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Guarding Your Wealth for Senior Citizens
Life Insurance: Too Much, Too Little or Just Right?
Once you retire you
may no longer need life insurance
By Jeffrey D. Voudrie, CFP
July 26, 2006 - The thought that you may not need
life insurance is anathema to most life insurance agents. But as a
Certified Financial Planner who is also a life insurance agent, I have a
different point of view. There are times when you may not need life
insurance.
To me, there are three reasons to have life
insurance. You should use it to provide a way to replace the
breadwinner’s income in the event of premature death, as a means to pay
future estate taxes for pennies on the dollar or to employ some exciting
special-situation strategies. Otherwise, you may not need life insurance
and could better use that money to fund higher priority items like Long
Term Care Insurance.
Using life insurance to replace the breadwinner’s
income during the earning years prior to retirement is a practical
necessity, especially when you have children. Unfortunately, there are
still many people who fail to protect their loved ones in this way.
Because of our life insurance policies, my wife and I take great comfort
knowing that our family would be well cared for should either of us pass
away.
If you don’t have enough life insurance to replace
your income should you die, you could be placing a tremendous burden on
your family. For single parents it is even more important! A simple rule
of thumb to determine if you have enough life insurance is to divide
your salary by .05.
For example, if you earn $50,000 per year you
should have approximately $1,000,000 in life insurance. In most
situations, I recommend 10, 20, or 30-year term insurance as opposed to
permanent insurance. Get the length of term that will take you to your
retirement age.
Once you retire you may no longer need life
insurance. If you’ve accumulated enough assets to provide comfortably
for your lifetime, then life insurance is no longer needed for income
replacement. Don’t cancel that policy yet, though, because you may need
it for other reasons.
An individual can pass $2 million to heirs free of
Federal estate tax. If you’ve successfully accumulated more than this
then you may need life insurance to pay for future estate taxes. Even
with the recent changes in estate tax laws, many still find themselves
facing hundreds or thousands of dollars in estate taxes at their death.
With proper planning, married couples are able to
pass $4 million to their heirs in 2006 without incurring Federal estate
tax. Unfortunately, few married couples have the proper plans in place
and end up forfeiting one exemption which results in reducing that
amount to $2 million.
Life insurance is a wonderful way to pay death
taxes without eating into the estate itself.
This is particularly true when a large percentage
of an estate is tied up in non-liquid assets, such as real estate. In
those cases, those assets would have to be sold in order to pay the
taxes. With the proper use of life insurance you can avoid these
situations entirely, and do it in such a way that you pay your taxes for
pennies on the dollar. If your estate is smaller, you may not need life
insurance to help cover future estate taxes.
The third use of life insurance is for
special-situation strategies. There are unique strategies that will
dramatically increase the amount of support you can provide your
favorite charitable causes or provide a financial safety-net for your
loved ones for generations.
Even those of modest means can provide literally
millions of dollars to worthy causes, while passing on a legacy of
giving to future generations. Very few are aware of these strategies,
but if you’d like to find out how you can take advantage of them, please
give me a call. As a former missionary and head of a non-profit
organization, I understand the impact such giving can have on deserving
charities.
If you don’t fit one of these situations you may no
longer need life insurance. Don’t take this decision lightly, though,
especially if your health has diminished. Also, depending on your age
and health, you may get more by selling your policy instead of canceling
it. Consult a qualified, unbiased professional prior to canceling your
policies just to make sure.
If you have a specific question or would like more
information give me a call toll-free at 1-877-827-1463 or you can also reach me by email at
jeff@guardingyourwealth.com.
About Guarding Your Wealth:
“Guarding Your Wealth” is a
nationally syndicated weekly personal finance column written by Jeffrey
D. Voudrie, CFP. Mr. Voudrie is the President of Legacy Planning Group,
a private wealth management firm that employs sophisticated proprietary
strategies designed to protect and grow its clients' investments. Please
visit his website,
www.guardingyourwealth.com to read past articles under the Guarding
Your Wealth Article Archive.
Guarding Your Wealth for Seniors are
a collection of columns by Voudrie that deal with issues of particular
interest to senior citizens. Click here
for all columns.
In addition to being a nationally
syndicated columnist and Certified Financial Planning Practitioner, Mr.
Voudrie provides personal, private money management services to clients
nationwide.
Looking for an energetic expert who
is passionate about financial and wealth management? Mr. Voudrie is an
excellent speaker who will excite and inspire your audience. Mr. Voudrie
is available for a limited number of speaking engagements, television
appearances and radio talk shows. For booking information, email e-mail
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