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Many people treat life insurance as completely separate from financial planning and budgeting. Maybe it is because of the myth that life insurance is only for burying the dead. However, as Rosalyn Glenn, a financial advisor with Prudential, told Insider, “Life insurance is for the living, not the deceased.” In addition to providing a death benefit for your beneficiaries, a life insurance policy can grow wealth over time, and it has tax-deferred benefits.
Purchasing life insurance without talking to a financial advisor, accountant, and estates lawyer is like Michael Jordan before the triangle defense — you’ll do okay, but you aren’t maximizing performance.
In order to leverage life insurance for your financial goals and build wealth, you should talk to three people to make sure you’re choosing the best policy for you. To continue the basketball analogy, you need the Michael Jordan, Scottie Pippen, Dennis Rodman triangle defense that made the Bulls a basketball legacy.
Your life insurance needs change as you age, and you’ll need to consider children, marriage, divorce, retirement, and caring for aging parents. By consulting the following three experts, you can ensure you have the proper coverage you need for your goals and for life changes down the road.
You can use online calculators to get an estimate of how much life insurance you will need, but an online calculator doesn’t replace the comprehensive advice you’d receive from a financial advisor who looks at your financial situation, goals, and estate planning.
“No matter your level of income or socioeconomic status, you will need a financial advisor or planner at some point in your life as you are accumulating savings into an income stream,” said Glenn. (Financial advisor is a broad term that applies to most experts who advise on personal finance, while a financial planner is usually a CFP, which requires specific certification.)
Glenn said the benefit of working with a planner is to “think strategically about what you’re trying to accomplish and plan for possible market downturns to help you ride through the storms.”
Think of a financial advisor as your primary care physician who has you check in with specialists (like an accountant and estates attorney) to make sure you are getting comprehensive and individualized care based on your finances, budget, goals, and risk tolerance.
One unsung advantage of life insurance is the tax-deferred benefits. You do not have to pay taxes on proceeds from a life insurance payout. This is why permanent life insurance is popular among the wealthy. High-net-worth wealth individuals — those with at least $1 million in liquid assets — typically have permanent life policies for tax benefits.
“Permanent life insurance is the only product that combines every tax favor benefit in the tax code,” said Mike James, head of individual solutions and president of NFP Life Solutions. “You can put your money in and take your basis out without paying taxes. No other financial instrument does that.”
There are several types of permanent life insurance products that invest in the stock market and other sophisticated investment vehicles. An accountant can tell you which permanent life insurance product can best maximize your tax benefits, while a good financial advisor can help you pick the one best for your financial risk tolerance.
Most people have a term life policy to provide for their family in the event of their death. But according to a study, 78% of millennials and 64% of Generation X don’t have a will, living trust, or any estate-planning documents.
Having life insurance without a will can cost…