Ever hear the phrase, "That's Life"? Usually, someone says that when you have an unexpected result that wasn't in your favor after something bad or unlucky has happened, to express your feeling that such events sometimes happen and have to be accepted. You have to accept what happens, even if it is not exactly what you wanted.
"That's Life" is a 1966 album by Frank Sinatra, supported by a studio orchestra arranged and conducted by Ernie Freeman. The album is notable for its title song, "That's Life", which proved to be a top five hit for Sinatra at a time when rock music dominated the music charts. The lyrics talk about how sometimes life can be great, and then the next moment not so much. The song is iconic in how the lyrics masterfully sum up both the good and bad that happens in people's lives.
In this song the lyrics convey a powerful message of resilience and determination. In the face of life's highs and lows, Sinatra encourages you not to wait for things to get better but to take action and make things better yourself. The words echo the fluctuations everyone experiences in life. Yet, his conviction to 'change that tune' and get 'back on top in June' reflects an unwavering sense of determination and optimism.
However, as you age, this mantra can become more difficult. There are many senior adults who are optimistic about life. But, the older you get, sometimes there are more downs than ups. If you are not prepared financially for those seasons in life that are challenging to overcome, life can get difficult as you face how to live, and.... how you prepare for your last day. Planning needs to begin when you are younger with more options available to you.
One basic key for managing the good and bad of life is to have a solid economic plan for the rest of your life. Beginning that process is the first step in moving toward your life's goal to be financially prepared for when both good and bad things happen, and they will. The fundamental building blocks of a good financial future is to put an insurance program together that protects not only your current and future assets, but also brings with it the peace of mind that if the worst events develop, you are ready to face them.
Life insurance is what you should consider as your starting point just after you settle how you plan to save for those times when you need that emergency fund. Insurance planning should be an important topic during ordinary times as well as extraordinary. In times of crisis, perspectives can shift in countless ways, often focusing more on things like life, family and money. That was certainly true of 2020-21, where, in the middle of the biggest public health crisis in a century, insurance suddenly came to the forefront in many people’s minds.
Interestingly, people often think about life insurance, but then don't take action. The result is that many people are underinsured. There are roughly 106 million uninsured or underinsured Americans, according to LIMRA, amounting to 40 percent of the adult population. That puts an incredible strain on the economy as well as the individual families who must deal with the aftermath of catastrophic life events.
According to RBC Wealth Management there are some definite advantages of properly developing a life insurance program that can help you both now and in the future:
1. Tailor your insurance policy to your needs. There are several different kinds of life insurance coverage available, including:
Term policies, which cover a set period—say, 20 years—and then expire at the end of that timespan, while charging relatively affordable premiums.
“Whole life” policies are a form of permanent insurance, which have set premiums (typically at a higher level than term), are tied to a fixed interest rate, and accumulate cash value at a predetermined rate on a tax-deferred basis. That cash value can be borrowed against if need be.
"Indexed Universal Life" policies are a permanent or whole life policies tied to a specific index and are safer than some insurance plans that are tied to the market. There is a floor that protects the assets from decreasing value if the market goes down.
“Universal life” policies are another form of permanent coverage, with the cash value tied to rates that are managed and declared by the carrier. As with whole life policies, the cash value can be borrowed against or withdrawn. These policies tend to offer more flexibility, turning the dials on premiums and death benefits as needed.
“Variable universal life” products, meanwhile, allow the cash value to be invested to potentially produce greater returns (but also potentially greater losses), and so can benefit from rising equity markets.
If your term period is up, consider converting your term coverage into a permanent plan of insurance. Or, if you’re thinking of canceling your permanent insurance coverage, consider repurposing it, where the cash value would be transferred into a different policy with a different type of coverage, such as providing long-term care protection.
2. Don’t limit yourself to workplace insurance.
Many people secure life insurance through employer plans and then consider the matter settled. Instead, that workplace policy should be considered just one part of a larger strategy. That’s because the median coverage in such workplace plans tends to be a flat sum of $20,000 or one year’s salary, according to LIMRA. Is that enough to safeguard your family in the event of your passing? Likely not.
It’s also not typically portable, so if you move on from your current job or become unemployed, that coverage comes to an end. That’s why having an individual policy outside of work, in addition to any employer offering, can be a wise strategy for your family’s future. If you leave your job, that benefit goes away.
3. Remember the tax benefits.
For high-net-worth families, life insurance can be a critical tool when it comes to the tax burden for heirs. If the value of your estate exceeds state and federal exclusions—currently $12.92 million at the federal level—then the next generation could face costly estate taxes. Those fees could force them into selling assets to cover the bill. Life insurance death benefits, on the other hand, could help them cover such taxes, and avoid having to liquidate assets. And, the proceeds are tax free.
4. Use life insurance as part of your charitable giving.
It’s not just heirs who could benefit from a comprehensive life insurance strategy. It’s also a way to leave a legacy with the causes that are most important to you.
There are a few different ways to do that. One is setting up a charitable giving rider, which will pay a percentage of the policy’s value to a charity of your choice. Another is a policy donation, where the charity becomes the actual owner, and can either eventually receive the benefits, or surrender it for the cash value. If your permanent policy sends you dividends every year, you can direct those to charity. Or you can simply name a charity as a policy beneficiary.
As well, some whole life policies have living benefits that can pay you a lump sum in the case of a health diagnosis that is considered a critical illness or some other health need. You can purchase that benefit as a rider, and some policies have them automatically included within the premium cost as part of the plan.
Some whole life policies can be set up to pay you an income stream tax free once you reach a certain age, and that money is paid out of the cash value of the policy. You can also arrange for a loan from your cash value. The downside is that if you don't repay it to the policy, then the death benefit is reduced by the amount you borrowed from yourself. Plus, there is no tax liability.
Be careful not to overload cash into the policy as a way to treat it as a tax shelter. If you put too much money into a life insurance policy too soon, the IRS recategorizes the policy as a modified endowment contract (MEC). Unlike standard cash value policies, MECs don’t offer tax breaks for withdrawals or loans you take. Here’s what you need to know.
The IRS uses the “seven-pay” test to determine whether to convert a life insurance policy into a MEC. If you put too much money into your policy in the first seven years, it becomes a modified endowment contract. How much is too much? Check your policy documents. They should tell you how much you can pay into your account each year. That limit varies depending on the policy. Say you have a $200,000 policy, and your insurer sets your seven-pay or MEC limit at $4,500 a year for the first seven years of the contract. If you pay more than that—even once—your policy becomes a MEC. And if you make any changes to the policy, the seven-year timer resets.
Once a policy becomes a MEC, it can’t be reversed. The good news is, your insurance company will warn you if that’s about to happen. Still, if you want to avoid MEC status, you might want to act sooner than later: Make sure your premium payments don’t exceed annual limits. You may be able to increase your policy’s cash value and death benefit by buying paid-up additional insurance, or PUA. (In fact, your policy's dividends might cover the cost.)
PUA insurance is extra whole life insurance coverage that's purchased in full by using any earned dividends or with a PUA rider. The additional coverage is added to the death benefit amount, and the premium payment will contribute to the policy's cash value. Even so, different insurers have different offerings.
Whatever route you choose for a life insurance strategy, timing is key. Due to age and any health issues you might encounter, securing life insurance at a younger age can make it more affordable and more impactful. Usually, the older you get in life, the more difficult it is to get coverage. Plus, the cost goes up a lot, especially when you get into your 50's and 60's.
So, that's life. You can choose to do something about it if your situation changes at any time. The important point is to start the process. As a licensed agent, it would be my pleasure to help you along the path of developing a program that suits your individual needs. Contact me to talk about it. In the interim, visit this website to learn about life insurance options from various carriers: https://www.careingdentalgroup.com/life-insurance
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