Wells Fargo Conversations, May 31, 2015, Michelle Crouch - Is It Time for an Insurance Review?


You may think you no longer need to worry about insurance. Maybe your kids are grown, you already have coverage through your employer, or you've accumulated enough wealth to help protect your family if something were to happen to you.

No matter what your reason is, it's not good enough — because specialists say everyone can benefit from an insurance review.

At the very least, a review can provide reassurance that you have the proper amount of coverage and help you avoid common mistakes, such as listing the wrong beneficiary, says Rob Chewning, Senior Vice President - Head of Wealth Insurance Services in Wealth Brokerage Services, Wells Fargo Advisors, LLC. More importantly, perhaps, you may learn about other ways insurance — particularly life insurance — can help you meet your financial goals.

"Life insurance is more than just a way to fill a monetary gap if something happens to you; it's a creative and valuable tool that can help you meet your goals no matter what they are," Chewning explains. "It can provide tremendous leverage and flexibility, allow you to create a larger legacy, and offer a tax-efficient strategy for transferring wealth."

A review can provide reassurance that you have the proper amount of coverage and help you avoid common mistakes.

Despite the benefits, a recent Spectrem survey  of affluent investors found that those with a higher net worth were actually less likely to have life insurance. In the survey, 61 percent of mass affluent investors (net worth $100,000 to $1 million) owned life insurance, compared with 59 percent of high-net-worth investors ($1 million to $5 million) and only 56 percent of those with ultra-high net worth.

If you've been thinking you no longer need insurance, or you believe you’re fine with what you do have, here are a few reasons you still may want to consider an insurance review:

You may be paying too much.
If you bought your policy five years ago and have not had a major change in health status, there may be potential savings to explore. As people are living longer, life insurance premiums continue to go down. So depending on your circumstances, according to Chewning, "There's a good chance we can go out to market and find something that provides the same amount of benefit for less money." Just keep in mind that you will have to requalify medically for a new policy.

If you have any cash or equity in your contract, your insurance advisor may recommend a tax-free exchange to potentially leverage the equity in your policy to reduce future premiums in a new policy," Chewning says. "Some newer policies tie cash value buildup to an index, so you're not just relying on the performance of the insurance company balance sheet to grow future equity."

Your employer plan may not be enough.
Many people who have the maximum amount of group life insurance through their job may be under-insured, Chewning says. Employer-provided disability insurance is also likely to provide you with less money than you might expect because employees typically pay for it with before-tax dollars, so if you ever need to collect, you will have to pay taxes on that income. Another problem with employer-provided coverage: The benefits usually aren't portable if you switch jobs. Even if you have the type that can convert to a personal policy, a conversion can be quite expensive.

Your policy may trigger the estate tax.
Many clients may still own life insurance they purchased before they grew their wealth to a large net worth, Chewning says. If you now have a greater amount of assets, the policy's death benefits may be enough that, combined with your other assets, it puts you above the estate tax threshold. Your financial team may be able to recommend changes to help protect your heirs from that extra burden, whether it's transferring ownership of the policy or setting up a trust.

Insurance can be an income tax-free way to supplement retirement savings.
For earners with a high cash flow who have a need for life insurance, who have maximized their 401(k), and who don't qualify for a Roth IRA, life insurance can be an effective supplemental retirement income strategy, Chewning says. The cash value of life insurance grows tax free, and when the policy is properly structured and funded, this equity can provide a stream of tax-free income at retirement. The reason is that life insurance cash value generally receives “First-In, First-Out” (FIFO) tax treatment for income tax purposes. Say, for example, that you put extra money into a cash-value policy tied to an equity index over 10 years and let it sit and grow. When you retire you can withdraw your original premiums first, and pay no income taxes. Then, once you’ve maximized your withdrawals, you can switch to "policy loans" and receive additional tax-free income in that form.

It is important to work with a professional who can structure premium payments properly and to keep the policy in-force for life; otherwise, you may lose the FIFO tax treatment if the policy were to lapse.

You can leverage your charitable gifting.
To support your favorite charity, you could give $15,000 every year for 20 years, for a total of $300,000. But if you contribute that same $15,000 in premiums to an insurance plan for 20 years, your charity could potentially receive a gift of more than $1 million, from the life insurance death benefits, providing a much larger legacy. Talk to your insurance advisor about the different ways to structure your gift.

You can protect your family business.
Many businesses don't survive into the second generation, often because of a lack of capital. "When kids step in to run the business after Mom and Dad are gone, they can't afford to make a mistake," Chewning says, because they don't have the cash to cover it. "Life insurance may provide an infusion of capital that can help sustain the business through that transition."

Whatever your long-term goals may be, consider talking to your insurance advisor to review how well your current insurance strategy fits your current financial situation.

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