Category

Life Insurance

Sep 18
0

Understanding Life Insurance: 7 Things You Should Know

By | Financial Planning, Life Insurance

Life insurance is an important part of a comprehensive financial plan. Here are 7 things you should know about it.

At its simplest, you probably already know that life insurance provides funds in the case of unexpected loss of life. But there may be other aspects of life insurance that are less clear to you. If there are things about life insurance that you don’t understand, you are not alone! In fact, from research conducted by LIMRA in 2019, American consumers answered “don’t know” to 40% of the questions on a life insurance knowledge test, and if they did answer, they were correct less than half the time (46%).1

Not to worry. It’s September, which means it’s Life Insurance Awareness month, and we’re here to clear up some of the basics about life insurance.

1) Policy Beneficiaries Receive Payouts

The beneficiary or beneficiaries named on a life insurance policy are the ones who receive the payout from the insurance company that issues a life insurance policy. Often a spouse, child, or other loved ones are named as beneficiaries, but in some cases, the beneficiary of a life insurance policy might be a trust.

NOTE: It is very important that a policy owner keeps policy beneficiaries up to date as situations, ages, and relationships change through time. An annual review is recommended.

2) A Life Policy Is “Written On” a Named Insured or Insured Persons, Not Always the Policy Owner

A “named insured” on a life policy is the one whose life is being insured. Generally, an insured person will purchase a policy on themselves, naming themselves as the insured, so that when they die, the death benefit goes to their chosen beneficiaries.

But an owner is not always the same as the insured. As an owner, you control the policy, and you can purchase a life insurance policy on someone else, as long as you would suffer from their death as a family member, business partner, or some other close relationship.

For instance, sometimes spouses will purchase policies naming each of them as joint insureds. These can be set up as “first to die,” where the surviving spouse or other named beneficiary receives the death benefit as soon as the first spouse dies, or as “second to die” (sometimes called “survivorship”) policies that only kick in to pay beneficiaries after both insureds have passed away.

In some cases, you might want to purchase a policy but make someone else the owner, for example, as a strategy inside a trust.

Or sometimes a parent or grandparent will purchase a policy naming a child or toddler as the insured. Naming the child when they are young and healthy (while the cost of insurance is low) can be done as a strategy to help save for the child’s future college expenses, and to ensure that the child has life insurance in place should they develop a health condition later.

3) Life Insurance Usually Requires Medical Underwriting

Life insurance usually requires medical underwriting, which means that once you apply for a life insurance policy, the insured person’s lifestyle, height and weight, medical history, and general level of health will be assessed (and approved) before your policy will be issued. Sometimes a physical exam will be required, and sometimes life insurance coverage will be denied, for example, if the insured person has a terminal condition. But even if you are in poor health, you may be able to obtain a life insurance policy at a higher cost.

And you may be able to purchase life insurance even if you are age 70 or older. In fact, more people are doing so because the estate tax exemption amount is set to drop to around half the amount it is now in the 2026 tax year, and consumers are seeking tax advantaged strategies to pass on wealth to their heirs.2

4) Premiums Are What You Pay for Insurance

The word “premium” in the context of a life insurance policy is how much you will pay monthly, annually, or once for single premium life insurance policies. Premiums are determined on an individual policy basis based on many factors, including age, health, and credit.

5) Most Life Insurance Payouts—aka Death Benefits—Are Tax-Free and Probate Free

The money paid by an insurance company to a beneficiary upon the death of the insured person is called a “death benefit.” In most cases, a death benefit is tax-free and bypasses the probate process unless it’s paid to a trust, in which case different IRS rules may apply.

This can be a tremendous help to the spouse and family members during their time of grief and beyond as they look to their futures. It’s often recommended that a life insurance policy’s death benefit be in an amount that can cover monthly living expenses, mortgage payments, future college expenses, etc., protecting families from immediate and future economic devastation.

6) Life Insurance Can Be Used for Estate Planning Trusts and Business Succession Plans

It’s important when setting up complex estate plans, trusts, and business succession plans which may include life insurance that you consult with a team comprised of your financial advisor, estate attorney and CPA/tax professionals. IRS rules and tax laws are always in flux.

For instance, a recent Supreme Court ruling may change the tax ramifications of business buy-sell agreements. Be sure to meet with your team of advisors to review.3

7) There Are Many Types of Life Insurance

In addition to term life policies, there are many permanent life insurance policies, including whole life, universal life and variable life. While a death benefit is always part of a life insurance policy, different types of life insurance policies are structured differently, and may contain additional features as part of the structure of the policy itself, or available as a “rider” to the policy for an additional premium amount. For instance, some policies even offer coverage for long-term care should you develop the need for it but provide a death benefit for your heirs if you don’t.

Life insurance is complex, and a life insurance policy is a contract between you and an insurance company. It is recommended that you work with your team of advisors to examine each contract clause thoroughly before purchasing a life insurance policy.

If you would like to discuss life insurance, please contact us! You can reach Bulwark Capital Management in Tacoma, Washington at 253.509.0395. 

This document is for general information purposes only and is not to be relied upon for financial advice. In every case, you should seek the advice of qualified tax, financial and legal professionals to ensure that a life policy is advisable based on your unique circumstances.

Life insurance often requires medical underwriting. Guarantees are provided by insurance companies and are reliant upon the financial strength and claims-paying ability of each individual insurance carrier issuing a life insurance contract.

Sources:

  1. https://www.limra.com/siteassets/newsroom/help-protect-our-families/consumer-insights/2021/january/marketfacts_what-consumers-dont-know-anout-life-insurance.pdf
  2. https://www.thinkadvisor.com/2024/08/26/u-s-life-application-activity-soars/
  3. https://www.kitces.com/blog/business-buy-sell-agreements-connelly-v-irs-internal-revenue-service-supreme-court-entity-purchase-agreements-life-insurance-llc/

 

This document is for informational purposes only. All information is assumed to be correct but the accuracy has not been confirmed and therefore is not guaranteed to be correct. Information is obtained from third party sources that may or may not be verified. The information presented should not be used in making any investment decisions. It is not a recommendation to buy, sell, implement, or change any securities or investment strategy, function, or process. Any financial and/or investment decision should be made only after considerable research, consideration, and involvement with an experienced professional engaged for the specific purpose. All comments and discussion presented are purely based on opinion and assumptions, not fact. These assumptions may or may not be correct based on foreseen and unforeseen events. Past performance is not an indication of future performance. Any financial and/or investment decision may incur losses.

Investment Advisory Services offered through Trek Financial LLC, an investment adviser registered with the Securities Exchange Commission. Information presented is for educational purposes only. It should not be considered specific investment advice, does not take into consideration your specific situation, and does not intend to make an offer or solicitation for the sale or purchase of any securities or investment strategies. Investments involve risk and are not guaranteed, and past performance is no guarantee of future results. For specific tax advice on any strategy, consult with a qualified tax professional before implementing any strategy discussed herein. Trek 24-328.

Sep 25
0

6 Key Features of Indexed Universal Life Insurance

By | Health Care, Life Insurance

Indexed universal life insurance is a type of permanent life insurance that offers different benefits to policyholders. Here is what you need to know!

Traditionally, life insurance has been one of those assets someone might hold but hope they never have to use. Often crafted to protect from the worst-case scenario, it’s most known for the death benefit it can offer heirs in the event of untimely death, providing a payout that has the potential to ease both financial and emotional tension. Modern life insurance options, however, can come with different features depending on the type of policy you purchase. Because September is Life Insurance Awareness Month, we thought it would be the perfect time to go over one of those options: indexed universal life (IUL) insurance.

NOTE: When reading this information, it’s important to remember that life insurance may require medical underwriting and sometimes policies can be denied. In general, the younger and healthier you are, the lower the cost of insurance.

  1. The Classic Death Benefit

The classic benefit of every different type of life insurance policy, including IUL, is the death benefit, which is typically paid out to the policy’s named beneficiaries tax- and probate-free in the event of the policyholder’s death. This can give your heirs a nice sum of money to cover things like burial and funeral costs, outstanding debt, and living expenses. It can be difficult to lose a provider, and a life insurance death benefit can ease some of that burden.

  1. Permanent Coverage

IUL policies offer permanence, which can make them a viable option for all ages. Unlike term life insurance, where the death benefit expires when the policy expires—typically in 20 or 30 years—an indexed universal life policy is a permanent policy that offers your beneficiaries a death benefit as long as premiums are paid and the policy is in force. While term policies can offer relatively affordable premiums for young, healthy policyholders, an IUL can lock in and guarantee coverage even if the policyholder develops a condition that would make them uninsurable later.

Increasingly popular [1], indexed life policies are sometimes purchased by healthy seniors as a way to transfer tax-advantaged wealth as part of their estate plan, or seniors may elect to purchase a policy which has long-term care benefits either built in or added as an optional rider to an IUL policy.

  1. Flexible Premiums

One of the key differentiators between whole life and universal life is flexible premiums. IUL policies allow policyholders to determine the monthly premiums they pay based on their desired death benefit and/or cash value in the policy. For instance, if your need for a high death benefit is not as great as it once was, you can pay lower premiums while still keeping your policy in force. Furthermore, the cash value portion of the policy can also be accessed to pay premiums, whether that’s by choice or by the policyholder’s inability to pay monthly premiums. On the other hand, policyholders with the funds to increase premiums to increase coverage can do so, potentially meaning a greater death benefit and a greater cash value.

  1. Accessible Cash Value Portion

Permanent life insurance policies like whole life and universal life offer a cash value portion that is funded by the policy’s premiums. Because the policy’s premiums are paid with post-tax dollars, that cash value is accessible to the policyholder for any reason as a tax-free loan, potentially making IUL a useful source of income for retirement, postsecondary education, a downpayment for a home, or any other major expense. Granted, borrowing from the cash value of a policy does accrue interest per policy terms; however, the cash value in an indexed universal policy also continues to be credited interest as if the borrowed amount is still there, again based on the contract terms. That gives the cash value a chance to keep pace with, or even outpace, the amount the policyholder owes in interest. Furthermore, if the policyholder uses the cash value as a tax-free source of retirement income and never pays it back, the borrowed amount plus interest is simply taken from the death benefit. It’s important to read and follow the contract terms carefully to make sure that the policy stays in force whenever the cash value is borrowed.

  1. Guarantees Provided by Carrier

In addition to being accessible as a source of tax-free income, the cash value in an indexed universal policy also comes with guaranteed principal protection and growth that correlates with a preselected market index. Those guarantees are made by the claims-paying ability of the issuing insurance company, and they can allow you to participate in at least a portion of the market’s upside without subjecting you to its bottomless floor. This can make indexed universal life a helpful tool for those without the stomach or tolerance for market risk. Depending on investment, saving and lifestyle goals, it can also help to diversify a portfolio with a non-correlated asset class that still offers potential market upside.

  1. Long-Term Care Hybrid Policies

Nearly 70% of today’s 65-year-olds will need some type of long-term care (LTC), and 20% will need it for longer than five years [2]. It’s also important to know that extended stays in long-term care facilities are not covered by Medicare, as they are considered lifestyle expenses as opposed to medical expenses. That means that today’s retirees may want to consider the possibility of needing LTC, as well as a way to cover the potentially exorbitant costs. Modern hybrid policies can give policyholders the option to combine their life coverage with long-term care coverage, eliminating the “use-it-or-lose-it” aspect of long-term care policies of old. If you need the benefit to pay for long-term care, it can be used to pay for those expenses, but if you don’t, it can be converted to a death benefit for your beneficiaries.

If you’d like to find out if an indexed universal life insurance policy might align with your unique financial circumstances and goals, we can help! Give us a call today to explore your options and build a plan for your future. You can reach Bulwark Capital Management in Tacoma, Washington at 253.509.0395. 

 

Sources:

  1. https://insurancenewsnet.com/innarticle/indexed-life-sales-up-28-drives-strong-q2-for-life-insurance-wink-says
  2. https://acl.gov/ltc/basic-needs/how-much-care-will-you-need

 

This article is not to be construed as financial advice. It is provided for informational purposes only and it should not be relied upon. It is recommended that you check with your financial advisor, tax professional and legal professionals when making any investment or any change to your retirement plan. Your investments, insurance and savings vehicles should match your risk tolerance and be suitable as well as what’s best for your personal financial situation.

 

Trek #23-712

Sep 23
1

5 Reasons to Consider Life Insurance

By | Financial Planning, Life Insurance

September is “Life Insurance Awareness Month.” Is your family using life insurance in the right ways as part of your comprehensive financial plan? Here are five reasons you should consider life insurance.

  1. You Have a Young Family1

Even though the pandemic has shown us all the need for financial protection for the family from sudden death or disability, there are roughly 102 million uninsured and underinsured Americans, representing 40% of the adult population according to the 2021 Insurance Barometer Study by LIMRA. One of the reasons cited was a lack of basic information about life insurance; less than a third of consumers said they were “very” or “extremely” knowledgeable about it.

Life insurance policies have completely changed in the last two decades. According to LIMRA research, simplified underwriting means that many term life policies don’t even require a medical exam anymore, depending on your age and general health. Term life insurance can be much less expensive than you think; the research showed that healthy 30-year-olds often overestimate costs by 5x.

Another reason people say they don’t pursue life insurance is that they have a policy through work. But even though you may have a small policy at your workplace, usually $20,000 or so according to the U.S. Bureau of Labor Statistics, these policies are often in place to help with burial costs and final expenses. In order to cover your family’s finances adequately, consider mortgage costs, existing debt, health care, living expenses for your spouse and children, and future college expenses for your children in order to get an idea of how much protection you should have.

  1. You Need More Tax-Advantaged Wealth Transfer2

Depending on your situation, if you are a business owner or person of high net worth, you may want to consider life insurance as an option as part of your succession and/or estate plan. Most of the time, life insurance passes to beneficiaries and heirs tax-free, and there are many different strategies to help mitigate taxes and provide other benefits by using life insurance policies. Here are some ideas.

  1. You Are Looking for Tax-Advantaged Retirement Income2

A permanent life insurance policy with cash value can provide a stream of income if necessary, depending on how the policy is structured. The cash value in the policy can build up and be borrowed against to pay for college expenses, retirement, or other costs during your lifetime, usually without any taxes owed if all IRS rules are followed.

  1. You Want to Protect Your Spouse2

Many people don’t realize that when one spouse dies, the surviving spouse only gets one Social Security check (the larger one) from that point forward. Permanent life insurance can protect your spouse’s lifestyle in the event of your passing.

  1. You Want Long-Term Care Insurance3, 4, 5

Some of today’s life insurance policies are called “hybrid” policies because they cover additional potential adverse events in addition to death, such as disability or the need for long-term care. These extra coverages may be part of the policy itself, or be available as optional insurance policy “riders” depending on the way an insurance company structures their contracts.

According to the 2020 Insurance Barometer study conducted by Life Happens and LIMRA, hybrid policies have become more popular than traditional long-term care (LTC) insurance policies because they offer a long-term care benefit that kicks in if you need it, or a death benefit that remains if you don’t. (One of the drawbacks of traditional LTC insurance is that you may end up paying a lot for something you may never need.)

If you do end up needing long-term care at home or in a nursing facility, it’s expensive. The average cost of a semi-private room in a nursing facility is $7,756 per month according to Genworth.

Remember, Medicare pays for short stays in nursing care facilities, but it does not pay for long-term care. Medicaid pays for long-term care, but qualifying for Medicaid requires a complete spend-down of assets, leaving your spouse and heirs with virtually nothing.

 

Do you have questions about life insurance? Call us! You can reach Bulwark Capital Management at 253.509.0395. 

 

Sources:

1 https://insurance-forums.com/life-insurance/study-reveals-common-misconceptions-that-prevent-americans-from-getting-life-insurance-they-know-they-need/

2 https://www.investopedia.com/articles/financial-advisors/111215/why-wealthy-should-buy-lots-life-insurance.asp

3 https://www.forbes.com/advisor/life-insurance/long-term-care-hybrid/

4 https://www.limra.com/en/research/research-abstracts-public/2020/2020-insurance-barometer-study/

5 https://www.genworth.com/aging-and-you/finances/cost-of-care.html

Sep 24
0

September is Life Insurance Awareness Month

By | Financial Planning, Life Insurance

 

Risk Management Is About More Than Your Investments

A lot of financial services professionals talk about “risk” when it comes to your stock market investments. But risk can encompass more than your investment risk tolerance. The broader definition of financial risk is the possibility of loss from any unexpected life event.

For instance, what will happen to your family’s income if one spouse passes away, becomes disabled or unable to work, or needs long-term care? What happens to your kids’ education fund, or your retirement? Risk management in this case means shifting risk of financial loss from adverse events to an insurance company in order to protect your family’s assets and lifestyle.

New Innovations in Life Insurance

First and foremost, life insurance offers financial protection to your family by helping mitigate the risks that you face from life’s unexpected tragedies, as it has done for hundreds of years. But in the last decade, life products have expanded and improved to offer much more.

Many new types of insurance policies and policy rider innovations have come about in order to answer the needs of Baby Boomers–10,000 of whom are turning 65 every day and will continue to do so until 2030.1

Life insurance companies are now covering a whole host of pre-retiree and retiree risks with permanent universal insurance policies and fixed annuities which offer features like:

1) Lifetime income in retirement

2) Spousal survivorship benefits

3) Long-term care coverage if needed

4) Disability coverage if needed

5) Income tax advantages

6) Tax-advantaged wealth transfer or death benefit

Universal Life Insurance or Fixed Annuities as Part of the Retirement Portfolio

In addition to the many retirement risks they can help address, new types of life insurance policies and fixed annuities may have other attractive advantages. Some of the newest policies offer the chance for growth by earning interest linked to market performance. And this potential growth comes with guaranteed* principal backed by the financial strength of the insurance carrier.

These are just some of the reasons more and more financial advisors are including permanent life insurance and/or annuities as part of the retirement portfolio itself.

Let’s Talk About Your Family

Call Bulwark Capital Management in Silverdale, Washington at 253.509.0395 or email us at invest@bulwarkcapitalmgmt.com.

1 Pew Research Center “Baby Boomers Retire.” http://www.pewresearch.org/fact-tank/2010/12/29/baby-boomers-retire/ (accessed September 10, 2018).

 

 

This article is for informational purposes only and is not intended to provide any recommendations or tax or legal advice. We encourage you to discuss your tax and legal needs with a qualified tax and/or legal professional.

*Guarantees and protections for fixed or fixed indexed annuities and/or universal or indexed universal life policies are subject to the claims-paying ability of the issuing insurance company. These policies are contracts purchased from a life insurance company. They are designed for long-term retirement goals, and also intended for someone with sufficient cash and liquid assets for living expenses and unexpected financial emergencies, including, for example, medical expenses. Depending on the product, they may include surrender charges, rider charges, life insurance premium charges and/or other fees as detailed in the individual contract.

An indexed annuity or indexed life insurance product is not a registered security or stock market investment. As such, it does not directly participate in any stock, equity or bond investments, or index. Gains on indexed accounts are based on participation rates and other conditions offered by the issuing insurance company. Depending on the nature of funds used to purchase annuities, withdrawals may be subject to income tax and withdrawals before age 59½ may be subject to a 10% early withdrawal federal tax penalty.