Life insurance has many uses. What type of insurance should I buy to protect my family financially, for my Estate Plan, for my business Succession Planning? Each type of insurance policy has advantages and disadvantages in particular circumstances.
Insurance companies invest the premium you and others pay. They calculate that they will collect more in premiums and investments over time than they will need to pay out in death benefits. Premium payments are based on life expectancy, health, and the term of coverage. The younger and healthier the insured, the lower the premium payment because the insurance company expects to collect premiums that much longer before a death benefit payment is likely. Likewise, the shorter the policy term, the lower the cost because the need to pay a death benefit payment is less likely. On the other hand, the longer and larger the commitment by the insurance company, the larger the premium, as payment of the death benefit becomes more likely.
Term policies provide coverage at a particular annual premium for a limited number of years. They are excellent for providing income protection to young families as they tend to be lower cost. Once the term is up, because the insured is older, it can be costly to renew. (The income protection is provided by purchasing a death benefit large enough to generate income to replace the lost family income provided by the insured upon death.)
Life policies provide a death benefit to an advanced age. There are various types, including whole life, universal life, and variable life, each based on a particular investment option. The premium is divided into two parts. One part is applied to the cost of insurance and invested toward the payment of the death benefit. The balance is invested for the policy owner, the returns on this investment portion are applied to offset future increases in the cost of insurance, helping to keep down premiums as the insured ages. Premiums can be tailored to many circumstances. In some cases life policies can be used as a tool for both income protection and life time savings as the cash value that can be surrendered or borrowed against.
A Last to Die Insurance Policy has particular provisions that help keep premiums down and benefits up, making this policy useful in Estate Planning in particular circumstances. Similarly because people are living to an advanced age, insurance companies can invest premium dollars longer, so premiums have come down. Review your policies for cost savings opportunities.
Before you make any changes to your insurance or annuity policies, be sure to update your Estate Plan and/or Elder Law plan so the insurance structure compliments the planning.
* Please note we do not sell life insurance, or accept or receive commissions on life insurance.
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The content in this document is provided for informational purposes only, and should not be construed as legal advice or an offer to perform services on this subject matter. Contact Visci & Associates to schedule a consultation at our offices in New York and New Jersey.