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by David Cole
Life insurance is an important part of a wealth management plan, protecting your family or business during your working years. But some common myths might prevent you from purchasing the insurance you may need.
MYTH: I have enough remaining assets to provide my heirs with adequate resources.
TRUTH: If a large chunk of your net worth is made up of retirement money – from a 401(k) plan, traditional individual retirement account (IRA), simplified employee retirement pension (SEP) plan, or rollover funds from prior employers – and all of those assets are bundled together, the dilemma for your heirs is that the proceeds are usually fully taxable. State and federal taxes could take 20 to 35 percent. Life-insurance proceeds, however, are almost always income-tax free.
If you have a large estate, insurance proceeds can be used to cover your estate taxes so your assets do not have to be sold to pay them. Estates (such as a farm or business) worth more than a certain amount are subject to estate taxes, which can take 40 percent of the estate’s value and are typically due nine months after a person’s death. If the estate does not have enough cash to cover the taxes, the farm or business may have to be sold to pay the estate taxes.
If you hold life insurance in an irrevocable trust, the insurance proceeds are considered outside the estate and would not be included in the estate tax, so the trustee could use those proceeds to pay the estate taxes.
MYTH: Social Security benefits will take care of my family.
TRUTH: Social Security benefits are certainly of great help, but they’re typically not enough.
MYTH: If I die, my debts will be forgiven.
TRUTH: Many people wrongly assume death wipes out indebtedness. Actually, your estate must resolve your debt before remaining resources go to your beneficiaries.
MYTH: My employer provides me with enough life insurance.
TRUTH: Some employers provide a life insurance benefit, commonly 18 months' to two years' worth of base salary. That’s typically not going to create enough of an income stream for your surviving family to live on indefinitely.
MYTH: I have a pre-existing health condition, so I can’t get life insurance.
TRUTH: The insurance industry has had many years to research the impact of illnesses as they relate to life expectancy. Many common illnesses have very little impact on a person’s life expectancy. A pre-existing condition does not necessarily make you uninsurable.
MYTH: I’m still young. I don’t have to worry about life insurance.
TRUTH: A good time to buy life insurance is when you’re still in robust health. If a serious health issue arises or if you start a risky hobby, such as scuba diving, hot air ballooning or even traveling to countries under conflict, it’s going to affect your ability to get life insurance at a favorable rate.
MYTH: I can’t afford life insurance.
TRUTH: There are options. Term insurance, which is purchased for a specific period of time, costs less than permanent insurance. If coverage runs out before a person dies, which is often the case, no death benefit is paid. Permanent insurance is a bit more costly but is designed to be in place when the insured person dies, no matter when that might be.
If you think of life insurance, like car insurance or health insurance, you might realize you can’t afford to be without it, and it brings peace of mind knowing you’re helping your loved ones maintain their standard of living should anything happen to you.
Give me a call at 701-451-3080. We’ll discuss your life insurance options, and I can put my experience to work helping you figure out your insurance needs.
Dave Cole has worked in the industry for more than 25 years. He has a bachelor’s degree in history from St. Olaf College, Northfield, Minn. He specializes in life insurance.
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This material contains only general descriptions and is not a solicitation to sell any insurance product or security, nor is it intended as any financial or tax advice. This may not take into account your personal characteristics such as budget, assets, risk tolerance, family situation or activities which may affect the type of insurance that would be right for you. Guarantees are based on the claims paying ability of the issuing company.
Securities offered through LPL Financial, member FINRA/SIPC. Insurance products offered through LPL Financial or its licensed affiliates. The investment products sold through LPL Financial are not insured. Bell Bank deposits are not FDIC insured. These products are not obligations of Bell Bank and are not endorsed, recommended or guaranteed by Bell Bank or any government agency. The value of the investment may fluctuate, the return on the investment is not guaranteed, and loss of principal is possible. Bell Bank, Bell Wealth Management and Bell Investments are not registered broker/dealers and are not affiliated with LPL Financial.