Understanding your Risk Management Options
Depending on an individual’s needs, desires and health condition, there are many types of insurance available. These include life insurance, income replacement, critical illness insurance and long-term care insurance.
“Temporary” life and health insurance is a way of looking at certain financial risks that would be devastating if they arise, but which most often we will live past. For example, the loss of an income earner, especially early in life can cause extreme financial hardship for those left behind. How will the mortgage be paid? How will the children’s education be funded? Will the family have enough income to maintain their standard of living?
Term Insurance – “Renting”
Term insurance is often used to provide coverage for these temporary situations. With term insurance policies, your premiums only pay for the cost of the insurance; there is no savings component or cash value. As a result, the initial premiums on a term insurance policy are generally lower than the premiums on a comparable permanent insurance policy. If you stop paying premiums, the coverage expires. Term life insurance premiums often increase every 10 or 20 years, although some policies provide for level premiums over longer periods of time. However, most Term plans are designed to expire prior to life expectancy.
Regardless of when an individual dies, there will likely be taxes, funeral costs and other expenses due at death. In addition, some individuals may desire to leave a bequest at the time of their death or wish to maximize their estate value.
For business owners who have accumulated a sizable investment portfolio or estate, permanent life insurance can be an important tool in helping to transfer a business successfully, reducing taxes or as a wealth positioning asset with valuable tax sheltered accumulation and tax effective estate transfer capabilities.
Permanent Insurance – “Leasing/Owning”
For permanent needs, there are insurance products that provide primarily protection with the lowest annual cost outlay such as permanent term insurance (term-to-100 or Leasing) or Limited Pay products (Owning), to those which allow substantial tax sheltered growth and asset allocation potential such as whole life and universal life insurance (Owning with Equity and Growth).