complete physical exam for insurance underwriting.  If he buys insurance it is best not to name his estate as beneficiary because when he passes away the amount of insurance will increase his estate worth.  Name other beneficiaries, in this case perhaps his daughter. Today, inheritance tax exempts the first $5,120,000 million, however my friend’s business is worth more than that amount on an estimated value. Federal inheritance tax on an estate greater than $5,120,000 million starts at 35% and goes up from there.  Then, there could be state taxes involved.  Why waste money?

A second idea here may be to take a whole life or variable life policy out for his daughter and let the cash amount build for her financial security later in life, or to help pay for college education.

A third idea may be to protect his company’s assets, and the possible forced sale of the company to satisfy inheritance tax obligations when he dies.  A “key man” policy might be used, and paid for by the company and that would be a company expensed item.

There are three main types of life insurance, whole life, term and variable although in actuality there are many variations.  For instance, there are non-participating, participating, limited pay, single premium, interest rate changing policies and more.  With younger people insurance is inexpensive and whole life or variable life might make the most sense.  Your insurance professional will advise you and go over specifics.

Variable life insurance places the premiums into separate markets such as mutual funds or bond funds so that over time you may have a faster build up of money than with a set rate with whole life insurance.  With this insurance you, as owner, select where the policy money is to be invested.

If a person is older and trying to protect an individual, family or company assets a term insurance policy might be best. Term has no cash build up and is strictly a specific amount of insurance for a specified period of time with a set payment schedule.  After the time period expires there is no cash build up and no further insurance.  Term is the least expensive form of life insurance.

Because of life expectancies and insurance costs figured with actuarial tables, insurance of any type can be very expensive to buy later in life, even if health permits coverage.

Bottom line here is that I recommended that my friend see an insurance agent and most likely purchase insurance.  Almost everyone can use some life insurance if nothing more than to pay for burial costs, or legal costs to settle or administrate an estate until assets can be liquidated, which can take a long time.