Although life insurance is usually thought of as a way to replace income or settle debts after someone’s passing, it can also serve as a strategy to ensure a long-lasting legacy for your loved ones. Apart from financial protection, life insurance can offer beneficiaries an inheritance that can help secure their future.
If you’re finding yourself in a position where you may not have the means to pass down an inheritance, take comfort in knowing that you’re not the only one facing this situation. According to a recent survey conducted by GoBankingRates, nearly 69% of Americans have savings of less than $1,000. This highlights the widespread financial challenges faced by many individuals, making it difficult to accumulate significant wealth for future generations.
This piece will discuss five indications that suggest life insurance can serve as a valuable method to guarantee a substantial financial inheritance for your loved ones. Now, let us delve into the specifics and explore these signs further.
1. You Want to Live a Rewarding Retirement
Retirement is meant to be a period where one relaxes and savors life, but a considerable number of retirees find themselves leading a restrained retirement due to their savings being reserved as an inheritance for their loved ones. This often means they are hesitant to spend their savings on personal enjoyment, and may forgo certain experiences or opportunities that could enhance their retirement years.
Imagine a retiree who has always dreamed of taking a luxurious vacation or pursuing a hobby, but refrains from doing so in order to preserve their savings for their beneficiaries. In such cases, retirement can feel less fulfilling, as the retiree is unable to fully embrace the freedom and possibilities that come with this stage of life.
A recent study conducted by Hearts & Wallets, a financial research firm, revealed that 28% of individuals aged 65 and above, who have saved a minimum of $100,000, withdrew less than 1% from their savings. Challenging the notion of excessive frugality during retirement, Money Magazine published an article titled “Why You Should Spend More Money in Retirement,” which presents effective strategies to embrace and savor the retirement years.
However, an important option that the article overlooks is the potential benefits of life insurance in enhancing financial security and peace of mind during this phase of life.
Imagine the possibilities if you could take your retirement funds and explore different corners of the world, reunite with distant relatives, purchase a dream vacation home, or simply live a more comfortable life. Well, with a guaranteed universal life insurance (GUL) policy, these dreams can become reality.
Guaranteed universal life insurance is a type of lifelong insurance that operates much like term life insurance, offering consistent premiums for a predetermined time frame, typically at an affordable cost. The key distinction between GUL and term life is that GUL provides coverage until a particular age rather than for a certain number of years.
For example, GUL may offer coverage until the insured reaches 90 years old, ensuring financial protection throughout their lifetime.
2. You Started Saving Later In Life
If you’re in your 60s or later and have not yet built up an inheritance to leave to your loved ones, chances are that starting now would be difficult. This is a time when your finances should be loosening up, not becoming more stressful.
Here’s an example to illustrate why life insurance is a better way for retirees to save:
At the age of 67, John is a proud grandfather of two. His heartfelt wish is to leave a generous gift of $50,000 to each of his beloved grandchildren upon his passing. Considering his family’s health history and his own current well-being, John has high hopes of living until he reaches the age of 90 or even surpasses it.
3. You’ve Already Established Your Legacy
On the other hand, individuals who have set aside enough money for retirement and have also saved for expenses they want to cover after their passing may not require a comprehensive insurance plan. Nevertheless, it’s important to note that the costs related to funerals and other final arrangements can be quite high. Hence, many financially secure individuals choose to obtain a final expense policy to safeguard against these specific costs.
Final expense policies are insurance plans that usually provide coverage for funeral expenses and related costs. These policies typically offer death benefits ranging from $5,000 to $50,000, which are paid out to your beneficiaries after your passing. The money received from these policies is tax-free and can be received as a one-time lump sum payment or in monthly installments, based on the preference of your beneficiaries.
4. You Own a Large Estate You Want to Leave Behind
Wealthy families often buy life insurance to safeguard their assets. They can opt for individual policies or choose a more affordable option known as “second to die” coverage, where the death benefit is paid out to heirs only after both spouses named on the policy have passed away. For instance, if a couple were to purchase a “second to die” policy and one spouse dies, the death benefit would not be paid out until the second spouse also passes away.
If the total value of your estate exceeds $12,060,000 by 2022, you may have to pay taxes on the amount above this exemption threshold, which can be as high as 40 percent. In addition to these estate taxes, your heirs may also be liable for state taxes. It is important to note that these taxes must be settled within 9 months after your demise.
If you want to reduce or erase the financial burden of taxes and estate settlement expenses on your loved ones, it might be beneficial to explore the option of acquiring permanent life insurance.
5. You are in the Process of Buying Permanent Life Insurance
When you go shopping for life insurance, you have a chance to carefully consider your financial plans and how you want to provide for your family after you’re gone. It’s important to note that term life insurance should not be relied upon solely to leave an inheritance because there’s a high probability that the policy will expire before you pass away. Typically, coverage for term life insurance ends before reaching 80 years old, and most insurance companies won’t offer coverage beyond the age of 75.
Are you currently a holder of term life insurance? Depending on your age, certain life insurance companies may allow you to convert your term policy into a permanent one. If you have health issues, this conversion might be the most cost-effective option for you. However, if you are in decent health or better, it is likely more financially advantageous to purchase a new Guaranteed Universal Life (GUL) policy, which can result in long-term savings.
When it comes to using life insurance as a means to pass on wealth to your family, the choice ultimately hinges on your personal circumstances and financial goals. It’s important to carefully evaluate the signs mentioned earlier and seek guidance from a trusted financial advisor to make an informed decision. Keep in mind that life insurance can offer reassurance by ensuring that your loved ones will have financial stability even in your absence.