Make Financial Resolutions The One You Keep This Year

Before we’re able to plan ahead for how 2016 will be different, let’s first evaluate what took place in 2015.  What changed? Did your family welcome a new child? Did you experience the joy of marriage? New job? New home? Retirement? Divorce? Taking inventory of the previous year and understanding how those changes impact you, your business and your loved ones, are the guiding force behind properly planning for the year ahead. New year’s resolutions come and go too easily. The new faces you’re seeing at the gym in January will probably be gone by Valentine’s Day. While many resolutions are terminated entirely too early, if nothing else, let this be the year you get your financial home in good order.

Savings: What happens if you or spouse looses their job tomorrow? Do you currently have immediate access to the cash necessary to get your family through the next 6 months with no new income coming in?

Life Insurance: When was the last time you reviewed your existing life insurance coverage? Any time needs and goals change, it is important that your life insurance mirror that change. A new child, spouse, home, or significant change in income are all factors that should spark a review to ensure your loved one’s financial future is properly protected.  

Retirement Savings: A 401k & IRA are great tools, but not without limitations. If your current level of income precludes your participation in a Roth IRA, life insurance can help you create tax-free retirement income without the restrictions of traditional retirement planning vehicles. 

3 Ways To Grow Your Money Through Life Insurance

Life insurance has evolved over the years from a vehicle used to solely provide liquidity and income when a loved one or business partner passes, to one capable of offering so much more. What many view as a one-trick pony proves the adage wrong that old dogs can indeed learn new tricks. Today’s life insurance policies have the ability to:

·      Grow savings on a tax-deferred basis: Unlike a traditional savings account, Interest earned through a life insurance policy's investment account is not subject to an annual tax bill.

·      Provide tax free retirement income when properly structured: A policy owner can access their accumulated funds at any time. In contrast to a 401k or IRA, there is no limit on the annual contributions made to a life insurance policy, and policy owners are not required to attain a minimum age before accessing their funds.

·      Fund a child or grandchild’s college education: Unlike a 529 plan, the funds accumulated in a life insurance policy can be used for any life expense as determined by the policy owner.

Life Insurance Is More Affordable Than You Think

Three independent conversations today began with perspective clients informing me that the primary reason they had not considered purchasing life insurance previously was because they believe it to be too expensive. Today was not an uncommon day, and these were not atypical comments relative to those I hear on a regular basis.  I find this is the single largest myth surrounding life insurance.  One of the individuals this morning was a dear friend of mine who had a genuine need to secure coverage sooner than later as his wife was pregnant with their second child. When I asked my friend how much he thought $500,000 of 20-year level term insurance would cost each year, he quickly replied $1,000. Instead of $1,000 annually, this healthy 32-year-old gentleman was able to secure $500,000 of life insurance along with his family’s future financial obligations for under $450 each year.  There is not an investment in world that can compete with the efficiency and effectiveness of life insurance.  The real number to focus on here is 86%. According to the LIMRA and LIFE Foundation’s 2013 Insurance Barometer Study, 86% of respondents say they haven’t bought life insurance because it’s too expensive, yet overestimate its cost by than 2X.  Life insurance will never be as inexpensive as it is today when you are younger and healthier than you will be tomorrow. Don’t wait until it is too late.

Is My Employer-Sponsored Life Insurance Enough?

Life insurance is far from a one-size fit all solution, yet many individuals view it as they do the purchase of a new pair of gym socks. A recent conversation with a close friend left me with an uneasy feeling in regards to a belief held by many that their employer-sponsored life insurance is both enough protection, and the most appropriate solution to cover their family in the event of loss.  While a generous addition to an employee’s compensation package, group life insurance policies have significant limitations which need to be better understood by the individual employee and their family to best determine whether or not they need to obtain additional coverage which more accurately reflects their unique goals.  Most group coverage is a temporary form of life insurance. Individuals risk loosing this life insurance and placing their loved ones in jeopardy, should they leave the firm, or have their employment terminated. It is often suggested by advisors, that individuals should obtain life insurance in multiples of their current salary to offset lost income for years to come. While many advisors advocate young families to hold a life insurance multiple of 10X - 20X their current salary in order to properly provide for dependents, the vast majority of employer-sponsored group life policies only cover 1X, 2X, or 3X current salary.  Not only does this represent a huge planning gap which could dramatically impact dependent’s quality of life; major sacrifices will need to be made assuming that lost income is not replaced. The key is to understand your coverage and how it directly impacts the lives of loved ones.

Time For A Policy Review

When was the last time you reviewed the balance and performance of your retirement savings or brokerage account? This is a question I have posed to prospective clients and peers over the past few months. Answers have been quite consistent; with most individuals having done so within the past month or two. As the market fluctuates and goals change over time, it is important to review and rebalance those account holdings to ensure you are planning properly. When I ask the same question to individuals about their life insurance, the result was dramatically different and quite startling. Less than 5% of those I inquired with put any ongoing thought into their life insurance outside of when they are making premium payments. Life insurance is a highly effective planning tool when implemented properly. It can provide protection for loved ones, tax fee liquidity and ensure businesses continue to flourish during transitional periods. With so much at stake, why have less than 5% of individuals reviewed their insurance needs since their current policy was originated? The most common response is that, “I did not know I should review it,” or “my agent never brought up the topic.” While agents should absolutely be proactive in the ongoing management of their client’s insurance policies, clients also need to recognize trigger events for when their current coverage may no longer be adequate in order ensure they have proper coverage when circumstances change.

Below are a few key examples of life events that should prompt a review of your current coverage:

·      Have you recently purchased a new house?

·      Have you welcomed a new child into your family?

·      Are you caring for an aging relative who relies on your financial support?

·      Have you recently gone through a divorce?

·      Have you recently started your own business?

·      Do you have a term life insurance policy approaching the end of its level premium period?

·      Have you recently retired? Do you plan to retire in the near future?