Insurance Strategies

A Plan Tailor Made for You

Life insurance has been often referred to as a "necessary evil" when in fact it is nothing more than a tool that can be used to add security to your financial arena. The marketing propaganda that the insurance industry has produced has created much confusion regarding insurance. This can be seen when one insurance company competes with another insurance company where both will tell you that their policy is the "cure all" for all of your financial needs and situations. Have you heard these lines? "Buy term and invest the rest," "Buy whole life for your whole life," or "College and retirement planning with life insurance." None of these are wrong or right 100% of the time and companies should not market as if it were either.

There are three things that you must first establish before deciding what kind of insurance to purchase:

1) "What is the need, or why are you considering buying insurance?"

2) "What amount is needed?" and

3) "How will this affect the rest of my financial life?"

These and other questions can be answered by performing a Capital Needs Analysis. Your FinBal® Qualified FSP will ask you a series of questions to determine your goals and needs. From this information, your FSP will be able to help you decide what type and amount of insurance will best meet your needs.

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A Trust You Can Treasure

Many times, because of improper planning, the estate tax problem is only worsened by the purchase of life insurance. For example, an individual realizes that a $350,000 tax is to be levied against their estate at their death. With this information, they may purchase a $350,000 life insurance policy to cover this future expense. If they are the owner or the premium payer of this new policy, it too will be included in their estate. Thus, the tax bill would be increased by approximately $105,000. Under this scenario, there is never a break-even point… the more insurance the larger the tax bill.

There are a couple of ways to handle this problem. You can make your spouse the owner and beneficiary. While it will not be included in your taxable estate (unless they predecease you) it will be included in theirs. So, unless they dispose of the money before they pass away, you have only delayed the problem instead of curing it. Alternatively, you could make a relative the owner. However, if you are paying the premium through them, you could end up with gifting or incident of ownership problems (not to mention the possibilities of in-law/outlaw influence.) One of the best, all around solutions is the usage of an Irrevocable Life Insurance Trust. These too have a number of rules and requirements.

Your FinBal® Qualified FSP can help you pay particular attention to these rules and requirements. Essentially, the trust acts like a treasure chest where your policy remains secured. The trust owns the policy and all premiums paid are made as a gift for the benefit of the future beneficiaries. A trustee is appointed to assure that all provisions of the trust are carried out. This "treasure chest" will make sure that the insurance is never a part of your taxable estate. It can even be used to make special payout arrangements for children in accordance to their individual personalities and needs.

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The Term Life vs Permanent Life Controversy

When it comes to purchasing life insurance, there has been an age old war that has raged for over a century. Should everyone buy term insurance or should everyone buy permanent coverage, like whole life or universal life coverage? The answer is a resounding... NEITHER! There is no "One Size Fits All" approach when it comes to insurance or any other financial matter. Each situation and circumstance is as individual as the person facing the decision.

A careful review of the solution sought can often yield the answer as to which type of coverage is appropriate for the need. For example, many of the needs that require insurance coverage are temporary in nature. So, in most cases, term insurance can be used to fill those needs. However, even though some needs for insurance will dissipate as we get older, inflation must be given consideration for the ones that will remain. Also, consideration needs to be given to your overall financial plan. When properly used, life insurance can also be an important "future cash flow" tool for you while you're living as well. A consideration must be made that policy loans or withdrawals of cash value may have the effect of decreasing the death benefit.

Your FinBal® Qualified FSP can help bring clarity to which type of life insurance will best accomplish your specific goals and objectives. Take advantage of the one hour, no-cost consultation and see how you can get this special tool called life insurance working for you!

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A Private Pension Plan

Through the years, numerous approaches have been taken to sell life insurance policies. One that has long been perpetrated on the American public is the "Private Pension" concept. For some individuals it may be appropriate to purchase a Variable Life Insurance policy for the purpose of saving for retirement. A Variable Life (a.k.a. VUL, VLI, Variable Whole Life or Variable Universal) is unique in that its internal cash value building instrument is a myriad of different investment sub-accounts. In good markets they have the potential to earn greater returns than those in other traditional cash value building life insurance policies. Likewise though, in down markets you could potentially lose some, if not all, of your policy values.

Remember, life insurance was never meant to be an investment nor were investments meant to replace the presence of life insurance in a well balanced financial plan. Two important considerations when life insurance is being considered are "Need" and "Insurable Interest." If these two items are not present, then it is quite possible that the goal can be accomplished by other means. Both of these items refer to the fact that someone or something could stand to be financially harmed should you pass away. Insurance can be used to cover the possible loss.

Now don't get me wrong, once "Need" or "Insurable Interest" has been established and the right type and amount of coverage has been determined, you should talk with your FinBal® Qualified FSP about using the tax codes, TAMRA, TEFRA and MEC, to your advantage. By over funding the insurance contract, you can make this wonderful tool work for you during your lifetime while taking care of your loved ones. But, first and foremost, the need for insurance has to be established and your FinBal® Qualified FSP can help you to do that.

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Having a Well Balanced Plan

Because of the nasty connotations evoked upon this subject there are three constants present. Some people are over-insured, some are under-insured and most commonly they are paying too much for the coverage that they have. There is an exact process for determining what type, amount and price you should be paying. There are insurance strategies that may be able to save you money while providing you with the right type and amount of coverage. Let's get together and establish a well balanced plan of action that will work for you!

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