Are You Aware?
September is National Life Insurance Awareness Month. With the end of summer in our lovely community and all the excitement that comes with that, for example, Sundance, tourists going home, parking meters going away and in my house, the kickoff of football season, perhaps you may have missed the Life Insurance Awareness Month news. However, it’s an important, albeit sensitive, subject that most of us would rather ignore. Let’s face it, who wants to plan for their own demise? It’s a bummer, right?
However, a couple of interesting studies recently passed through my Inbox. One of them concluded that over 90 percent of Americans think it is Very Important to have life insurance as part of their overall financial plan, yet less than half of us actually own a life insurance policy. I thought about our LGBT community and went on a mission to find out why this might be true. Here are some of my findings:
•Many people think Life Insurance is needed only for families with young children or households with extremely large debt or mortgages.
•Times are tough and people are surviving paycheck to paycheck. Life Insurance is looked at as a luxury when you are struggling to find a job or pay the bills.
•Many I have spoken to admit they don’t really understand the need for coverage or think it’s too expensive, or worse, that it’s a scam designed to make insurance agents a lot of money.
Conversations I have about life insurance with clients or friends typically go something like this, “If I die, I have named John (or Sue) beneficiary of my 401k or IRA. That should be plenty to pay off the mortgage (or bills) etc”.
Have you looked at your 401k statement lately? There’s a reason people have jokingly started calling them 201k’s. It may take years to rebuild your lost assets.
The reality is that many in our community need or could have benefitted from owning a Life Insurance policy. Did I mention that Life Insurance passes to your beneficiary in most cases “Tax Free”? It also avoids “Probate,” an attractive feature for those who want to keep their personal business private.
Yes, there was a time when insurance companies did not recognize Domestic Partners for the purpose of purchasing Life Insurance, deeming that there was no “Insurable Financial Interest” in the relationship. That has changed dramatically over the last five years and now most every insurance company recognizes the need for same sex domestic partners to hold life insurance policies on each other. If we could only get the insurance companies to talk to the government!
Here are some uses for Life Insurance that you may not have considered:
Income Replacement—not just for the primary breadwinner, but both partners. The income from a partner who works part time may be the difference in allowing you and your partner to maintain your desired lifestyle. Oh, and if one of you is receiving Social Security benefits, at death, that income does not pass to the surviving partner as it would a married couple.
To cover a mortgage, final expenses, taxes and debts— even if you are single and have no children, who is going to be left to pay the bills? Often it’s parents, siblings, friends or other heirs left to cover unpaid credit cards, medical bills, probate costs etc. What if your mortgage was underwater and your family was forced to sell in this depressed real estate market?
Generate Income— Policyholders can borrow or withdraw the Cash Value of permanent life insurance to supplement retirement income, pay for long term care or assisted living or pay off a mortgage. One additional benefit, withdraws or loans are not subject to income taxes.
To Leave a Legacy—a life insurance policy can help turn a modest financial gift into a large legacy for family or even your favorite charity! This is one of the most underutilized uses of life insurance. Let’s look at an example:
A 60 Year Old Non-Smoking Male in good health and living in the state of Delaware decides that he would like to donate $5,000 a year to the scholarship fund of his alma mater. Instead of writing a check every year to the fund, he purchases a Permanent Life policy and names the Scholarship fund as the beneficiary. The Policy has a premium of $5,000 per year and a death Benefit of $250,000. At the ripe old age of 85, he passes away. He has paid premiums for 25 years totaling $125,000, but the scholarship fund receives the policy death benefit of $250,000. This gentleman has now doubled his original intended charitable gift by using life insurance!
Of course, every situation is different, so please consult your insurance agent and tax advisor for more details. They can advise you on the various types of policies and help you decide the proper amount of insurance. The important thing is to take action while you are healthy if you think coverage is right for you and your loved ones!