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The thought that you may not need life insurance is anathema to most
life insurance agents. But as a Certified Financial Planner who is
also a life insurance agent, I have a different point of view. There
are times when you may not need life insurance.
To me, there are three reasons to have life insurance. You should
use it to provide a way to replace the breadwinner’s income in the
event of premature death, as a means to pay future estate taxes for
pennies on the dollar or to employ some exciting special-situation
strategies. Otherwise, you may not need life insurance and could
better use that money to fund higher priority items like Long Term
Care Insurance.
Using life insurance to replace the breadwinner’s income during the
earning years prior to retirement is a practical necessity,
especially when you have children. Unfortunately, there are still
many people who fail to protect their loved ones in this way.
Because of our life insurance policies, my wife and I take great
comfort knowing that our family would be well cared for should
either of us pass away.
If you don’t have enough life insurance to replace your income
should you die, you could be placing a tremendous burden on your
family. For single parents it is even more important! A simple rule
of thumb to determine if you have enough life insurance is to divide
your salary by .05. For example, if you earn $50,000 per year you
should have approximately $1,000,000 in life insurance. In most
situations, I recommend 10, 20, or 30-year term insurance as opposed
to permanent insurance. Get the length of term that will take you to
your retirement age.
Once you retire you may no longer need life insurance. If you’ve
accumulated enough assets to provide comfortably for your lifetime,
then life insurance is no longer needed for income replacement.
Don’t cancel that policy yet, though, because you may need it for
other reasons.
An individual can pass $2 million to heirs free of Federal estate
tax. If you’ve successfully accumulated more than this then you may
need life insurance to pay for future estate taxes. Even with the
recent changes in estate tax laws, many still find themselves facing
hundreds or thousands of dollars in estate taxes at their death.
With proper planning, married couples are able to pass $4 million to
their heirs in 2006 without incurring Federal estate tax.
Unfortunately, few married couples have the proper plans in place
and end up forfeiting one exemption which results in reducing that
amount to $2 million.
Life insurance is a wonderful way to pay death taxes without eating
into the estate itself.
This is particularly true when a large percentage of an estate is
tied up in non-liquid assets, such as real estate. In those cases,
those assets would have to be sold in order to pay the taxes. With
the proper use of life insurance you can avoid these situations
entirely, and do it in such a way that you pay your taxes for
pennies on the dollar. If your estate is smaller, you may not need
life insurance to help cover future estate taxes.
The third use of life insurance is for special-situation strategies.
There are unique strategies that will dramatically increase the
amount of support you can provide your favorite charitable causes or
provide a financial safety-net for your loved ones for generations.
Even those of modest means can provide literally millions of dollars
to worthy causes, while passing on a legacy of giving to future
generations. Very few are aware of these strategies, but if you’d
like to find out how you can take advantage of them, please give me
a call. As a former missionary and head of a non-profit
organization, I understand the impact such giving can have on
deserving charities.
If you don’t fit one of these situations you may no longer need life
insurance. Don’t take this decision lightly, though, especially if
your health has diminished. Also, depending on your age and health,
you may get more by selling your policy instead of canceling it.
Consult a qualified, unbiased professional prior to canceling your
policies just to make sure.
I’ll personally respond to your questions, free of charge. Go to
http://www.guardingyourwealth.com and click on ‘Ask Jeff’.
In addition to being a nationally syndicated columnist and Certified
Financial Planning Practitioner, Mr. Voudrie provides personal,
private money management services to clients nationwide. |
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