The market approached its all time high last week. Since the low on March 23rd, the S&P 500 has climbed just over 50%. Jobless claims dropped below 1 million, while Congress failed to reach an agreement on additional stimulus. The S&P 500 does represent large US companies, and indexes that track small to mid-size companies have not recovered to the same extent.
As you’re thinking about your investments, another area of your financial picture you should consider is life insurance. We spoke last week about hybrid policies that provide both life insurance coverage and long-term care insurance. Generally, life insurance creates an estate. It provides funds for your beneficiaries to replace your income. It can also be used to help a business replace a key executive, to buy out the heirs of a business partner, or leave a legacy to a non-profit.
Currently, you have to show an insurable interest to take out a life insurance policy on someone. That is, you have to be able to show how the insured person’s death will impact you. That wasn’t always the case. In England, when you could be hung for theft or other minor offenses, people would purchase life insurance on prisoners awaiting trial – essentially placing a bet on the outcome of the trial.
When you look at life insurance, you need to consider how much insurance you need, the type of insurance – term or permanent, and any riders you may want. If you’re looking to replace your income, an easy starting point is a multiple of your salary. If you expect to spend about 5% a year, a $1 million policy would give your heirs about $50,000 a year in income. Or, you can start with a figure between 10 and 20 times your salary.
Once you’ve decided how much you need, the next step is term insurance, or insurance that is good for a set period of time, or permanent insurance. Both have advantages and disadvantages. Term insurance is generally less expensive, so you can buy more when you have young children at home and may have a need for more coverage. Permanent insurance can have investment options, tax-advantaged growth, and other benefits.
Riders are add-ons to the policy. You may have a rider that pays the premiums if you become disabled, or one that provides benefits if you enter a nursing home or have a critical illness such as cancer or a heart attack.
We consider life insurance to be a part of your financial plan, and something that should change over your lifetime as your situation changes. Another thing to consider over time is your beneficiaries. Life insurance benefits pay out to your beneficiary regardless of your will. So if you’re gotten married, divorced, or had other life changes, you need to review your beneficiaries. Life insurance also pays out income tax-free to your heirs, so it can become an important part of your overall estate plan.
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Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Great Valley Advisor Group, a Registered Investment Advisor. CovingtonAlsina and Great Valley Advisor Group are separate entities from LPL Financial.
All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
The opinions voiced in this show are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investment(s) may be appropriate for you, consult with your attorney, accountant, and financial advisor or tax advisor prior to investing.