Life Insurance: Are You Prepared For The Future?

Life insurance is a crucial financial tool that provides financial protection for your loved ones in the event of your death. It ensures that your dependents will have the economic support they need to cover funeral expenses, pay off debts, and manage their daily living expenses. When considering life insurance, it is essential to evaluate your financial and family situation to determine the level of coverage you require.

Charles Schwab, in association with Crump Life Insurance Services, assists clients in making informed decisions about their insurance needs. Crump, a leading third-party distributor and service provider of insurance and retirement products, offers guidance in choosing the right type of insurance coverage. They provide access to a range of insurance carriers and help individuals select a policy that fits their unique circumstances.

By partnering with Crump, Charles Schwab ensures that their clients have access to the necessary resources and expertise to make well-informed choices about their financial future and that of their families.

Permanent vs. term life insurance

Permanent life insurance and term life insurance are the two main types of life insurance. Both types are designed to protect the financial well-being of your loved ones in the event of your death. However, they differ in terms of length of coverage, benefits offered, and premium structure.

Permanent Life Insurance

Permanent life insurance, as the name suggests, is designed to provide long-term or lifelong coverage. As long as you continue to pay the premiums, your coverage will remain in place. Permanent life insurance policies carry a savings or investment component, known as the cash value, which grows tax-deferred over time. This cash value can be accessed by the policyholder during their lifetime, although doing so may decrease the amount of the policy's death benefit. Permanent life insurance is generally more expensive than term life insurance, especially when purchased at an older age.

Term Life Insurance

On the other hand, term life insurance provides temporary coverage for a specific period, typically between one and 30 years. Term life insurance policies do not carry a cash value component and do not accrue savings over time. These policies are usually more affordable than permanent life insurance, especially when purchased early in life. However, the coverage ends once the policy term expires, and the premiums paid are not refunded. Some term policies offer the option to convert to a permanent life insurance policy after the term coverage ends, without the need for a medical exam.

When deciding between permanent and term life insurance, it is important to consider your financial goals, family situation, and budget. Permanent life insurance is suitable for those who need long-term financial protection, want to create an inheritance for their heirs, or desire a tax-advantaged way to save for future expenses. In contrast, term life insurance is ideal for those who need short-term coverage or additional protection during specific times, are on a budget, or seek flexibility in case their needs or circumstances change.

Life insurance for high-net-worth individuals

Life insurance is a crucial financial tool for high-net-worth individuals (HNWIs), who are defined as those with at least $1 million in liquid or investable assets. While HNWIs may have substantial wealth, life insurance provides a financial safety net and plays a pivotal role in estate planning. Here are some key considerations for life insurance for high-net-worth individuals:

The Importance of Life Insurance for High-Net-Worth Individuals

Life insurance offers peace of mind and safeguards the legacy and financial well-being of HNWIs and their families. It protects against economic downturns, ensuring financial stability for dependents. Additionally, the tax-free death benefit can cover estate taxes, which can reach up to 40% on the federal level for assets exceeding certain thresholds. Life insurance also facilitates business continuity by protecting against the financial impact of a key employee's or owner's death.

Types of Life Insurance for High-Net-Worth Individuals

High-net-worth individuals can choose between term life insurance and permanent life insurance. Term life insurance offers coverage for a specific period, typically 10 to 30 years, and is more affordable. It is suitable for those with substantial debts, children who need financial support, or specific protection needs, such as business ownership. On the other hand, permanent life insurance provides lifelong coverage and includes a cash value component, allowing for low-risk investments and borrowing. HNWIs may prefer permanent insurance for its lifelong coverage, cash value accumulation, and potential dividend earnings.

Applying for Life Insurance as a High-Net-Worth Individual

When applying for life insurance, HNWIs should consider their medical history, choose between term and permanent policies, and designate beneficiaries. The financial and medical underwriting process may be more extensive for larger policy sizes. Consulting with financial planners or licensed insurance agents can provide tailored guidance.

Life Insurance Strategies for High-Net-Worth Individuals

Life insurance offers various benefits for HNWIs, including business protection through key person insurance and buy-sell agreements, estate planning by mitigating estate taxes and equalizing inheritance, retirement planning through permanent life insurance's tax-deferred growth, and charitable giving with potential tax benefits.

Life insurance for business owners

Life insurance is a crucial precaution for business owners, as it can help protect their company, employees, partners, and family in the event of their unexpected death. Here are some reasons why business owners should consider life insurance:

Protecting Your Family

Life insurance is essential for anyone supporting a family, but it is even more critical for business owners who often carry more expenses and support more people. It helps cover expenses and provides a source of income for your loved ones if you pass away. A larger death benefit can cover outstanding business debts and make up for the sudden loss of income, ensuring your family's financial stability.

Keeping Your Business Running

Business owners can specify that a portion of their death benefit be allocated to business expenses, helping the company stay afloat during the transition period. Life insurance can help pay supplier contracts, employee salaries, and daily operating expenses, preventing the business from collapsing under mounting expenses.

Equalizing an Estate

Life insurance can help equalize the distribution of your estate among your heirs. If some family members are actively involved in the business while others are not, a life insurance policy can provide a death benefit to those who are not involved, ensuring that all heirs receive an equal share of your wealth.

Funding an Agreement

Business owners often have buy-sell agreements or buyout clauses in place with their partners. Life insurance policies can be used to fund these agreements, allowing your beneficiaries to perform on these contracts and maintain their interest in the business.

Types of Life Insurance for Business Owners

There are several types of life insurance policies that business owners can consider, depending on their needs and budget:

• Term life insurance is the most common type, providing coverage for a specific term, usually 10 to 30 years. It is straightforward and affordable, but it does not build cash value.
• Whole life insurance offers permanent coverage for the entirety of the policyholder's life, as long as premiums are paid. It provides peace of mind and allows policyholders to borrow against the policy or withdraw cash value funds.
• Permanent life insurance, which includes whole life, universal, and variable universal policies, offers more flexibility and tax advantages. It is appealing to business owners with pass-through corporations or entities that can hold assets.
• Key man/person life insurance is designed to protect business assets rather than personal assets. It is crucial for larger businesses, helping them stay afloat if a key employee dies or becomes disabled.

The cost of life insurance for business owners varies depending on factors such as the type of coverage, the nature of the business, and the age of the policyholder. Business owners should explore different options and consult with financial advisors or insurance agents to find the right coverage for their personal and business needs.

Life insurance for older people

When considering life insurance as a senior, it's important to determine your goals and choose a policy that aligns with them. Term life insurance provides coverage for a fixed period, such as 10 or 15 years, and is typically the most affordable option. On the other hand, permanent life insurance offers lifelong coverage and is a good choice if you want to replace your income or cover pension payments for your spouse.

Several companies offer competitive life insurance options for older individuals. Here are some of the best options:

• New York Life: Offers policies to applicants up to 90 years old and has an excellent financial stability rating.
• Guardian Life: Provides coverage for individuals up to 90 years old and has an impressive track record for customer satisfaction, with very few complaints.
• Pacific Life: Offers term coverage for applicants up to 75 years old and universal life policies that can be extended up to age 121. They also have an excellent record for customer satisfaction.
• John Hancock: Issues term policies to applicants up to 80 years old and has a critical illness rider that doesn't reduce the policy's death benefit.
• MassMutual: Accepts applications for certain policies until the age of 90 and offers term, whole, and universal life insurance options.
• Foresters: Offers affordable term life insurance rates for seniors up to 80 years old and allows the use of the death benefit for chronic, critical, or terminal illnesses.
• North American Company: Offers guaranteed universal life insurance coverage up to age 85 at competitive rates.
• Symetra: Provides guaranteed universal life insurance with low rates and the option to accelerate the death benefit in case of a chronic or terminal illness.
• AIG: Offers guaranteed acceptance whole life insurance for individuals between 50 and 85 years old, with a two-year waiting period.

Life insurance for parents

Yes, you can typically purchase life insurance for your parents if certain requirements are met. The most important factor is obtaining their consent. It is essential to have open and honest conversations with your parents about their financial situation, existing insurance coverage, and their goals. Their agreement and understanding of the process are necessary. Additionally, you may need to prove that you have an "insurable interest," which means you would suffer financial consequences from their death. This can include funeral costs, end-of-life medical expenses, inheriting their debts, or expenses related to caring for a surviving parent.

Types of Life Insurance for Parents:

When considering life insurance for your parents, there are several types of policies to choose from:

• Term life insurance: This type of policy is issued for a specific period, usually 10 to 30 years. If the insured person dies after the term expires, the death benefit is not paid. Term life insurance is generally more affordable than permanent life insurance.
• Permanent life insurance: This category includes whole life and universal life policies, which last for the insured person's lifetime and build cash value over time. Whole life insurance pays dividends, while universal life offers more flexibility in premium payments.
• Final expense insurance: Also known as burial insurance, this is a type of whole life insurance that provides a small benefit to cover funeral and related expenses.
• Guaranteed issue life insurance: These policies do not require a medical exam, making them ideal for older adults with health concerns. However, they offer smaller benefits and may have longer waiting periods before the full death benefit can be collected.
• Joint policies: These policies can cover both parents and are available as first-to-die or survivorship policies. The first type pays a benefit after the first spouse dies, while the latter pays only after both insured people have passed away.

Factors to Consider When Choosing a Policy:

When deciding on the right life insurance policy for your parents, there are several factors to keep in mind:

• Health and age: The cost of the policy increases with the age and decreases with the health of the insured. Older parents with health issues may have limited options and higher premiums.
• Coverage needs: Assess your parents' debts, income goals, and the potential financial impact on your family to determine the necessary coverage amount.
• Policy cost: Consider the affordability of the premiums for the desired level of coverage. Permanent policies tend to be more expensive than term life insurance.
• Riders: Riders are additional options that can be added to a policy, such as long-term care, accidental death, or accelerated death benefits. These may increase the cost of the policy.
• Cash value: Some policies build cash value over time, which can be used to pay premiums or withdrawn by the policyholder. However, these policies are generally more expensive.

How to Get Life Insurance for Your Parents:

To obtain life insurance for your parents, follow these steps:

• Get their consent: Ensure your parents verbally agree and are mentally competent to provide consent.
• Determine coverage needs: Assess their debts and income goals to decide on the necessary coverage amount.
• Choose a policy and company: Research different types of policies and insurance providers to find the best fit for your parents' needs.
• Fill out an application: Provide the required information, such as personal details and medical history. Depending on the company, a medical exam may be required.
• Get approved and pay premiums: Once the insurance company approves the plan, start paying the scheduled premiums to activate the policy.

Frequently asked questions