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5 Reasons Why Life Insurance is Important
Updated September 21, 2021
Whether you're married with kids, or have a partner or other relatives who depend on you financially, having life insurance can be important. Life insurance provides money, or what's known as a death benefit, to your chosen beneficiary after you die. It can help give your loved ones access to money when they need it.
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Understanding life insurance can help you plan for your family's long-term financial needs. Here are five reasons why life insurance is important.
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1. It Can Help to Financially Protect Your Family
Life insurance is meant to help protect your family's financial future. Even if you have savings, it's unlikely that it would be enough to cover your family's expenses for several years or even decades if something happens to you unexpectedly. Typically, there are three types of life insurance to consider: term life, whole life or universal life.
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Term Life Insurance
This type of life insurance offers coverage for a set period of time — generally 10, 15, 20 or 30 years. Coverage expires at the end of the term. However, most term life insurance policies also offer optional riders that could allow you to renew or convert your policy.
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Whole Life Insurance
This type of life insurance doesn't expire as long as you continue to pay the premiums. It also offers a cash value component that has growth potential. You also can borrow from the cash value, but loans or withdrawals may generate an income tax liability, reduce the cash value and death benefit and cause the policy to lapse. Loans will also accrue interest. The policy may be issued as a Modified Endowment Contract (MEC) for tax purposes. Any withdrawals or surrenders could result in a taxable event.
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Universal Life Insurance
This type of life insurance is similar to whole life because it also does not expire as long as you continue to pay the premium, and it also has a cash value component. With a universal life policy, you typically have the flexibility to adjust the premium and death benefit. However, there must be enough cash value in the policy to cover monthly charges if a lower premium is paid than the amount selected at issue or if a premium payment is skipped. Additional premium payments may need to be made to keep the policy in force. Increases in coverage are also subject to underwriting.
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2. It Can Replace Lost Income
Whether you have a 9-to-5, are self-employed, or own a small business, your income might cover a portion or even all of your family's daily needs.
Housing, food, utilities, clothing, car maintenance and health care premiums are likely all part of your monthly budget, and even without your income, your family will still need to cover these expenses. The death benefit from a life insurance policy can help provide the funds your family may need to help cover these expenses. When considering your options, you may want to think about using a life insurance calculator to help you determine how much life you insurance you may need.
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3. It Can Help Your Loved Ones Pay Off Debt
Certain types of debt don't go away when you die, which means your loved ones may have to use money from your estate or sell off other assets to cover them. This could leave less money to pay for expenses.
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Life insurance can help your loved ones pay for any debt you leave behind, including credit card debt, business debt, personal and/or educational loans and mortgage debt. At a time when your loved ones are already dealing with your loss, life insurance can help ease some of the financial burdens they may experience after your passing.
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4. It Can Cover Funeral Expenses
Funerals can be expensive. Dealing with this financial stress can add to the emotional stress your family might experience. Your family could use some of the death benefit from your life insurance policy to help pay for these costs. To do this, the beneficiary of the policy could direct some of the death benefit to the funeral home, or they can pay out-of-pocket and use the death benefit as a reimbursement for these expenses.
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5. It Can Help to Pay for Future Education Expenses
If you have children, life insurance can help your family pay for future childcare and education expenses, especially for college. Even if you've already started contributing to a 529 college savings plan, the death benefit from a life insurance policy can provide additional money to help cover your children's education if you were to die.
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Protecting Your Family's Future With Life Insurance
Understanding life insurance and how much coverage you may need can help when making long-term financial plans. Making plans to help support your family's financial stability in the event that you pass could help to mitigate the stress and burden of an already difficult time. Depending on your financial goals and needs, life insurance could be an important part of this plan. For more information, consider speaking with a financial representative.
The Rule of 72
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May 3, 2021
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So you’ve got a chunk of change and the know-how to put your money into an account that earns compounding interest.
How long does it take for your money to double in that account? Well to find this out you need two things: your balance and your interest rate. Now, like most things there’s an easy way to find your answer and a hard way. The hard way involves taking the logarithm base 10 of 2. Two as in, two times our balance over the logarithm base 10 of 1 plus our interest rate. (Apologies for causing any unnecessary math class flashbacks.) Since most of us don’t have bionic brains, we can’t really crunch numbers like these in our heads.
The simple way to make an educated guess about how long it takes for your money to double in a compound interest account? The Rule of 72.
The way it works is surprisingly easy (and won’t require a graphing calculator). All you do is take the number 72 and divide it by your interest rate. That’s it! It really is that straightforward. The number you get equals the number of years it’s going to take to double your money.
Let’s try it out: Say you have $5,000 in your account earning 4% interest. Now take that magical number 72, take your interest rate of 4%, pull out your phone and text your 2nd grade cousin and ask him how many times 4 goes into 72. He’s a bright kid, so he’ll tell you the answer is 18, and you’ll tell him that he just helped you learn that it will take 18 years for your initial $5,000 to double into $10,000.
Using the Rule of 72, it’s easier to see how small changes in interest rates can make a huge difference in earning potential. A 29-year-old earning 4% compounding interest can expect his account to double twice by the time he’s 65. At 8%, it doubles 4 times. At 12%, it doubles 8 times. So by doubling your interest rate from 4% to 8% you actually quadruple your money. And by tripling your rate from 4% to 12% you sixteen triple your money. That’ll work.
Interest rates matter. The Rule of 72 shows just how much they matter. So how many doubling periods does your nest-egg have before you retire? Now you know the easy way to find out. Click this text to start editing. This block is a basic combination of a title and a paragraph. Use it to welcome visitors to your website, or explain a product or service without using an image. Try keeping the paragraph short and breaking off the text-only areas of your page to keep your website interesting to visitors
Keeping the House
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July 18, 2021
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​​Li​fe Insurance can save your house.
Picture this…
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A couple owns a beautiful h​ome out in the suburbs. It’s where they’ve raised their children and made memories that will last a lifetime.
Until one of them passes away too soon. Suddenly, the whole picture shifts. See, they are a two income household. They relied on both income streams to buy groceries, cover children’s education… and pay the mortgage.
Now, the surviving partner isn’t simply coping with grief. They’re facing the potential loss of their house, with all of its memories and meaning, as well.
It’s not a far-fetched scenario. Death is one of the Five D’s of foreclosure—the others are divorce, disease, drugs, and denial.
Life insurance can help. It’s the safety net to have in place to protect your family from financial uncertainty and provide for their future.
That’s because the death benefit that’s paid out to your loved ones can cover the cost of mortgage payments, or possibly even pay off your mortgage entirely.
What does that look like in the scenario from earlier?
First, it prevents a personal tragedy from becoming a financial crisis. The last thing a grieving person needs is to have to cope with financial stress.
Second, it means that the grieving partner could keep the house if they so desire. After some time has passed, they can make plans on what the future of their life should look like, without undue financial restrictions.
If that’s a peace you would like to help provide to your family, contact me. We can review what life insurance would look like for you and your budget.
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How income Annuities can benefit your retirement plan
By: Dan Farrelly & Kam Harris
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August, 22, 2021
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Do you like the idea of putting a plan in place for your retirement income? If so, let’s dig into how an income annuity could benefit your retirement plan.
We insure our cars, homes and lives. Shouldn’t we insure our income too?
An income annuity is a solution that can guarantee you an income stream for as long as you live. Plus, an income annuity could be the foundation of a protection-first approach to your retirement income, helping you cover your expenses in retirement.
How an income annuity can work for you
A type of income annuity, a fixed indexed annuity (FIA), protects your principal, is never directly invested in the market and has the potential to earn some interest tied to a market index. And like all annuities, an FIA offers lifetime income, tax deferral and death benefit features for your beneficiaries.
There’s a rider called a guaranteed minimum withdrawal benefit (GMWB) that allows you to protect and plan for your income at the same time. A GMWB rider may be optional or already built into the FIA depending on the company and specific product. Be sure to talk with your financial professional to know what your options and limitations may be.
From the protection side, the income you receive from an FIA will never decrease due to stock market losses. You choose the amount you use to fund the annuity based on the percent of your retirement income that you want guaranteed.
From the income planning side, an income annuity with the GMWB rider can offer you the potential to create more income with less cash from the start. For example, if you’re able to take money out of the annuity at a higher percentage than the normal 4.0% safe-withdrawal rate, you may not need as much cash to begin with — potentially leaving extra cash on hand for you to use or save as you need.
Let’s look at a hypothetical situation.
Assume a 60-year-old woman has other income sources (e.g., Social Security) and has a gap of $36,000 per year in her retirement income plan. She wants to earn a 7.0% return each year on her money to make her income last throughout her lifetime, assuming she takes income starting at age 70.
If this woman doesn’t have an FIA or a GMWB rider but wants a 7.0% annual growth rate from a typical diversified portfolio, she will need to start with $460,000 up front. By age 70, that value is worth $904,890. By taking a 4.0% withdrawal rate, she would receive the $36,000 that she needs each year.
However, this diversified portfolio without a guaranteed income annuity is not contractually guaranteed to last as long as she lives. Therefore, she could potentially outlive her money. Also, it’s unlikely that she could earn 7.0% every year for 10 years. If her assets are invested in the market, she could potentially have a loss of her principal.
Now, if she has an FIA with a GMWB rider, in this example, she would need about $329,500 up front. By age 70, that value would be worth $670,110. She would then take a 5.3% withdrawal rate to get the $36,000 she needs each year. While the value at age 70 is lower than the first example, the withdrawal percentage is higher, the income is guaranteed to last as long as she lives and she needs less cash up front.
Person without an FIA Person with an
but with 7% annual growth FIA and GMWB rider
Initial capital needed $460,000 $329,500
Income value – Age 70 $904,890 $679,110
Withdrawal rate 4.0% 5.3%
Income per year $36,000 $36,000
Guaranteed for life? No Yes
The above example is hypothetical and is not an indication of the annuity’s past or future performance. The non-FIA values are not contractually guaranteed. The annuity income in this example is based on, as of April 2021, a 60-year-old woman purchasing an F&G 7-year fixed indexed annuity with a GMWB rider providing an income base rolling up at 7.5% per year and a 5.3% guaranteed withdrawal payout percentage at age 70. The diversified portfolio assumes a 7.0% annual return for 10 years and a 4.0% withdrawal rate in the first year of income.
All in all, an income annuity can create a level of certainty in your retirement plan.
Now that we’ve talked about the importance of protecting your retirement income, a next step would be to talk with your financial professional about adding an income annuity to your retirement portfolio.
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The difference 15 years can make
August 7, 2021
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Choosing between a 15-year and 30-year mortgage is one of the most important financial decisions you’ll make.
The answer which is better for you depends on your personal situation, but there are definite pros and cons to each. In this article we’ll take a look at both types of mortgages and see what they offer along with their drawbacks so that you can make a more informed decision about which mortgage works best for you.
The 15-Year Mortgage: As the name suggests, a 15-year mortgage has payments spread over 15 years, as opposed to 30 years for the standard loan. That has two practical implications…
Your monthly payments will probably be higher
The total cost of the home will likely be lower
Those might seem contradictory. But the math is simple.
Let’s say your monthly payment for a 15-year mortgage is $1,000, while for a 30-year mortgage your payment is $750.
For the 15-year mortgage, you’ll pay $180,000 over the lifetime of your loan. For the 30-year loan, that number is $270,000, a $90,000 difference! So if you can afford the higher monthly payments, a 15-year mortgage might save you a substantial amount of cash over the long-term.
The 30-Year Mortgage: But make no mistake—the 30-year mortgage has distinct advantages of its own. How? It often offers lower monthly payments, which frees up your cash flow. That extra money can go towards saving, financial protection, and building wealth.
Not every family will have the financial resources to afford potentially higher monthly payments with a 15-year mortgage. Depending on your financial situation, a 30-year mortgage may be a better option.
The bottom line? The mortgage you choose can impact your financial security now and in the future. That’s why it’s best to consult with a financial professional before buying a home. They’ll have the knowledge you need to make an informed decision that aligns with your long-term goals.