By Bob Price and Brian Harrigan
How do you plan your routes of travel – with a road map or a GPS system? Most people when considering a life insurance policy just use a road map. We at Executive Plan Design, however, encourage our customers to use a GPS approach when choosing a policy as part of a flexible planning strategy. One of the most useful planning vehicles to protect your family’s future is an indexed universal life insurance policy.
If you’re not familiar with this policy, don’t be discouraged. Indexed universal life policies were created in the past 15 years to compete with investments such as stocks and mutual funds, but through a life insurance policy. With this type of policy, you can invest more than the minimum for insurance protection and create savings for college education and retirement years.
There are many tax advantages to using this type of policy. By overfunding, you can borrow against that extra cash (which grows in an S&P Index). This money will be income tax-free, compared to other investment vehicles. In addition, some of these policies even allow the death benefit to be advanced tax free for long-term care if the individual is in need, as well as income for children’s college education, and more importantly for retirement with tax free dollars.
Unlike term insurance, indexed universal life insurance policies can last “forever.” Another problem with term insurance is that if one purchased a policy to cover say 20 years, and in 10 or 15 years become uninsurable after their term period ends, they may have no insurance despite the premiums they’ve paid. With indexed universal life insurance, once you have proven your insurability, you never have to prove it again. If your health changes, it doesn’t impact the policy in any way.
One of the questions we often get from our clients is, “How much coverage do I need to keep my family safe?” In general, we recommend five to ten times your annual income. Couples, however, need to consider their lifestyle requirements, location of their residence, and the needs of their children.
There are many factors to consider when making a decision on purchasing Indexed Universal Life Insurance policies. Planning for short term and long term needs, isn’t always a time to be frugal. Based on your needs, you want to establish your strategy correctly the first time so you don’t face problems later in life. You have to find a policy that is flexible to adapt to the changes that life might throw at you. Most people are offered a basic term insurance policy as part of their benefits through an employer. Unfortunately, most people don’t stay at one job forever – so they lose their insurance each time they go to a different job. The bottom line we tell our clients: plan your policy with a smart strategy like using a GPS so that if you have to change course due to an unexpected event in your life, the policy can adapt to these changes. A properly structured policy from a financial planner can be helpful.