No one likes the idea of life insurance, which makes it a difficult subject to broach with clients. But, this extremely important estate planning tool has evolved. In fact, life insurance has advanced so much that it’s time to re-educate our clients on why it’s gaining importance and popularity and how it will play a vital role in helping them achieve future financial success.
Better value, more protection
Over the years, more and more people have purchased life insurance and as a result, the cost has gone down. Clients with older policies purchased those policies when prices were high and the coverage was less. Now, they may want to take a second look at their policies and benefits as they may be able to get more protection for less cost. The cash value of an older policy can be used to buy a newer, better policy, one that can provide a larger death benefit for heirs and increases protection for the policy-holder through the creative use of riders.
Riders, which are additional benefits that can be added onto a regular life insurance policy, arose because of the lowered cost of insurance. As policy costs went down, insurers had to find a way to stay competitive and they began offering better policies with increased benefits, such as riders – long term care riders being among the most popular.
The need for long term care has increased. While it’s a positive that people are living longer, health care-related costs are on the rise too. As a result, your clients may want to consider revisiting their policies to see if adding a provision to pay for long term care expenses makes sense for their situation. The services of in-home care, assisted living or a nursing home do not come cheap and by adding a rider to a life insurance policy these potentially devastating expenses can be mitigated and even omitted.
Long term care isn’t the only kind of rider a client may be interested in – there are riders for accidental death, waiver of premiums, family income benefits, accelerated death benefits and more. Only by reassessing your client’s life insurance policies can you determine if they’re properly covered and which rider will best suit their situation.
When you’re reviewing policies with clients you should help them ensure they have the right amount of coverage to help them meet their objectives of protecting themselves and providing for their family or loved ones after they’ve passed. Life insurance is the cornerstone of many basic financial plans, but the popularity of using life insurance products as vehicles for leaving an inheritance depends on the future of estate taxes.
Leaving a legacy
Death benefits paid out to a beneficiary from a life insurance policy generally aren’t subject to income tax, a favorable benefit when compared to other assets that are passed on through an estate, which may be subject to both income and estate tax. Many clients create estate plans, but don’t realize that the tax liabilities associated with passing on an estate can quickly devalue their estate size and take money out of the hands of beneficiaries. They must also plan to mitigate taxes as well.
Thanks to the government, the estate tax rate has become a moving target. In the past 12 months we’ve gone from having an estate tax, to not having one, to being worried about the repeal on the estate tax being repealed. In the next 12 months estate taxes are set to have decreased exemptions, meaning more estates are going to have to pay more taxes.
With estate taxes being so volatile it is important to think about how your clients will be impacted today and 10 to 20 years into the future. So what are we going to see? With government spending on the rise, our economy is facing a huge deficit that will most likely last several years. One prediction of how the government is going to pay for this deficit is that they are going to increase taxes, the estate tax being a likely target.
As Benjamin Franklin said best: “The only certainty in life is death and taxes,” and when the government can combine the two, it could be catastrophic for heirs. Death is an inevitable part of life and the government can use death as an opportunity to gain tax revenue and may decide to increase estate taxes to help cover the deficit. If this happens, life insurance will be the best option for leaving a legacy because of the tax advantages it offers beneficiaries, and as a result increase in popularity.
As estate taxes change, the benefits of life insurance over other traditional estate planning tools have become more and more evident. The future may have many surprises in store, but one thing will most likely remain the same: Clients will want to protect themselves and their families from the unknown and life insurance will be an option for helping them accomplish this goal.
Christopher K. Abts is the president of Reno, Nev.-based Cornerstone Retirement Group.