Financial Stability for Your
Family
~Planning is a key ingredient~
By Kelby Gelston
There is an old saw that says, “Failing to plan is planning to fail.” And
when it comes to planning for your family’s future financial stability,
nothing could be more accurate. Protecting the future of our loved ones is
usually at the top of our priority list, yet actually doing the planning and
implementing the plan often fall to the bottom of our “to do” list.
Each family’s lifestyle, dependent needs, budget and personal preferences
are different and therefore require an individualized plan. However, having
adequate life insurance protection in place and doing proper estate planning
can help create a solid financial foundation for your family. According to
certified financial planner Thomas Haunty, “having adequate life insurance
is the cornerstone of the foundation.”
Term Life Insurance, as the name implies, provides coverage for a specified
period of time and is usually the least-expensive type of coverage, providing
a death benefit and no savings component. The premiums usually increase as
the insured ages. Permanent insurance, including whole life, universal and
variable life products, is designed to last for the entire life of the insured
and usually have level premiums and a savings component such as the cash values
in whole life insurance.
Term insurance that is convertible to a permanent product allows one to have
a high level of death benefit for today at affordable rates and the ability
to convert necessary amounts to permanent insurance to provide for insurance
coverage and savings for the future.
Life insurance is quite unique as an asset. Its tax-favored benefits can
help solve many family financial issues. On the personal side, there are many
uses for the death benefit, including:
Creation
of an immediate estate. Your first premium payment creates an immediate estate,
regardless of how soon death occurs.
Pay off
of a home mortgage or personal loans
Payment
of estate taxes and estate settlement costs
Funding
of current and future education costs
Additionally,
if you have a named beneficiary there are generally no probate or administration
costs in settling an insurance claim.
Once you have an adequate amount of life insurance in place you can begin
saving more aggressively for retirement and future expenditures. While having
an appropriate amount of death benefit is the most important issue, there are
many other features and benefits that life insurance can provide.
A
“rider” can be added to a policy, at an additional cost, to provide
the option to purchase additional coverage without having to take a medical
exam or having to furnish evidence of insurability.
With whole
life insurance, policy loans are available to you, if the cash value is adequate,
and can be used to pay for children’s college expenses, wedding expenses
and other needs for which you may not want to take money from other financial
sources. Loans and withdrawals from life insurance policies, which are classified
as modified endowment contracts, may be subject to tax at the time the loan
or withdrawal is made. Withdrawals have the effect of reducing the death benefit
and cash surrender value.
Cash values
grow, tax deferred, during your life and can be used to supplement your retirement
income as well.
Upon death,
life insurance proceeds are usually passed, income tax-free, to your beneficiaries.
With adequate life insurance coverage as the cornerstone of your family’s
financial foundation, you can plan for and build the other aspects of your
family’s financial security knowing that they will be taken care of in
the event of your untimely death.
Kelby Gelston is an associate of FranklinMorris, Coordinating
Broker for the Bar Associations Insurance Agency, Inc. For more information
on the insurance benefits available to MSBA members, visit www.msba.org/departments/membership/baia/.
