The Role of Life Insurance
Ron D. Hanson and Bruce R. Snyder, Jr. - Partners, Hanson & Snyder, LLC.
Categories: Financial, Personal Finance
It is wise to take time annually to think through the role life insurance plays in your financial plan. You, your loved ones, business associates, creditors, and estate plan all are stakeholders in the choices you make. By securing this important block in your financial plan, the rest of the structure has a solid foundation on which to build.
It is wise to take time annually to think through the role life insurance plays in your financial plan. You, your loved ones, business associates, creditors, and estate plan all are stakeholders in the choices you make. By securing this important block in your financial plan, the rest of the structure has a solid foundation on which to build.
The Role of Life Insurance
Life insurance is designed to provide protection. Oftentimes, in the early stages of the adult years when individuals are taking on debt for homes, business interests, and providing for a family, life insurance will provide the protection needed to cover those obligations in the event of death. As people continue to accumulate wealth, it can provide the security to grow personally and professionally without jeopardizing the welfare of family and business associates. It can provide freedom to expand and accept opportunities as they present themselves, without subjecting loved ones and creditors to uncovered risks. Life insurance serves as a means to guarantee income and wealth transfer to future generations. Financial planners will see insurance/risk management as basic to a solid financial plan. They also are equipped to explain the various uses of life insurance.
Types of Life Insurance
There are many types of life insurance: term, whole life, universal life and universal life with secondary guarantees, first and second-to-die policies, and no-lapse guarantee policies. All serve a purpose, and matching the appropriate product with the need is essential. Some insurance companies are more competitive in one or two products than another company, which can complicate the decision process.
Determining the Amount of Coverage Needed
Calculating how much insurance a person needs may be based on the financial obligations and wishes a person wants to cover or protect. A discussion of goals and dreams a person wants realized, in the event of their death, should not be overlooked. A financial planner is in a position to ask many of the objective questions that are sometimes not thought of by the lay person consequently affecting not only how much insurance may be needed but the most appropriate type of insurance.
Actions Steps to Consider
One of the first steps we would recommend a person take, if they own a permanent life insurance policy, is to contact the insurance company and ask for an in-force ledger statement of the contract. This will show where the contract values currently stand and what are guaranteed and projected. In many cases, policies issued today compared with policies issued many years ago, are less expensive and designed to not risk lapsing.
Due to the very low interest rates on mortgages in the past few years, other factors influencing investments and the economy, insurance companies have reduced the returns paid on permanent life insurance policies. In addition, the competitive pressures within the insurance industry have changed the type of coverage offered. Underwriting guidelines have also changed due to people living longer and advances in medicine. Policies issued years ago in many cases are not performing in the manner illustrated. The result may be that the insurance policy will lapse, in other words coverage stops, or additional premium beyond what was projected will have to be paid to keep the policy in force. The Wall Street Journal, as well as several insurance industry publications, recently stated they anticipate more mergers and acquisitions of life insurance companies in 2006 than ever before. This too may affect the performance of permanent life insurance policies.
By securing the ledger statement of the existing policy, the policyholder is then in a position to evaluate with a financial planner or insurance agent what options are available. When considering life insurance coverage, or reviewing your current coverage, we would recommend a person get a “Life Insurance Check-Up”. This may be done by contacting us or a financial planner that understands life insurance analysis and planning. By discussing the amount needed, the time it will be needed for, the objective of the coverage, existing policies, the current premiums being paid and current cash values, we can determine what coverage is appropriate.
Ron D. Hanson, Chartered Financial Consultant and Certified Senior Advisor, along with Bruce R. Snyder, Jr., MBA are partners in Hanson & Snyder, LLC. They are a personal financial advisory firm working with individuals specializing in investment management, retirement management, estate planning and insurance analysis and planning. Mr. Hanson and Mr. Snyder have over 37 years in the insurance and financial services business. For more information, visit our web site at www.HansonSnyder.com.
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