07 May Life Insurance–What’s Important?
Life insurance is critically important because it provides protection when it is needed the most. Thoughtful planning is required. There’s much to consider:
- What is the purpose (loan protection, estate planning, to fund buy-sell agreements)?
- Is a split-dollar agreement or deferred compensation agreement appropriate?
- Is the primary purpose tax avoidance?
- How long will the coverage be needed?
- How should the premium be paid, and by whom?
- Should I buy term insurance or permanent insurance?
- What are the valid options?
- Should my accountant be involved, or my attorney?
Life insurance planning can be complex. It’s easy to get bogged down in the details and lose sight of what’s important. Don’t let it overwhelm you. Keep what’s important at the forefront of your mind and in your sights, and work with an advisor to help you through the process.
Life has no guarantees
Over 70% of Americans don’t have enough life insurance for their families to maintain their current standard of living, and if 2020 and COVID-19 have taught us anything, it should be that life has no guarantees.
Knowing what agreements to use and learning how to avoid unnecessary taxes are undoubtedly important. Still, agents need to begin every life insurance discussion with “How much life insurance will it take to protect your loved ones in the event of your premature death?”
Once this amount has been determined, don’t procrastinate. Bind the coverage, even while underwriting is taking place. You still need to make crucial decisions (like how to structure your coverage), but either way, your family will be protected.
Use your time wisely
Yes, life has no guarantees, and you’ll want to start your planning as early as possible, but make sure to use your time wisely. For instance, getting your accountant and attorney involved may be necessary, but this process can take several months to complete. It makes sense to have coverage in place while considering the use of wills, trusts, business agreements, and affordability. These decisions, however, are secondary to having coverage in place, and it’s imperative not to let the whole process stall while waiting months to wrap up planning issues.
No life insurance discussion is complete without discussing underwriting. COVID-19 should be enough motivation to create an immediate sense of urgency, but other factors that affect underwriting should also be considered, such as:
- Blood pressure
- Pre-existing conditions
Don’t wait until you have a chronic health problem to decide that life insurance is important and to decide that “maybe it’s time to buy life insurance.” By then, it may be too late.
Gather around for the good news
The good news?
The underwriting process and applying for life insurance have actually gotten easier.
You can apply for most policies online, and many of the medical requirements have been reduced due to the availability of electronic records. Depending on age, tobacco status, and health condition, life insurance can be purchased quickly and inexpensively in many cases.
Planning and preparing for such a task can be complicated. The importance of life insurance and proper planning should not be minimized, but procrastination can put families at risk. Take the time to do your planning properly but do it with the required amount of coverage in place.