Life Insurance: An Essential Part of Financial Planning

Louis DeCuir |

Right now is a great time to review your life insurance policies and determine if you have enough life insurance coverage. This past year and COVID-19 has reminded us how precious life is and how financial stability can rapidly change. According to LIMRA research, 46% of Americans are still uninsured, and many do not have enough coverage. Before the pandemic, nearly 1 in 3 families said they would face financial challenges within a month if the primary wage earner died. Here are common ways to life insurance in financial planning:

Provide for Loved Ones- Families with young children need to plan for the loss of income if a parent dies, but also the loss of working spouse.  Even if there are no children living at home, there may be an economic loss if someone is dependent on the income of their partner.  A premature death can result in loss of assets and hinder any financial plan.

Estate Planning- If you have a large estate and want to ensure that your beneficiaries don’t have to liquidate assets to pay estate taxes, life insurance can be used for this purpose.  Using life insurance to pay estate taxes involves working with your attorney and tax professional to determine if this is appropriate for your life insurance policies proceeds.

Business Succession Planning- If you are a business owner and plan to pass on the business to a family member or other key employees, life insurance can be used as part of the new owners' purchase plan.  Using life insurance for succession planning involves a tax professional and an attorney to ensure the outcome is beneficial to all parties involved. Many times using life insurance as part of the business succession becomes part of the business owner's retirement plan.

College Funding- If you're a parent or grandparent, life insurance can be used as part or all of the education funding for the insured (child) without tax consequences (assuming interest applied to cash value). Contact your financial professional to discuss this in detail since a policy loan is required.

If the child doesn’t use it for education funding, you have given them life insurance for themselves or their beneficiaries.  Check with the carrier to determine the requirements of the life insurance policy being given to the child since parents or grandparents are unable to own the policy once the child has become an adult.

Consult Your Financial Professional About Life Insurance- It is not only young families that need protection but also individuals with debt, businesses relying on crucial workers and investors who plan to protect their assets

Review your life insurance policies at least bi-annually at your financial planning meeting to check beneficiary information for name changes, etc., and lastly, tell your family about the policies you have and where to locate them in case of your death.