Menu

Uncategorized

Business owner standing in a woodworking shop with employees working in the background.

What Is Key Person Insurance—and Does Your Business Need It?

What would happen to your business if an essential owner or employee died?

You might lose sales, delay projects, or need to hire a replacement quickly. Meanwhile, payroll, rent, and loan payments would continue.

Key person insurance can help a business manage that financial disruption. It provides funds after an insured person’s death, subject to the policy’s terms.

What is key person insurance?

Key person life insurance is coverage on someone whose loss would significantly affect a business financially.

Typically, the business owns the policy, pays the premiums, and receives the death benefit. The insured person might be an owner, partner, or essential employee.

Unlike personal life insurance intended to support a family, this coverage protects the business.

Who is a key person in your business?

Start by asking whose absence would be hardest to manage.

For example, your business might depend heavily on:

  • An owner who generates most of the revenue.

  • A salesperson who manages major client relationships.

  • A specialist with skills that are difficult to replace.

  • An operations manager who keeps projects and staff on track.

  • A partner whose knowledge is essential to delivering your services.

Job titles alone don’t determine the need. Instead, consider the person’s financial contribution and how long replacing that contribution could take.

How can key person insurance help?

A death benefit can give the business money and time to respond. Depending on its needs and obligations, the business could use those funds for:

  • Recruiting and training a replacement.

  • Maintaining payroll and other operating expenses.

  • Managing a temporary reduction in revenue.

  • Paying business debts.

  • Bringing in temporary management or specialist support.

Insurance cannot replace someone’s relationships or experience. However, it can help reduce the financial pressure while the business adjusts.

A small-business example

Imagine a company where one employee manages its largest customer accounts.

If that person died, the owner might need to take over those relationships immediately. As a result, other work could slow down.

The company might also face recruiting expenses and a period of lower sales.

Key person life insurance could provide funds to help manage those costs. However, the appropriate coverage amount would depend on the company’s finances and the employee’s role.

This is an illustration, not a coverage recommendation.

How much key person insurance does a business need?

There isn’t one formula that fits every company.

First, estimate the financial disruption the person’s death could create. Then consider the resources needed to keep operating during the transition.

Useful questions include:

  • How much revenue or profit depends on this person?

  • What would recruiting and training a replacement cost?

  • How long might the transition take?

  • What debts and ongoing expenses would remain?

  • How much cash does the business already have available?

An insurance professional can help assess those needs. The insurer will also review the financial justification and the person’s insurability.

Does key person life insurance cover disability?

Life insurance pays a death benefit when the insured dies, subject to the policy terms. It does not automatically replace business revenue if that person becomes disabled.

Separate key person disability coverage may help address that risk. Its benefits depend on the policy’s definition of disability, waiting period, and other terms.

Therefore, consider both risks when reviewing your business protection.

Is key person insurance the same as buy-sell funding?

They address different needs.

Key person insurance helps the business manage the financial loss of an essential person. In contrast, a buy-sell agreement establishes how an owner’s interest may transfer after a specified event.

Life insurance may help fund a purchase following an owner’s death. However, policy ownership and beneficiaries must align with the agreement.

A business may need both forms of planning. Don’t assume one policy will provide enough money for operating needs and an ownership buyout.

What should you consider before purchasing coverage?

Term and permanent life insurance may both be considered for key person protection. The appropriate choice depends on the coverage period, budget, and business objectives.

Also, coordinate the arrangement with your attorney and tax professional. Employer-owned life insurance can involve advance notice, written consent, and ongoing reporting requirements.

Tax treatment depends on the arrangement and compliance with applicable rules.

For additional background, visit the Insurance Information Institute’s guide to insuring against the loss of key personnel.

Review your business’s dependence on key people

A useful starting point is simple: identify the people your business relies on most.

Next, consider the financial consequences of losing them. Insurance can support that planning alongside documented procedures, staff training, and succession arrangements.

At Life Insurance Specialists, we help Colorado business owners evaluate life and disability insurance options.

Contact Simon McGowan, CLU®, to discuss key person insurance and your business’s protection needs.

Parent reading a picture book with two young children on a sofa at home.

Do Stay-at-Home Parents Need Life Insurance?

When you think about life insurance, you may think first about replacing a paycheck. But what about the parent who stays home?

Stay-at-home parents provide childcare, transportation, meals, and countless other forms of support. Although that work doesn’t come with a salary, replacing it can create significant expenses.

Life insurance for stay-at-home parents can help give a family financial flexibility during an already difficult time.

Why insure a parent who doesn’t earn a paycheck?

If a stay-at-home parent died, the surviving parent might need to pay for services the family previously handled at home.

They might also need to reduce their working hours or take time away from work to support their children and adjust to new responsibilities.

A life insurance benefit can help cover those costs and give the family more choices about what comes next.

What expenses should you consider?

Every household is different. When reviewing your needs, consider:

  • Childcare: Daycare, after-school programs, summer care, or a nanny.

  • Household help: Cleaning, meal preparation, and other everyday responsibilities.

  • Transportation: Help getting children to school, appointments, and activities.

  • Time away from work: Financial support if the surviving parent takes leave or reduces their hours.

  • Final expenses: Funeral costs and other immediate financial needs.

  • Future goals: Education expenses or other priorities you want to protect.

The purpose isn’t to put a dollar value on a parent. It’s to understand the financial impact their absence could have on the household.

How much life insurance does a stay-at-home parent need?

There isn’t one coverage amount that works for every family.

Start by estimating the additional annual expenses your household could face. Then consider how many years you might need that support, along with immediate expenses and resources already available.

For example, a family with preschool-aged children may need paid childcare for longer than a family whose children are nearly independent.

Your budget matters, too. The goal is to find coverage that addresses your needs and that you can comfortably maintain.

Is term life insurance an option?

Term life insurance provides coverage for a specified period. It may fit a family whose main concern is protection during the years when children depend most heavily on their parents.

The appropriate coverage period depends on your children’s ages, household responsibilities, and financial goals. Other policy types may be worth considering if your needs extend beyond those years.

Coverage availability and amounts depend on the insurer’s underwriting guidelines and your individual circumstances.

Review coverage for both parents

A family’s financial security depends on more than its earned income.

When reviewing life insurance, consider both parents’ contributions—including unpaid work—and how those responsibilities may change as your children grow.

If you already have policies, review the coverage amounts, beneficiaries, and remaining coverage periods before making changes.

For additional information, read The Stay-at-Home Parent’s Guide to Buying Life Insurance from Life Happens.

Let’s talk about your family’s needs

At Life Insurance Specialists, we help Colorado families understand their options and choose protection that fits their needs and budget.

Contact Simon McGowan, CLU®, to discuss life insurance for stay-at-home parents and review your family’s coverage.

Parents and two children walking together on a grassy trail with mountains in the background.

Is Employer Life Insurance Enough?

Many workplaces offer life insurance as part of their benefits package. It’s a valuable benefit—but is employer life insurance enough to protect your family?

The answer depends on your coverage amount, your household’s financial needs, and what happens to the policy if you change jobs. Here’s what to review before deciding whether additional personal coverage makes sense.

What does your employer life insurance cover?

Start by checking your benefits summary. Find out how much life insurance your employer provides and whether you can purchase additional coverage through the plan.

Then compare that benefit with what your family would need if you were no longer here. Consider:

  • Mortgage payments and other debts.

  • Everyday household expenses.

  • Childcare and household support.

  • Future education expenses.

  • How long your family would need financial assistance.

A benefit that covers immediate expenses may still leave a gap in your family’s longer-term needs.

What happens if you leave your job?

Employer life insurance is connected to your eligibility under the workplace plan. Leaving your job, retiring, or changing your employment status may affect your coverage.

Some plans offer portability, which may allow you to continue coverage, or conversion, which may allow you to change to an individual policy. Availability, costs, application deadlines, and policy terms vary.

Before making a job change, ask your benefits administrator what options apply to your coverage.

How individual life insurance can help

An individual life insurance policy is purchased separately from your employer’s benefits. It can provide coverage that continues through job changes, as long as the policy remains in force under its terms.

It also allows you to choose a coverage amount and policy type based on your needs.

Term life insurance provides protection for a specified period. Permanent life insurance is designed for longer-lasting protection, subject to its funding requirements and policy terms. The appropriate choice depends on your goals and budget.

An individual policy may complement your workplace coverage, but additional insurance isn’t automatically necessary for everyone.

Is employer life insurance enough for your family?

A useful starting point is to ask:

  • How much coverage do I currently have?

  • Who depends on my income or the support I provide?

  • What expenses would my family need help covering?

  • What savings and other resources would be available?

  • What happens to my coverage if I leave my employer?

These questions can help you identify whether there is a gap—and how much additional protection you might need.

Review your options before making changes

Employer life insurance can be an important part of your protection plan. The goal is to understand how it fits your family’s needs and whether individual coverage would add value.

If you already have coverage, review it carefully before making changes. Keep existing protection in place while any new application is being evaluated, and confirm that replacement coverage is active before canceling a policy.

For more information, visit the NAIC’s consumer guide to life insurance.

At Life Insurance Specialists, we help Colorado individuals and families understand their coverage and compare their options.

Contact Simon McGowan, CLU®, to review your employer life insurance and explore whether additional coverage fits your needs.

Blue digital illustration of a Colorado home representing life insurance and mortgage protection.

How Much Life Insurance Do Colorado Homeowners Need

Why Life Insurance Matters for Colorado Homeowners

Owning a home is a significant achievement. It’s a place to build memories, raise a family, and create a legacy. But what happens to your loved ones and that legacy if something unexpected happens to you?

This is where life insurance steps in as the ultimate protection plan for homeowners. It’s more than just safeguarding your family’s financial future; it’s about ensuring your castle stays theirs.

Peace of Mind for Your Mortgage

Let’s face it, most homes come with a mortgage. Life insurance, particularly term life insurance, can be a lifesaver (quite literally) for your beneficiaries.

A term life insurance policy with a death benefit comparable to your outstanding mortgage can provide your family with the financial resources to pay off the loan or continue making monthly payments. They won’t be burdened with hefty monthly payments, allowing them to focus on grieving and adjusting to life without you.

For additional guidance on choosing the right coverage, the National Association of Insurance Commissioners (NAIC) offers a helpful consumer resource explaining life insurance options and important considerations when purchasing a policy.

Beyond the Mortgage: Financial Security

Life insurance goes beyond just the mortgage. Owning a house comes with a variety of ongoing expenses. Property taxes, utilities, and maintenance costs can add up quickly.

A life insurance payout can act as a financial buffer, providing your family with the resources they need to cover these costs and maintain their comfortable lifestyle in their home.

More Than Just a Roof Over Their Heads

Imagine your children don’t have to worry about selling the house to pay for college. Perhaps your spouse can use the payout to invest or pay off lingering debts. Life insurance gives your loved ones the flexibility to make financial decisions based on their needs, not out of desperation.

Investing in Your Legacy

Owning a home is about building something that lasts. Life insurance allows you to extend that legacy beyond the physical structure. The financial security it provides ensures your family can continue to build their own dreams and memories within the walls you created.

Taking the Next Step

Now that you understand the importance of life insurance for homeowners, it’s time to explore your options. Consider consulting with a licensed insurance professional to discuss your specific needs and find a policy that perfectly complements your castle and your family’s future.

Remember, life insurance isn’t just about financial security; it’s about peace of mind. It’s the key that unlocks the door for your loved ones to continue living their lives securely and comfortably in the home you built together.

Protect Your Home and Your Family

At Life Insurance Specialists, we help Colorado homeowners compare life insurance options to find coverage that fits their mortgage, financial goals and budget.

Contact us today for a free, no-obligation life insurance quote.

Annuities for retirement income and retirement planning

Building Your Own Pension: How Annuities Can Help Create Retirement Income

 

 

Building Your Own Pension: How Annuities Can Help Create Retirement Income

For generations, pensions provided retirees with a predictable paycheck for life. Today, fewer workers have access to traditional pensions, which has led many people to consider annuities for retirement income as one way to create a dependable income stream in retirement.

Today, traditional pensions are much less common, leaving many retirees responsible for turning their own savings into reliable retirement income.

That’s where an annuity may be useful.

Certain annuities can convert a portion of your retirement savings into a predictable stream of income—including income that can be guaranteed for life. In that sense, an annuity can help you create something that looks a lot like your own personal pension.

Why Consider an Annuity for Retirement Income?

Predictable Income

One of the biggest challenges in retirement is figuring out how much you can safely spend.

Investment accounts fluctuate with the market, and withdrawing too much during a downturn can put additional pressure on a retirement portfolio.

An annuity with an income guarantee can provide a predictable payment regardless of day-to-day market movements. Depending on the type of annuity and options selected, those payments may continue for a specified period or for the rest of your life.

That can make budgeting for recurring expenses in retirement considerably easier.

Protection Against Outliving Your Income

No one knows exactly how long retirement will last.

A longer life is something to celebrate, but it also creates a financial challenge: your retirement assets may need to support you for 20, 30 or even more years.

Certain annuities can provide guaranteed lifetime income, helping address what is often called longevity risk—the risk of outliving the assets you’ve accumulated for retirement.

The guarantees of an annuity are subject to the claims-paying ability of the issuing insurance company.

Tax-Deferred Growth

Another feature of annuities is tax deferral.

With a non-qualified annuity, you generally don’t pay income tax on growth inside the contract as it occurs. Instead, taxes are generally due when taxable gains are withdrawn.

Withdrawals of taxable amounts are generally subject to ordinary income tax, and withdrawals made before age 59½ may also be subject to a 10% federal additional tax, subject to applicable exceptions.

An annuity purchased within an IRA or another tax-qualified retirement account does not provide additional tax deferral beyond what the retirement account already provides.

Different Annuities for Different Retirement Needs

“Annuity” describes a broad category of insurance products rather than one specific strategy. Different types of annuities are designed to accomplish different things.

Immediate Annuities

With a single-premium immediate annuity, you generally give an insurance company a lump sum in exchange for an income stream that begins relatively soon.

You may be able to structure payments for a set number of years, for your lifetime, or for the joint lifetimes of you and your spouse.

This can be one of the more direct ways of turning a portion of accumulated savings into pension-like income.

Deferred Annuities

A deferred annuity allows money to accumulate before income begins.

Depending on the contract, growth may be based on a declared fixed interest rate, the performance of an underlying investment portfolio, or changes in a market index subject to the terms and limitations of the contract.

Fixed Annuities and MYGAs

A Multi-Year Guaranteed Annuity (MYGA) is a type of fixed annuity that provides a guaranteed interest rate for a specified period, such as three, five or seven years.

MYGAs can be useful for people who want predictable accumulation without direct exposure to stock-market losses.

They are sometimes compared with certificates of deposit because both can provide a stated rate for a defined period. However, they are very different financial products. CDs are bank products and may qualify for FDIC insurance within applicable limits. Annuities are insurance contracts, are not FDIC insured, and their guarantees depend upon the claims-paying ability of the issuing insurer.

Annuities can also have surrender charges and different tax treatment, so the interest rate alone shouldn’t determine which is appropriate.

Learn more about annuities.

Creating a “Personal Pension”

For many retirees, the objective isn’t necessarily to put all of their savings into an annuity.

Instead, an annuity can potentially be used to cover a portion of essential monthly expenses.

For example, imagine a retired household has recurring expenses for housing, utilities, groceries, insurance and healthcare. Social Security may cover part of those expenses.

An annuity could potentially be used to create another predictable income stream to help cover the remaining gap.

Other assets can then remain available for discretionary spending, emergencies, legacy goals or continued investment.

The result can resemble the retirement structure previous generations received from traditional pensions—but created using your own retirement assets.

What About Your Spouse?

Retirement income planning often needs to account for two lives rather than one.

Many annuities offer joint-life income options, which can continue payments for as long as either spouse is living.

Other contract options may provide death benefits or guarantees for a minimum payment period.

These choices matter. Adding guarantees or survivor provisions can affect the amount of income the contract provides, which is why it’s important to understand the tradeoffs before selecting an income option.

Are There Downsides to Annuities?

Yes. Annuities aren’t appropriate for everyone, and the details matter.

Depending on the product, considerations can include:

  • Liquidity: Some annuities impose surrender charges for withdrawals above permitted amounts during the surrender period.
  • Inflation: A fixed payment may lose purchasing power over a long retirement unless the contract provides some form of increasing income.
  • Growth potential: Products emphasizing guarantees may offer less upside than investments that accept greater market risk.
  • Fees and complexity: Some annuity contracts are relatively straightforward, while others include optional riders, investment expenses and additional fees.
  • Insurer strength: Annuity guarantees are based on the financial strength and claims-paying ability of the insurance company issuing the contract.

That’s one reason comparing contracts from multiple insurers can be valuable.

Is an Annuity Right for You?

There isn’t one answer for everyone.

An annuity may be worth considering if you’re approaching or already in retirement and place a high value on predictable income, principal protection, tax-deferred accumulation or protection against outliving your income.

For someone else, maintaining greater liquidity or accepting market volatility in pursuit of long-term growth may be more important.

The question isn’t simply “Are annuities good or bad?”

A better question is:

“What do I need this portion of my money to accomplish?”

Once you answer that question, it’s much easier to determine whether an annuity—and which type of annuity—belongs in your retirement strategy.

Building a More Predictable Retirement

Retirement planning has changed. Most people can no longer count on an employer pension to automatically provide a paycheck for the rest of their lives.

But that doesn’t mean predictable lifetime income has disappeared.

An annuity can potentially help turn a portion of your accumulated savings into an income stream designed to last throughout retirement. The appropriate product, amount and income option will depend on your financial situation and goals.

Want to Explore Your Options?

Life Insurance Specialists helps individuals and families compare annuity options from multiple highly rated insurance companies.

If you’re approaching retirement or simply want to understand how an annuity might fit alongside Social Security, retirement accounts and your other assets, we’re happy to help you evaluate your options.

REQUEST A FREE CONSULTATION

life insurance and charitable giving picture of wrapped presents

The Giving Season: Charitable Gifts and Life Insurance

,

We have officially entered the season of giving!  As winter digs in and we prepare for the myriad holidays before us, Americans reflect on feelings of gratitude and generosity.  We can hear the bells of Salvation Army volunteers standing beside their red, hanging buckets.  We receive mail from our charities asking for support to fund their upcoming year.  In this spirit, the shorter days of winter are long on charitable giving.  People who have the time and means to give back to causes that inspire them may not realize that the gift of life insurance can be a game-changer for charitable contributions.  There are several ways in which you can use life insurance to support your donations.  Some even offer tax-friendly outcomes on estate taxes.  Let’s learn more.

season of giving picture of winter woods landscape

3 ways you can use life insurance policies to support charitable organizations

You may want to consider purchasing a life insurance policy or altering an existing policy to include your preferred charity or non-profit organization.  Here are three ways to do just that.

Name a charity as one of your beneficiaries

The simplest way to include a charitable organization in your life insurance policy is to add them to your list of beneficiaries.  This means that alongside your heirs and any other people you have named to receive the death benefit portion of your policy, a charity can also receive cash from this benefit.  Additionally, your taxable estate can be reduced by the amount of death benefit you donate to the charitable organization.

Beneficiaries on life insurance policies are private.  The outside world and even the other beneficiaries will not know whom you’ve named to receive the benefit in the event of your death.  This means that the donation will not be able to be contested and you can be certain that the charity you named will receive your support posthumously. 

Use a charitable giving rider

Another way to show love to your preferred charity is to add a Charitable Giving Rider to your policy.  On high-value policies, this rider can usually be added at no additional cost to you. The rider itself imparts a portion of the policy’s face value to the charity.  In some cases, it imparts an additional benefit amount. 

There are some limitations to this approach.  The charity itself must meet the criteria specified by the insurance company.  Additionally, this method may require a larger amount of protection in order to qualify.  Overall, however, the charitable giving rider can provide a substantial financial gift without the need to set up a separate gift trust and at little to no cost.  

Gifting an entire life insurance policy

If you are someone who is heavily invested in a particular charitable organization and intends to leave behind a large estate to your heirs, you should consider donating an entire life insurance policy to your preferred cause.  This approach is more involved than simply naming the charity as a beneficiary or attaching a charitable giving rider to a policy, however, the tax advantages for your estate are greater and the financial windfall for the charity is more significant.

When you gift a life insurance policy, the charity becomes both the owner and sole beneficiary of the policy.  With a permanent policy, the charity can either choose to continue the policy or surrender it for the cash value.  If they continue the policy, you can pay the premium payments directly to the charity and write them off of your taxes.  

Gifting a policy can help take an older, less helpful policy that you may have purchased at a different time in your life and turn it into a meaningful contribution to a charity while also reducing the taxable burden to your estate. 

using life insurance for charity picture of winter and snow

Let us know how we can help you give the gift of life insurance this season

Gifting life insurance can have implications for your overall estate plan.  You should consult with your estate planner and an insurance specialist to decide the best path for your contributions. We are happy to help you get the ball rolling and answer any questions you may have regarding your policies and how they might make a difference to your preferred charity or cause.  Let us know how we can help you this season and from all of us, we wish you and your loved ones a happy, festive, and giving holiday!

Life Insurance for the unexpected (picture of the sun setting over the ocean with water in the foreground)

Remembering Sebastian: Life Lessons Close to Home

September is Life Insurance Awareness Month. I made light in a previous post about how there is an awareness month for just about everything and, until recently, I truly believed that life insurance awareness month was just another marketing opportunity to sell more policies. However, today I’m going to share a very personal story and why I will now use it as a way to amplify the message that you must have at least some type of life insurance in place. It has been said before, and here I will reiterate, that you don’t buy life insurance for yourself… you buy it for the ones you love. Additionally, I think that we all get hung up on the idea that we need to have a full estate plan in place before we look at these sorts of things. I’m going to discuss a few things that can be done right away that don’t need the expense of hiring an estate attorney to draw up documents.

We can’t predict the future, we can only prepare for it

On July 30th this year, my 38-year-old brother died suddenly due to an undiagnosed medical condition. We are all extremely heartbroken and his wife and son are now left with sorting out how to move on without him. Unfortunately, he was the sole breadwinner in the household and, although we had multiple conversations about his need for life insurance, we were never able to complete the process before he passed.

Although this tragedy would, most likely, have not been avoidable, having the protection that life insurance offers in place would have drastically changed the story now. There is a period of grieving that everyone must go through after an unexpected tragedy of this magnitude and the last thing my sister-in-law should be concerned about is how to make the next mortgage payment. In this business, we always say that we never want to see a GoFundMe account set up for someone. Life insurance is less expensive than most people think and is easier than ever to put in place. There should be no excuse not to have one. With that said, I was forced to do the one thing I said I never would do, and that was set up a GoFundMe account.

Plan for any eventuality

The icing on the cake here is my brother had titled all the assets in his name only and did not have a will. I don’t think many people realize the importance of having their homes and cars titled correctly. The implications here are massive. All the assets that were held in my brother’s name only, now revert to his estate and will be tied up in the probate process which could take a year or more. If the house and car were titled in both their names, it would have avoided probate, and my sister-in-law would have had the ability to do whatever she needed with them.

I share all of this to emphasize the importance of doing some initial estate planning. The fact is that the majority of people don’t need to pay huge sums to an estate attorney to draw up detailed estate plans. Your bank accounts, retirement plans, insurance policies, investment accounts, and health savings accounts all need to have named beneficiaries on them. And when your insurance agent asks you to do a beneficiary review, please take them up on it. Our lives change and our needs change, and it is very much in your interest to make sure you check these on an annual basis.

Protect your family

Make sure you establish your directives and ensure your family’s needs will be met. This is where a will would be helpful. Again, you don’t need to spend a fortune here. If you have a larger and more complex estate, then you absolutely should hire an estate attorney to help. There are good services out there that can help you put a simple will in place with the main aspects being naming an executor, and maybe most important, a guardian for your children and detailing your wishes for their care. And, once again, make sure you have enough life insurance! Here is a life insurance needs calculator to help you. Some insurance companies even offer these online services as part of the life insurance policy.

Finally, don’t forget the importance of having your medical directives known. An advanced medical directive will give you the peace of mind that if something were to happen to you and you were unable to make decisions for yourself, your wishes will still be conveyed. The whole process of putting these planning vehicles in place will take minimal time, but are worth the sacrifice of your weekend afternoon, I promise.

Whatever you do, do something.

We are very private people, and this is very difficult to share. I believe if we can help just a few people avoid the pain that my brother’s family is going through right now, then sharing this story was worth it. Remember, there has never been a widow that wishes there was less life insurance. I don’t care if you buy from us or you go to your State Farm agent, get life insurance, and get a lot of it. We’re here to help. Whether you need life insurance or just want someone to review what you have, please call us. If we can’t help, perhaps we can steer you to someone who can.

Layering term life insurance picture of 4 ladders

Did you know that you could layer term life insurance?

Term life insurance offers some of the most affordable policies in the marketplace.  Depending on your age, health, and gender, you can see monthly premium rates in the $10 and $18 dollars range in policies with a 10-year term and $300,000 death benefit.  But what if you wanted to purchase term life insurance in order for your family to pay off your new, 30-year mortgage should you pass away?  Well, you could purchase a 30-year, $300,000 policy for around $30 dollars per month but you would save considerable money if you ‘layered’ 3 separate term life policies.  Let’s explain why you would want to layer term life insurance policies.

definition of term life insurance 

A quick explanation of term life insurance

Key definitions:

  • Coverage
    • Also referred to as the ‘death benefit’, this is the amount of money that will be payable to the beneficiaries upon the death of the policyholder.
  • Term
    • A term life policy is set for a specific number of years.  For example, in a 10-year term policy, the policyholder will be covered for 10 years.  If they do not pass away during that time, the policy is finished at the end of 10 years. 
  • Policyholder
    • The person covered under the policy.

Term life insurance provides the policyholder a set amount of coverage (in the case above, that would be $300,000) that will pay out, tax-free, to their beneficiaries should they pass away during the course of the term (policies are flexible and can be found in 5, 10, 15, 20, and 30-year terms).  Term life insurance policies have no cash value by themselves and should the policyholder outlive their term, the policy will end.

using term life to protect mortgage. Picture of a house

How term life insurance can be used to protect your mortgage

Your home is one of the largest, most important purchases you will make in your lifetime.  Your family depends on a roof over their head.  If something were to happen to you, your family would lose the income that you provided to pay for the mortgage.  It’s a disaster on top of a disaster for a family to lose a loved one and find themselves unable to pay for their home. 

Term life insurance is a perfect fit to solve this potential crisis.  Due to the fact that most mortgages are in the 30-year, 15-year, and 5-year time frame it is easy to match a term policy to cover your mortgage and help your family pay off the house should you die unexpectedly.  

For example:

Let’s say you purchase a $300,000 dollar house on a 30-year mortgage.  In order to ensure that your family can stay in the house after you’re gone, you could purchase a 30-year term policy with a $300,000 death benefit.  This way, if something happens to you before you are done paying the mortgage, your family will have $300,000 dollars to pay off the house.    

How much would a 30-year, $300,000 dollar term life policy cost?

Depending on your health, age, gender, and other factors, a 30-year-old man in perfect health would pay around $20 dollars per month for a 30-year, $300,000 term policy.  Someone in average health could look to pay between $25 and $32 dollars per month in premiums.   

How layering multiple term policies saves you money

There are 2 inefficiencies in the example of buying a 30-year, $300,000 dollar policy to cover your mortgage:

  1. It does not take into account that if you were to pass away in the 20th year of your mortgage, a large portion of your home would already be paid off.  This means that you are paying for more coverage than you need.
  2. It does not consider that a 30-year term life policy is considerably more expensive than a 10-year term life policy. 

The answer:  Layer multiple term policies

Seeing as you will owe less and less on your house as time passes, you only need to cover the entire $300,000 dollars in the beginning of your mortgage.  We propose a more economical approach.  Instead of purchasing one 30-year policy for $300,000, you could purchase one 10-year policy for $100,000, one 20-year policy for $100,000, and one 30-year policy for $100,000.  Let’s break that down.

  • Years 1-10
    • Your 3 term life policies have you covered for $300,000 dollars. 
    • If you pass away in years 1-10, the house will be completely paid off  
  • Years 11-20
    • You stop paying premiums on your now expired 10-year, $100,000 dollar policy. 
    • Your remaining 2 policies have you covered for these 10 years for $200,000 dollars
  • Years 21-30
    • You stop paying premium on your now expired 20-year, $100,000 policy.
    • Your remaining 1 policy has you covered for these 10-years for $100,000 dollars.

How much money will that save me?

Let’s assume that you are a 35-year-old male in decent health.  Your yearly total premium cost for a 30-year, $300,000 dollar policy is $336.00 dollars/year (this assumes a $28 dollar monthly premium bill).  

Total cost for 30-year, $300,000 policy if you outlive the term:  $10,080 dollars

Now let’s look at the price for 3 layered term policies.

  • 10-year, $100,000 policy
    • Total cost of monthly premiums for 10 years: $1,440.00
  • 20-year, $100,000 policy
    • Total cost of monthly premiums for 20 years: $2,016.00
  • 30-year, $100,000 policy
    • Total cost of monthly premiums for 30 years: $2,736.00

Total cost for 3, layered term life policies if you outlive the 30 years: $6,192

In this scenario, if you outlive your mortgage and your 30-year term, you will have saved $3,888 dollars!  That is money that you could have invested in a mutual fund, spent an extravagant family vacation, or made needed repairs and upgrades to your home.  This is the power of term layering!

piggy bank representing money saved by layering term life insurance

My Life Insurance Specialist wants to help you save money without sacrificing protection

We hope you see now how term layering can be extremely beneficial to your family’s finances.  If you would like to ensure that your family will be able to pay off your home in the event something should happen to you, feel free to contact us and we can talk about how you can save with term layering.  

Text content

tax-free-growth

Indexed Universal Life vs 401(k): What Will My Tax Bill Look Like?

Most working Americans utilize their companies’ retirement plans. These are usually 401(k) s, or sometimes, 403(b) s. It is always a good idea to save in these vehicles because, the majority of the time, your employer is going to match at least a portion of what you put in. That’s an automatic raise of whatever they’re willing to match, usually anywhere between 3% and 7%. There are also tax-favored vehicles that allow an individual to contribute additional money towards their retirement. These are called IRAs, and act the same as the 401(k), just without the employer match.  

Diving in a little deeper, there are two types of IRA and 401 (k).

  1.       Traditional IRA/401(k)
  2.       Roth IRA/401(k)

The main difference between these two types is when you get to pay your taxes on them. A traditional IRA/401(k) is using what financial advisors call qualified dollars. Qualified money is simply pre-tax money. If you made $100,000, and you contributed $10,000 into a qualified account, your taxable income for that year would then be $90,000. That qualified money then grows, tax-free, in your retirement account until you retire and start taking distributions. Once you start taking distributions (taking the money out after you retire), you then start paying the tax on what you’ve withdrawn at whatever the income tax rate is at that time. (More on this in a bit.)

401K and taxes

A Roth IRA/401(k) uses after-tax dollars for contributions

If you made $100,000 and contributed $10,000 to a Roth vehicle, you would still pay tax on the $100,000 that year. As before with the “qualified” account, it will then grow tax-free. However, the big difference here, is that you don’t have to pay tax on your withdrawals because you already paid it way back when you initially invested it.

Spend less or earn more

So the question becomes: Why choose one over the other? Think about what tax bracket you’re in right now. Politics aside, we, as a society, are racking up a fair amount of debt that can only be dealt with in one of two ways – spend less or earn more. We haven’t proven that we are able to spend less very well, so it’s my guess (as is most experienced consultants) that we will need to earn more and the government earns more by increasing taxes. So by investing in a traditional IRA, you’re getting the benefit of lowering your taxable income this year, but you’re kicking the can down the road. Eventually, you will have to pay tax on that income when you pull it out in retirement and, with the current state of things, your tax bracket will almost certainly have to increase to pay for everything we’ve spent. Thus, you may want to take the tax hit now, while you’re tax bracket is still likely lower, and put that money into a Roth.

penalties of an IRA (picture of a calclulator

IRAs: contributions and penalties

There are a few other things to consider here such as penalties at every turn. You’re only allowed to contribute a certain amount to an IRA each year and as your income increases, the less you’re allowed to contribute until eventually, you’re no longer able to at all. In 2021, if you are married and filing your taxes jointly, you would be allowed to contribute $6,000 dollars as long as you and your spouse made less than $198,000 (Modified Adjusted Gross Income, MAGI). If you both made between $198,000 and $208,000, then you would be allowed to contribute less and if you made more than $208,000, you wouldn’t be allowed to contribute at all. There is a penalty if you put too much in (a 6% excise tax) and they’ll make you withdraw it.

There is also a penalty if you withdraw, or take early distributions as it’s called, from your IRA too early. These are meant to be retirement savings accounts and the government doesn’t want you to raid it until you’re 59 ½. If you do so before then, you will be penalized 10% that year and have to pay income tax on the distribution. If you’re older than 59 ½, then you’re allowed to start taking distributions without penalty, but if it’s a traditional IRA or 401 (k), then expect to start paying income tax on that amount the year you withdraw.

Finally, at age 72, you are required to start taking money out of your IRA. Remember, the government wants you to pay the tax on that money sitting in your retirement account, so they don’t want you to sit on it forever. These are called Required Minimum Distributions (RMD’s). If you fail to take the RMD or don’t take enough, there’s a penalty for that too! You will be required to pay the IRS a 50% excess accumulation penalty on the shortfall of what you were required to pull out!

So… with all that said, there is another way. 

Life Insurance Policy

Cash-value life insurance can be a great alternative to a Roth IRA

Specifically, Index Universal Life, which offers participation in the markets without actually being invested in the market and the best part is, if the markets drop, there is a guaranteed floor allowing you not to lose anything that year.  As the market climbs, your money grows.  Essentially, you can enjoy upside market potential with downside protection!  But, then, that’s not even the best part.  Let’s talk about taxes.

Life insurance is afforded special tax treatment by the IRS. There are no income requirements nor are there any limitations on how much can be paid in but it still grows tax-free inside the cash value indexed account. There are also no tax penalties for withdrawing the money early, nor are they subject to the required minimum distributions. Similar to a Roth IRA or 401 (k), the amount you put in is done with after-tax dollars, grows tax-free, and in the end, can be distributed tax-free! These distributions are done in the form of loans. The insurance company will charge you a small percentage to “borrow” your cash accumulation in the policy and then turn around and continue to credit you the same amount on the money borrowed making it a net-zero loan.

The biggest argument we hear, especially from financial planners and wealth managers, is that insurance costs too much. You can get a better return from having your money actively managed. You have to keep in mind that these professionals make their money from having your assets under their management. 

The fact is that the cost of insurance will almost certainly be less than the cost of taxation. 

The life insurance carriers have designed a better product, and while there is a cost associated with the insurance, the tax savings, later on, will drastically outweigh those costs. There is a final added benefit here too. Index universal life is still a life insurance product. That means there is an income-tax-free death benefit that goes to your loved ones after you pass! Show me a mutual fund, REIT, or cryptocurrency that does the same. Diversification is key. No one is suggesting you put everything you have into a life insurance contract, but no one can argue about the tax benefits either.  

Life insurance is a solid part of any sound financial plan.  Its inherent tax-friendly components combined with market growth and a tax-free death benefit make offer advantages that investment vehicles simply can’t touch.  Contact us for assistance in helping you round out your investment portfolio with an indexed universal life policy.




Final Expense Insurance Picture of a quiet park

Final Expense Insurance: Dying With Dignity

 As with everything, the cost of one’s final expenses is increasing. Rather than be a burden to your loved ones, a permanent insurance policy, such as a final expense whole life policy is available to cover all costs associated with funeral and other expenses after we pass. No one wants to leave behind expenses to our family, and some simple planning can relieve those burdens. Final expense insurance coverage is nothing more than a whole life (permanent life insurance) policy that is there when your loved ones need it most.

How Does Final Expense Insurance Work?

First off, final expense whole life insurance is a form of non-participating whole life. Non-participating whole life is issued by both mutual companies and stock companies. Examples of stock companies would be Transamerica, Protective Life, etc. These non-participating policies do not pay dividends. They do accumulate some cash value, but it’s all guaranteed and is minimal. They are also less expensive because they don’t pay dividends. There are three guarantees with non-participating whole life policies.

  1.     Guaranteed death benefit protection
  2.     Guaranteed fixed premiums
  3.     Guaranteed cash value accumulation

There are really no moving parts to non-participating whole life. Simply pay the fixed premium every month, and there is a guaranteed death benefit when your loved ones need it.

Final Expense Insurance is affordable picture of a piggy bank

How is Final Expense Whole Life Different?

What sets a final expense policy apart from other whole life policies is that it was designed for the specific purpose of covering final bills and funerals.  This is why the dollar amount coverage for final expense insurance is lower than other policies and also why the age and health requirements are more flexible.  

Final expense policies are written for amounts anywhere between $1,000 and $50,000 and usually have fewer available rate health classifications (Preferred, Standard, etc.). These types of policies require less scrutiny by the medical underwriter and allow for a less stringent underwriting process. Older and less healthy consumers can apply and often gain coverage, with minimal underwriting. There are no hospital exams or parameds (mobile nurses that come to your home or office) as there are with more traditional life insurance and there are no labs (blood and urine) collected by the examiner.

Final expense policies are a vital tool in planning for the end of life. With funeral costs increasing, life insurance can be purchased to take the financial burden off of the family. 

It is often believed that Social Security will pay for those funeral costs, however, for those who qualify, the government will only pay a $255 lump sum. That won’t pay for any of it! According to one insurance company’s research, funeral costs can range from $10k to $25k depending on where you live and what services you would like included, and that’s just the funeral expenses!

How Affordable is Final Expense Whole Life Insurance?

As with all life insurance, premiums vary by age, sex, and health. But the following are a few examples.

Age506070
Male$81.23$122.36$249.34
Female$63.77$93.14$168.78

A fairly healthy 60-year-old male can make sure he doesn’t become a burden to his family for only $122.36 per month. Everyone’s situation is a little different, so make sure you’re speaking with a qualified professional who knows the different products and if they are the right fit for you 

Final Expense Insurance for older people picture of middle aged man

You May Be More Eligible Than You Think

Even if you think your age or health may be in question, these final expense products are designed to help many people, even those with health issues, gain the coverage they need quickly and easily and can be customized with various add-on benefits to your unique situation. If you are interested in learning more about final expense insurance, feel free to contact one of our team members to talk over your options.




Load More