Protection planning typically involves utilizing various forms of insurance to help safeguard your family and the assets you’ve worked so hard to accumulate. Without these plans in place, an untimely accident or illness could have a significant impact on your financial future.
Life insurance can play a key role in a comprehensive financial plan. Generally, many plans may not be complete without it. Consider the following:
- If you were to pass away, would your family have the necessary resources to help maintain the lifestyle they’re accustomed to?
- What would happen to the children’s plans for college?
- Could your family afford the mortgage left behind on your home?
- How long would your dependents require support after your passing?
Additionally, life insurance may play an integral role in:
- Retirement planning. The cash value of permanent life insurance generally grows tax-deferred and may help grow your resources for retirement while also providing a life insurance benefit to your family.
- Business planning. Life insurance may provide the capital necessary to help replace and train a key employee whose death could negatively affect business. It may also be used as a business succession tool, helping to transfer ownership of your business according to your will upon your passing.
- Estate planning. Life insurance can be used to establish a trust, help define your legacy, set up an annuity, fund a charity of your choice and much more.
Life insurance is designed to provide financial security to your family, business or others who depend on you. Its primary purpose is to help ensure that money is available to them during a critical period.
There are typically two different forms of life insurance.
- Term Life. Term life insurance tends to be the most affordable and by its nature is rather simple. It helps protect you for a set amount of time (which is what is referred to as the “term”) generally ranging from 1 to 30 years. When the coverage reaches the end of the term, the policy terminates, though there may be an option offered to provide an extension.
- Permanent/Whole Life. Permanent life insurance is designed to provide protection for the duration of your lifetime, so long as you pay the premiums required to keep the policy in good standing. A portion of each payment you make is designated to a cash value account; this value will generally grow tax-deferred for the length of the policy. You may be able to take loans from the cash value account, but any unpaid loans at the time of death will reduce benefits awarded to your beneficiary.
Generally, several factors should be considered when determining the type of life insurance to purchase. These may include your age, the age of your dependents and the support required to help provide for future needs of your dependents. A PNC Investments Financial Advisor can help you determine which type of life insurance may be right for you.
Additionally, you can use this Life Insurance Calculator to determine how much life insurance you may need.
Insurance can also help you manage significant end-of-life expenses. The cost of care following an unexpected injury or illness, coupled with various end-of-life costs, can quickly eat into your savings.
While traditional standalone long-term care policies can be very expensive, there are other options designed to provide for long-term care through a hybrid life/long-term-care policy or a long-term-care rider added to an existing policy.
Having some type of long-term-care insurance can help you reduce the risk of becoming financially dependent on others in retirement.
Other Features of Insurance
Income Tax Benefits — Typically, the death benefit on a life insurance policy will transfer to beneficiaries free of federal income taxes. Additionally, all cash value accumulation in universal or whole life policies is tax-deferred, meaning these earnings are not taxed until withdrawn.
Estate Planning Benefits — Regardless of the size of your estate, the manner in which your assets are transferred to your beneficiaries can be a major consideration. The right kind and amount of insurance can help you:
- Avoid family conflict. An appropriately sized death benefit can help equalize the inheritance of heirs, particularly when noncash assets are involved.
- Provide estate liquidity. The death benefit can typically help ensure that cash is available to satisfy creditors, pay taxes and settle estate expenses without having to sell other assets.
- Provide funds to establish trusts for specific uses or leave a legacy.