For years, the narrative around life insurance went something like this: Buy protection while you're young to replace your income so your family doesn't struggle if something happens to you.

And that message has clearly resonated. A good 51% of American adults say they have some life insurance coverage, according to LIMRA.

When it comes to buying life insurance, you have a choice. You could opt for a term life policy that offers limited coverage and no cash value accumulation. Or, you could buy whole life insurance, a type of permanent insurance that covers you for life and includes a cash value component. (Other forms of permanent insurance include universal and variable.)

While term life insurance holds appeal as the less expensive option, there's an inherent risk in buying it. In a nutshell, if you don't pass away by the end of your policy's term, you'll get nothing out of all of those premiums you paid (though you'll still be alive, so there's that).

With whole life insurance, you're guaranteed a payout. You can reserve the policy's death benefit for your loved ones upon your passing or tap your cash value for supplemental income in retirement.

In fact, you'll often hear whole life insurance touted as a useful retirement savings tool. But is it worth getting for that purpose?

Financial security that comes at a price

Life insurance is an inherently useful and important financial tool. But for many people, term life insurance can get the job done at a fraction of the cost.

Policygenius says that a healthy 30-year-old who doesn’t smoke might pay an average of $26 per month for a 20-year term life policy with a $500,000 payout. That same applicant would be looking at $450 per month for a whole life policy with the same benefit.

For this reason, proponents of whole life insurance tend to look beyond the "insurance" angle and incorporate whole life policies into the retirement planning equation. But while whole life insurance can provide policyholders with retirement income, it may not be the most efficient way to get there.

Whole life insurance lacks flexibility and efficiency in retirement planning

There are some use cases for whole life insurance in retirement planning. But Alex Langan, Chief Investment Officer and financial adviser at Langan Financial Group LLC, says point blank, "For most people in most situations, whole life insurance is not the right primary retirement savings vehicle. That's not a disclaimer. That's our honest assessment after working with clients across a wide range of financial situations."

For disclosure purposes, Langan Financial Group offers whole life insurance as part of its planning work, and in certain circumstances, advisers at the firm may be compensated for those recommendations.

The reason Langan doesn't usually recommend whole life insurance boils down to what the product is designed to do versus what long-term planners actually need.

"Whole life is built first around a permanent death benefit, with a savings component attached to it," Langan says. "Retirement planning is fundamentally about growth, flexibility, liquidity, and tax efficiency over time. Those aren't the things whole life is optimized for."

As Langan explains, whole life policies tend to grow more slowly than market-based alternatives. And since the costs are significant, especially in the early years, that's money that could instead go into an investment portfolio and generate stronger returns.

Derrick Schuler, CFP at Schuler Wealth Planning, agrees.

"Using whole life insurance as a retirement savings tool isn’t necessarily a waste of money, but there are much more efficient ways to save for retirement," he says.

Schuler formerly sold whole life insurance but no longer does. He makes recommendations on whole life insurance for clients, based on how it fits into their overall financial plan.

Schuler says that while whole life insurance accumulates a cash value that grows tax-deferred over time, "there are a lot of insurance costs, administrative expenses, and commissions built into the policy that can reduce the overall return on the cash value."

If retirement savings is the primary goal, says Schuler, then most people are usually better off first maximizing contributions to employer retirement plans, IRAs, and HSAs.

"These accounts generally offer lower costs, greater flexibility, and higher long-term growth potential than a whole life policy," Schuler insists.

Accessing funds from a whole life policy can be complicated

Another issue with using whole life insurance as a retirement savings tool, says Langan, is that accessing the cash value through policy loans or withdrawals comes with real trade-offs.

"Policy loans accrue interest and reduce the net death benefit while the loan is outstanding," he says. "If the loan is repaid in full, the policy can be restored to its original state. If it isn't repaid, the outstanding balance plus accrued interest is deducted from the death benefit paid to your beneficiaries."

Withdrawals work differently. They permanently reduce both the cash value and the death benefit and don't need to be repaid.

But, Langan cautions, "neither option works the way a straightforward account withdrawal does, and that matters when you're planning for retirement income flexibility."

There's also a timing issue Langan raises.

"Because of the way commissions and insurance costs are structured in permanent policies, it can take a meaningful number of years before the cash value exceeds what you've paid in," he explains. "That lag represents a real cost compared to other vehicles where contributions are working from day one."

When can whole life insurance actually make sense?

Langan says there are some scenarios where whole life insurance does make sense in the context of financial planning.

"The first is someone who has genuinely maximized every other tax-advantaged savings option available to them and is looking for additional ways to grow assets in a tax-efficient structure," he says. "At that point, the comparison set changes and whole life becomes more competitive relative to fully taxable alternatives."

Langan also says whole life insurance can fit into estate planning and legacy situations where a permanent death benefit is the actual objective.

"If someone needs a guaranteed death benefit regardless of when they die, and wealth transfer is a primary goal, permanent insurance makes structural sense because it's doing exactly what it was designed to do," he says.

Additionally, Langan says that whole life insurance could make sense as part of business planning. In that context, there are situations in which the guaranteed nature of the policy serves a specific functional purpose.

Of course, there's also a behavioral use case for whole life insurance.

"Some people know themselves well enough to recognize that they won't invest the difference between a term premium and a whole life premium," Langan says. "If the realistic choice is between a whole life policy that forces consistent contributions and builds cash value over time versus doing nothing because the money will otherwise be spent, a whole life policy is better than nothing."

But, Langan says, it's important to recognize that this still doesn't make using whole life insurance as a retirement savings vehicle an optimal financial strategy. Rather, he says, "It's a reasonable solution to a real behavioral challenge. There's a difference, and clients deserve to know which one applies to them."

Ultimately, Schuler says, it's important for savers to understand what life insurance is supposed to do — protect income, pay off debts, and provide for loved ones if something happens to them during their working years. Term life insurance can often provide that coverage at a fraction of the cost.

"For the average person looking to build wealth for retirement," Schuler says, "term insurance combined with disciplined investing will typically provide more insurance protection, more flexibility, and a larger retirement nest egg over time."

Read More

• 5 Smart Ways to Use Your Life Insurance While You're Still Alive
• Is Life Insurance Taxable When It's Paid Out?
• How to Shop for Life Insurance in 3 Easy Steps

If you're receiving a life insurance payout, you've already got more than you need on your plate. The last thing you want to deal with right now is an IRS audit for not paying taxes you didn't even know you owed. The good news is you probably won't have to.

For the majority of beneficiaries, life insurance proceeds are not taxable. At both the federal and state level, the death benefit isn't treated as taxable income. Even if you're borrowing against your life insurance, you wouldn't owe taxes on the cash unless the policy is canceled or lapses before you repay it.

However, as with most things in life, there are exceptions to the rule. For example, while the cash paid out from the policy itself may be tax-free in most cases, interest earned when you invest it or stash it in a high-yield savings account isn't. The IRS might also take a cut in certain other situations as well. So, before you use your life insurance proceeds, it's worth double-checking that you really don't owe any taxes on it.

When is life insurance taxable?

In many situations, life insurance payouts are tax-free. But there are some important exceptions that you need to know if you've received or expect to receive life insurance benefits. Here are some of the most common exceptions when you would need to pay taxes on your life insurance proceeds:

• You earned interest on your life insurance benefits, either because you opted for installment payments or because you're keeping it in an interest-bearing account. In this case, you would be taxed on the interest only, not on the principal payout.
• You receive the death benefit as an annuity. An alternative to receiving the death benefit in installments is to essentially use the cash to buy an annuity. This is a form of guaranteed income payments that some people use to fund their retirement. You'll be subject to annuity taxation. That typically means owing taxes on the interest that the annuity earns, but not the principal death benefit used to pay for it.
• You received the death benefit early. Some policies allow for early access to benefits if the insured person is diagnosed with a terminal illness or meets other qualifying conditions. You may be taxed on the payout in this scenario.
• Your cash value is worth more than the premiums you paid. If you have whole life insurance, your policy may be building cash value. For now, it's tax-deferred. But if that value exceeds the total amount you paid in premiums when you withdraw, you'd owe taxes on the profit.
• The policy was sold or surrendered. If you no longer need life insurance, you may have the option to sell it to someone else or surrender it back to the company. This usually isn't an option for term life insurance, but it may be for other types. In both cases, you'd receive a cash payout for the policy. If that payout is higher than what you paid in premiums, you'll be taxed on the excess.
• The life insurance was part of a large estate. If the death benefit is paid to the policyowner's estate or is otherwise included as part of their taxable estate, it might be subject to estate taxes. This will happen if the total value of the estate exceeds federal or state thresholds. As of 2025, the federal threshold is $13.99 million, though, so most people won't have to worry about this.
• The life insurance was an employer-paid group plan. If you received a payout worth more than $50,000 from an employer-paid life insurance policy, the death benefit might be taxable.

Aside from the situations above, there might be other exceptions that make all or some of your life insurance proceeds taxable depending on who owns the policy, who the beneficiary is and how it's paid.

If your situation is anything other than a standard lump-sum death benefit received after the owner of the life insurance policy has passed, it's worth double-checking to make sure you understand the tax laws surrounding the payment.

Tax laws are complicated

While the short answer is no, life insurance benefits are generally not taxable, the above shows that there are a lot of caveats and exceptions to that rule. When you factor in state-level variations in policy and the uniqueness of your individual circumstances, it can get even more complicated.

So, if you expect to receive a payout from life insurance, whether it's a death benefit or another form of withdrawal from your policy, it's worth consulting a financial adviser or tax expert to get custom advice tailored to your situation.

Related content

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• Types of Insurance You Probably Don't Need
• Your End of Year Insurance Coverage Review Checklist

These days, it seems as if every other TV commercial is for yet another insurance product. While consumer choice can be a good thing, not all insurance is as essential as ads make it seem.

Although insurance plays an important role in anyone's financial plan, some products might be more about protecting the insurance company's bottom line rather than yours. Insurance decisions shouldn't be made in a vacuum.

You should consider your entire financial picture. That way, you can identify the gaps and figure out the coverage you truly need, along with any you could do without. It's also important to do an annual insurance review, as certain life events or milestones can change your insurance needs.

Above all, never buy insurance hastily based on fear, especially if it involves the products on this list.

If you're renting a car in the United States, decline that additional insurance the rental car company is trying to sell you. If you already have a standard car insurance policy, it'll cover you when you're driving the rental. You don't need rental car insurance.

If you're driving abroad, you still might not need to opt into the extra coverage if you book with one of the many credit cards that cover rental car insurance.

The same might also apply to rental car reimbursement coverage. This is an optional type of car insurance that would pay for a rental car while your car is being repaired.

But if you live in a multicar household, consider whether you need rental car reimbursement coverage. It might be a hassle to borrow your spouse's or your teen's car for a few days while your car's in the shop. But the lower premium you'd enjoy by dropping that coverage could be worth it.

As risky as it might sound, there's a point at which you shouldn't bother paying for more than the minimum car insurance required by your state.

If your car is older or has otherwise lost most of its market value, you'd likely be better off dropping things such as collision insurance or comprehensive insurance.

The most your insurance company will ever pay is the current market value of your car. Meanwhile, dropping to minimum coverage could save you a thousand or more per year.

At a low enough market value, it makes more sense to pocket those premium savings than to pay for full coverage that would only ever pay a few thousand dollars.

If you've splurged on your dream vacation, you (rightly) feel as if you shouldn't expose yourself to the risk of canceled flights, closed hotels or other unexpected emergencies.

Travel insurance is a great way to make sure you'll get your money back if anything goes wrong. But, if you've got the right travel rewards card, there's a good chance you have some basic protections already.

More credit cards are offering basic trip cancellation coverage and, sometimes, even throwing in lost or damaged baggage insurance.

Depending on your trip and how you book, you might need to buy supplemental coverage for things such as medical emergencies or a cruise-specific policy if your credit card's travel insurance isn't enough. For quick weekend trips or low-cost vacations, your credit card's coverage is probably enough.

If you're still working but nearing retirement, consider whether your long-term disability insurance is worth keeping. The premium for an employer group plan typically increases with age.

The policy also will limit the payout period until a particular age, such as 65. As this age nears, your maximum possible benefit shrinks. This is especially true for someone who could have retired earlier but is still working.

If you've got a fully funded retirement, you're no longer dependent on your salary. The higher insurance bill might not be worth the dwindling maximum payout, especially if it's just protecting income you could technically live without.

A stroke, heart attack, life-threatening cancer and an organ transplant are just some of the serious health issues that critical illness insurance covers. If you develop one of these conditions, the insurer sends you a lump sum cash payment, ranging from $10,000 to $50,000, that can be spent however you want.

Despite this flexibility, it's not always as useful as it seems. Your health insurance will already put some limits on your out-of-pocket costs in these scenarios.

Before paying for this added layer of protection, review your potential out-of-pocket costs for health insurance to see whether you need critical illness insurance or if you could manage the bills with savings.

All the dysfunction and uncertainty in Washington has led to a new product: Social Security insurance. It's a type of annuity, an insurance contract that turns part of your savings into future income.

When you add this insurance to an annuity, the insurer promises your annuity payment will increase to cover any government shortfall that results in a smaller Social Security benefit.

However, the odds of that happening, at least in the near future, are slim. Retirees have strong voter turnout. More than half of the voters in 2020 and 2024 were 50 and older, and 28% were 65 and older, according to the Pew Research Center.

Cutting Social Security benefits when such a large chunk of those who turn out to vote are either collecting Social Security or planning to do so soon would be a huge risk for anyone hoping to get re-elected.

While you might be used to having them when your employer is subsidizing premiums, individual dental and vision policies might not be worth buying after you retire.

Without those employer subsidies, the cost of this coverage will skyrocket. Not only are premiums higher for individual plans, but they could also have high out-of-pocket costs for care, an exclusion of major services for the first year of coverage and a limited annual coverage limit.

Instead, you might be able to pay less per year on vision and dental costs by simply paying cash. Some providers might offer subscription plans that include all your preventive care for a low monthly price that would be lower than an insurance premium.

You can also look into alternatives such as dental savings plans, in which you get access to heavily discounted services for a low annual fee.

Say you've got term life insurance that will provide a $500,000 payout to your beneficiaries if you pass. Once you hit $500,000 in retirement savings, you can consider dropping the insurance and just designating your beneficiaries as heirs to your retirement fund.

However, if your family would need the cash right away, one benefit of life insurance is that the proceeds aren't taxable, while an inherited 401(k) is (if they withdraw it rather than rolling it into another retirement account).

If you want to drop life insurance but make sure your family receives the full $500,000 payout, you can wait to cancel your policy until your 401(k) balance is high enough that your family would receive $500,000 after taxes.

No one disputes that long-term care in the United States is an expensive risk. A private room in a nursing home costs more than $90,000 a year, on average, according to the U.S. Department of Health and Human Services.

Still, traditional long-term care insurance policies have high premiums that make them hard to justify. As you get older, those high premiums get even higher. Because it only applies under such narrow, specific circumstances, the hefty cost is usually not worthwhile.

As an alternative, you can look into a long-term care hybrid (LTC-hybrid) life insurance policy. With these policies, if you don't end up needing long-term care, your heirs will receive the cash as a death benefit instead. Your premiums aren't going to waste on a policy that never gets used.

Before buying even a hybrid policy, do the math on how much long-term care would cost. For example, some expenses, such as food, housing and utilities, would be provided by the long-term care facility.

Even when one spouse enters long-term care while the other remains in the couple's home, some daily living expenses are still reduced. If you're considering long-term care insurance, ask yourself whether you need to cover the full cost of a nursing facility or if you could go with a partial benefit that's more affordable.

Although the classic example is rental car insurance, there's often a fair amount of overlap with the insurance people have. Your car insurance covers medical bills after a car accident, but so could your health insurance.

Your home insurance covers liability for an injury on your property and so does an umbrella policy, which should offer enough supplementary coverage, if needed, to protect your net worth.

Given this overlap, it's possible that the limits on your existing policies are higher than necessary because they cover the same risk. If you have umbrella insurance, for example, drop your liability coverage on other policies to the minimum required.

While insurers usually require a certain amount of liability coverage on your home or car insurance before they'll offer an umbrella policy, there's no reason to go above that requirement.

Another sneaky way you end up paying for redundant coverage is when life events render your policy redundant. If your teen moves out for college and gets their own car insurance, for example, there's no reason you should pay the added cost of keeping them listed as a driver on your policy.

Review your insurance policies regularly and think about whether you still need the coverage for which you're paying. The money you save by slashing unnecessary premiums can go toward boosting your emergency fund or toward paying for better coverage in the areas you do need it.

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If you want to see a group of folks instantly become evasive, ask them two questions at a dinner party: "So who are you voting for?" and "Do you have life insurance?"

One of those questions starts arguments. The other leads to an uncomfortable silence, followed by someone saying, "I mean … I have something through work, so I'm probably fine." (Note: Rarely are they fine.)

Life insurance is not fun to think about. That's kind of the point. It's financial planning for the scenario where you are not around to do financial planning anymore. But going without it is like driving without a seat belt because you don't plan to crash.

And not having it can be catastrophic for anyone who relies on you — spouse, kids, aging parents, business partners, boyfriends, girlfriends, pet goldfish.

So let's get this done.

Life insurance: The gist

Life insurance isn't a lottery ticket. For the most part, it's not an investment method either. It's a temporary substitute for you — your income, your caregiving, your debt-handling, your "I'll pay for it."

If nobody truly depends on you, then sure, you may not need much beyond coverage for final expenses. But, you know, you could leave a chunk of money to charities.

But if even one person would be scrambling in the event of your passing — emotionally and financially — life insurance is your way of not leaving a financial mess for them to clean up after you exit stage right.

Employer life insurance is like the snack bowl at a party. It's nice that it's there, but it's not a substitute for dinner.

You may ask, Why? Here are three reasons:

1. It's usually not enough.

Many group plans pay one to two times your salary. If you have a mortgage, kids and a spouse who'd need years of income replacement, that math doesn't work. You leave them enough for only a year or two.

2. It's not permanent or portable.

People change jobs. Companies downsize. You retire. Your "coverage" evaporates in each of those scenarios. Sometimes that happens right when you're older, and buying life insurance on your own is more expensive, or maybe you can't even get life insurance because of a health condition.

3. You don't control the details.

The employer chooses the carrier and the rules, and sometimes the beneficiaries default to whatever the HR file says from when you last updated it in 2017. (Yes, I've seen that happen — a payout could go to your ex instead of your current spouse.)

So treat work coverage as a bonus layer, not the foundation.

Who needs life insurance?

Glad you asked. These are the people who need life insurance the most:

1. Parents of minor kids.

If you have kids who are not financially independent, you need life insurance. Full stop. Mic drop.

Even if your spouse works. Even if you don't earn much. Even if you think "they'll be OK if something happens to me."

Raising kids is expensive, and the loss of a parent often leads to a need for childcare, tutoring, therapy, time off work, maybe a move — and a thousand other expenses nobody wants to think about.

2. Anyone with shared debt.

Mortgage. Co-signed student loans. Business loans. You name it. Everyone has debt. Unfortunately, a lot sometimes.

Debt doesn't die with you. It becomes somebody else's problem fast. If you don't want your partner or family to have to sell the house or drain savings to cover your debt, life insurance can help.

3. Business owners and key employees.

If your death would destabilize a business because you're the revenue engine, the operator or the person holding relationships together, you need coverage. I mean, you are irreplaceable at work, aren't you?

If your business plan includes "hope nothing happens to me," that's not a plan. That's a vibe. And not a realistic one.

Temporary/term life insurance vs permanent (or close to it)

This is where people get stuck because the online world has opinions and salespeople. Here's the brief version.

Term life insurance:

• Covers you for a set period (10, 20, 30 years)
• The most affordable way to buy a lot of coverage
• Good for income replacement while kids are growing up, mortgage years, peak earning years.

For most households, term is the right tool. It's like renting coverage for the years when your financial obligations are the highest.

Permanent life insurance (whole life, universal, etc.):

• Covers you for life as long as premiums are paid, subject to terms, etc.
• More expensive because it includes a cash-value component (money for you)
• Best for estate planning, special-needs dependents, business succession, people with permanent obligations or specific tax strategies (aka big shots)

The biggest mistake people make: Ignoring beneficiary updates

Life insurance works only if it pays the right person or people, so here's your year-end or life-event checklist. If you answer yes to any of these questions, you might need to update your beneficiaries.

• Did you get married or divorced?
• Have you added kids to the family (births or adoptions) since the policy was set up?
• Did any beneficiary die, become estranged or turn into your villain origin story?
• Do you want proceeds to be split in a trust instead of outright?

Beneficiary designations override what you have in your will. So if your policy still lists your ex because you never updated it, congratulations: You just bought a very expensive gift for the wrong person.

Health matters, but timing matters more

People put off applying for life insurance because they're worried they won't qualify. And yes, your health can affect price and eligibility.

But here's the part that should motivate you: You are never going to be younger or healthier than you are today. (I saw this quote for the first time the other day, and it really hit home.)

Also, life insurance premiums don't go down over time. They go up. Waiting five years before applying would be like trying to buy concert tickets after the show has already started.

Even if you have a health condition, there often are options. The earlier you explore them, the better your odds of getting what you need.

The blunt truth (with a bit of kindness)

Life insurance is one of those things you buy because you don't want your family's future to depend on GoFundMe and good luck.

It's not about being maudlin. It's about being responsible in the most human way possible by protecting the people you love from financial chaos at the exact moment they least need chaos.

So yes, thinking about, and planning for, your mortality is uncomfortable. Most important things are.

But if you handle it now — while it's boring and hypothetical — you get to spend the rest of your life not thinking about it.

Which, let's be honest, is the real dream here.

Want to learn more about insurance? Visit icgs.org.

Related Content

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• When Is the Perfect Time to Buy Life Insurance?
• How to Shop for Life Insurance in 3 Easy Steps
• Retirement Planning With Life Insurance
• How Much Life Insurance Do You Need?

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Editor's note: This is the first article in a series about financial and/or estate planning issues that we all should know but might be too embarrassed to ask about. First up: life insurance trusts.

As a lifelong baseball fan, I have always appreciated knowing that certain players — Hank Aaron, Cal Ripken and Joe DiMaggio, for example — held some amazing records.

But as the years have gone on, and more baseball data points get thrown around with new names, I often find myself nodding along without really knowing what all of the new sabermetrics mean.

Many of us hit a point in our lives when we've heard about topics and phrases so many times that we believe we should understand what they mean, but we don't — and we're a little embarrassed.

Kiplinger's Adviser Intel, formerly known as Building Wealth, is a curated network of trusted financial professionals who share expert insights on wealth building and preservation. Contributors, including fiduciary financial planners, wealth managers, CEOs and attorneys, provide actionable advice about retirement planning, estate planning, tax strategies and more. Experts are invited to contribute and do not pay to be included, so you can trust their advice is honest and valuable.

This series of articles is meant to help you answer some of the many financial and/or estate planning questions that you have been too uncomfortable to ask.

The first one is a doozy: life insurance trusts.

The reason people don't ask about life insurance trusts is that the topic itself can seem daunting and can lead to three grim prospects:

• It's boring
• It's complicated
• It includes talking about dying

In this article, I'll walk you through what you need to know to determine whether you really need a life insurance trust.

First, let's refresh our baseline knowledge of irrevocable trusts.

Irrevocable trusts: The basics

A lifetime irrevocable trust is a trust that you establish during your life, and where you forfeit control over the assets inside. There are three key benefits to using an irrevocable trust as part of an estate plan:

• You minimize future estate taxes by reducing your current estate value and removing future appreciation
• You protect your heirs' inheritance from creditors
• You control when and how heirs receive their inheritance

Irrevocable life insurance trusts

Now, add in the concept of funding this trust with life insurance. An irrevocable life insurance trust (ILIT) is a trust established during your life where the trust either owns a life insurance policy on your life (the grantor) or is named as the life insurance beneficiary. In either case, the policy pays out to the trust upon death.

But why should life insurance be part of your estate plan?

Life insurance can play an important role in estate planning, fulfilling a multitude of roles, including but not limited to protecting your dependents from lost income, covering your debts and expenses after you die, creating an inheritance, or providing liquidity for estate taxes due upon death.

For those individuals looking to create an inheritance, it may be more appealing for the insurance to pay into a trust rather than directly to the beneficiary. This allows the grantor to us the hallmark benefits of a trust, as explained above.

To get these specific benefits, the life insurance policy only needs to name a trust as a beneficiary. An important point to remember here is that the trust must be established first before it is named as the beneficiary on your life insurance policy.

Looking for expert tips to grow and preserve your wealth? Sign up for Adviser Intel (formerly known as Building Wealth), our free, twice-weekly newsletter.

However, for individuals or couples whose net worth is nearing or above the federal estate tax exemption ($15 million/taxpayer and $30 million/married couple in 2026, indexed for inflation), and who are using life insurance to either create an inheritance or offset estate taxes due, then having the trust own the life insurance policy should be considered.

Why? If you have life insurance directly at the time of your death, the entire death benefit payout will be added to your estate, which can potentially create or compound a federal estate tax bill.

If you use an ILIT to own the life insurance policy, you have transferred the value of the policy out of your estate.

For those of you living in states that still have their own estate or inheritance taxes, this could be a powerful tool to minimize that burden.

Life insurance trusts: Key takeaways

Whether you need an ILIT as part of your estate plan is largely determined by your net worth and where you live.

If you believe that a life insurance trust should be part of your estate plan, it's important to work with an experienced attorney and financial planner to guide you on the nuances of this strategy.

This article is for general information only and is not intended as an offer or solicitation for the sale of any financial product, service or other professional advice. Wilmington Trust does not provide tax, legal or accounting advice. Professional advice always requires consideration of individual circumstances.

Wilmington Trust is not responsible for any errors or omissions contained in this article.

All information is provided "as is," with no guarantee of completeness, accuracy, or timeliness, and without warranty of any kind, express or implied.

Wilmington Trust is not liable to you or anyone else for any decision made or action taken in reliance on any information in this article. Opinions are subject to change without notice.

Wilmington Trust is a registered service mark used in connection with various fiduciary and non-fiduciary services offered by certain subsidiaries of M&T Bank Corp.

Related Content

• Is Your Estate at Risk? The Five Trusts You May Be Missing
• How to Handle Irrevocable Trust Assets Tax-Efficiently
• How Life Insurance Can Help You Preserve Your Wealth
• Life Insurance Beneficiary: What It Is and How It Works
• 10 Things You Should Know About Life Insurance

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

My husband, Tom, has served for 19 years. Currently, he’s a full-time pilot in the Air National Guard, and he previously spent more than a decade as an active-duty member of the Air Force.

Military life comes with plenty of challenges: frequent duty-station relocations, irregular work schedules and overseas deployments, to name a few that we’ve been through. But servicemembers also have access to some significant financial benefits. In recognition of Veterans Day this November, I’m sharing below a few that are impactful for my family.

1. Housing allowance

One helpful perk is a tax-free subsidy, known as the basic allowance for housing, that covers all or part of your monthly rent or mortgage payment if you don’t live in government-provided housing on a military base. The amount you receive depends on the location of your duty station, your rank and whether you have dependents. You can use the BAH calculator to look up the value of your subsidy based on those factors.

2. Free college

The Post-9/11 GI Bill covers the full cost of in-state tuition and fees at public colleges for up to 36 months (four academic years). Or, if you go to a private or foreign college, you get up to a certain amount per year; for the current academic year, the rate is $29,921. The Post-9/11 GI Bill also provides money for housing, books and supplies, and tutors, among other expenses. Those who served on active duty for at least 36 months or meet certain other requirements are eligible for the full GI Bill benefit.

One of the best features is that if you’ve served for at least six years and commit to four more, you can transfer your benefits to your spouse or children. Tom has done that, splitting his benefits so that our two young sons will someday be able to use them for their educational expenses.

3. Retirement security

Military members can use the Thrift Savings Plan, a tax-advantaged retirement plan that’s similar to a 401(k). The TSP has low fees, with the expense ratio on its funds recently ranging from 0.036% to 0.051%. Under the military’s blended retirement system (BRS), which went into effect in 2018, servicemembers get an automatic TSP contribution from the government equaling 1% of their basic pay, plus a matching contribution of up to an additional 4% of pay after you’ve served for two years.

Pensions have become rare in the private sector. But military members who complete at least 20 years of active-duty service are eligible for a lifetime pension, and the payments start when they exit the military. If you retire at the 20-year mark, the government calculates the average of your highest 36 months of basic pay, and under the BRS, you receive a pension equal to 40% of that amount. For each year you serve beyond 20, you get an additional 2%. (Servicemembers who joined before 2018 and did not opt in to the BRS are eligible for a 50% pension when they reach 20 years of service, with 2.5% added on for each year past 20 — but they don’t get government contributions to the TSP.)

4. Low-cost life insurance

Servicemembers’ Group Life Insurance provides coverage at a low rate regardless of the servicemember’s age or health. To get the maximum $500,000 in coverage, servicemembers pay $26 a month in premiums. Spouses can also get coverage of up to $100,000 through Family SGLI; rates vary by age. A spouse between ages 35 and 39 can get $100,000 in coverage for $4.70 a month.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

Related content

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• Thrift Savings Plan Contribution Limits for 2025
• Do U.S. Military Veterans Get Tax Breaks?

Editor's note: This is part four of a four-part series exploring financial fact vs fiction. Each article examines five of the top 20 most common financial myths — from investments to retirement and Social Security to life insurance. Parts one, two and three — This Roth Conversion Myth Could Cost You, Why Your 'Magic Number' Isn't Actually Magical and Why Inflation Is Lower, But Prices Are Not — covered the first 15.

We've come to the fourth and final installment of our deep dive into the top 20 most common financial myths.

Throughout this series, we've examined a wide variety of topics, from stock and bond performance to retirement readiness, life insurance, Social Security, income taxes and more.

Kiplinger's Adviser Intel, formerly known as Building Wealth, is a curated network of trusted financial professionals who share expert insights on wealth building and preservation. Contributors, including fiduciary financial planners, wealth managers, CEOs and attorneys, provide actionable advice about retirement planning, estate planning, tax strategies and more. Experts are invited to contribute and do not pay to be included, so you can trust their advice is honest and valuable.

Here are myths 16-20, along with the facts:

16. Social Security and Medicare are 'entitlements' funded by the government (i.e. taxpayers)

Most people think of an entitlement as something they get for free, regardless of whether they work for a living.

But American workers pay into Social Security and Medicare their entire working lives (if you're self-employed, you're paying twice as much), so these programs aren't freebies.

However, it's important to remember that Social Security isn't an income replacement. Those on the lower end of the spectrum might receive about 65% to 80% of their earned income.

Higher-income earners will get a lot less, as a percentage, since Social Security benefits plateau at $61,000 per year for 2025.

Ultimately, Social Security and Medicare are crucial benefits but should ideally work alongside your other investments (company-sponsored 401(k), individual retirement account and self-directed accounts) to provide you with income in retirement.

17. Since life insurance payouts are income tax-free to my heirs, I won't owe estate taxes on these payouts

When someone with life insurance dies, their beneficiaries receive the policy's face value as a tax-free benefit.

But when their spouse or child prepares the decedent's final tax return, the estate might owe state or federal estate taxes, depending on how large the estate is.

While life insurance comes to you income tax-free, remember there are different types of taxes, and the decedent's estate could still be taxed.

If you're wealthy, you should consider taking extra steps to protect your estate. You can do this by transferring your life insurance policy into an irrevocable life insurance trust (ILIT), in which your beneficiaries, not the decedent, own the trust, so life insurance proceeds are not part of the decedent's taxable estate.

Another similar option for married couples is to open a spousal lifetime asset trust (SLAT), which allows the decedent's spouse to live off the income produced by the trust while the asset itself remains in the SLAT and is exempt from estate tax liabilities.

18. Reverse mortgages are 'bad' and make no financial sense for homeowners

As a financial planner, I reject the notion that any one financial strategy is inherently "good" or "bad." I consider each client's specific situation and recommend a plan that is right for them.

While reverse mortgages have gotten a bad rap for years, they can be an effective tool for a specific type of client: people who are income-poor but asset-rich.

Rules and regulations around reverse mortgages and, specifically, HECMs (home equity conversion mortgages) have been updated to protect against most of the problems incurred by consumers decades ago.

Several years ago, I worked with a retired woman who lived in a fully paid off house in a wealthy neighborhood, but had no income outside of Social Security.

She needed additional income, wanted to stay in her home, was estranged from her children and planned to leave her estate to charity. This could be a perfect scenario for taking out a reverse mortgage.

When you obtain a reverse mortgage, you're converting home equity into an income stream. The bank or mortgage provider determines the maximum size of your loan based on age, interest rate and equity.

Unfortunately, in a high-interest rate environment, you can burn through your equity quickly, so borrowers should think carefully about the potential impact it can have on beneficiaries.

Typically, clients have other assets to sell or borrow against for income, so reverse mortgages aren't something I normally recommend, though they can be very effective when used strategically.

19. Since I raised our children and never paid into Social Security, I won't be eligible for Social Security benefits

If you're a nonworking spouse, you can access up to 50% of your working spouse's Social Security benefit while they are alive, meaning that, for example, a woman whose husband qualifies for $4,000 in benefits will qualify for up to $2,000 of her own benefits.

In a case in which the husband dies first, she would then qualify for the survivor benefit at the higher amount, $4,000.

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Additionally, a divorced spouse can qualify for a portion of their former spouse's benefit if they were married for 10-plus years and haven't subsequently remarried.

Your spousal benefit won't impact your ex-spouse's own benefit; they won't even know you're receiving it.

20. Responsible financial planning dictates that individuals should carry life insurance throughout their lifetimes

People often think they need to carry life insurance throughout their lives, but that's wrong. As a financial planner, I look at life insurance primarily as a replacement for income when someone is in their working years and has others who depend on their salary (e.g., spouse, children).

If a couple has had a successful working life, made money and invested it smartly, there might be no need for life insurance, because there is no income to protect after they retire.

There are other reasons to carry life insurance. Wealthy people who own businesses or real estate often take out life insurance for liquidity at their passing.

For example, I used to work with a farmer in the Midwest who owned 1,000 acres of farmland valued at about $10 million; he had no other assets.

By taking out life insurance, he can provide his family with cash to pay any taxes owed on his estate, avoiding a potential fire sale and allowing his heirs to (potentially) continue farming the family's land.

Beyond estate taxes, some people take out policies for philanthropic pursuits, to leave a legacy or establish a scholarship or foundation, but it's unnecessary to do so from a pure income-replacement standpoint.

Knowledge is power. Now that we've gone through the full list of 20 financial myths, you can set the record straight when a friend or relative makes a simplistic or incorrect statement such as "Social Security is going bankrupt," or "investing in the S&P 500 means you're broadly diversified."

Financial planning is complex and not conducive to black-and-white answers. That's why it's important to speak with a knowledgeable professional who can guide you through the process and devise strategies that are right for you, your family and your unique circumstances.

Related Content

• Eight Biggest Financial Planning Myths: How Many Do You Believe?
• Five Retirement Myths vs the Reality
• Should I Get a Reverse Mortgage? Six Questions to Ask First
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• IRA vs Roth vs 401(k): Which Do You Pick?

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

When most people hear the term "life insurance," they tend to think of the financial support one receives when a loved one passes away.

What often gets overlooked is the value life insurance can create while you're still living.

Whether helping fund a child's education, start a new business or reinforce retirement plans, life insurance has the potential to do far more, thanks to what are known as living benefits.

If this concept is new to you, you're not alone. A recent study from Prudential Financial revealed that while many Americans consider life insurance essential to their financial strategy, few understand the full scope of its living benefits.

Kiplinger's Adviser Intel, formerly known as Building Wealth, is a curated network of trusted financial professionals who share expert insights on wealth building and preservation. Contributors, including fiduciary financial planners, wealth managers, CEOs and attorneys, provide actionable advice about retirement planning, estate planning, tax strategies and more. Experts are invited to contribute and do not pay to be included, so you can trust their advice is honest and valuable.

Notably, nearly 75% of respondents said they were unfamiliar with how life insurance can be used to build generational wealth.

That gap in understanding presents a timely opportunity, especially during Life Insurance Awareness Month, to change perceptions so that life insurance is viewed as an asset that supports long-term financial goals.

What are living benefits?

Living benefits are features built into certain life insurance policies that allow you to access funds or policy value while you're still alive.

In the right circumstances, they can serve as a flexible resource to help navigate major financial decisions or unexpected challenges.

Let's take a closer look at how they work:

Cash-value accumulation. Permanent policies such as variable universal life insurance can gradually build cash value, which can be borrowed against or withdrawn, often functioning like a low-interest loan without the hassle of going to a bank.

Add-on benefits. Life insurance isn't one-size-fits-all, and that's where riders come in. These optional add-ons let you customize your coverage to fit your lifestyle. Whether it's accessing funds early during illness or pausing payments during hardship, riders give you flexibility when it matters most.

Tax advantages. The cash value grows on a tax-deferred basis. In many cases, if you withdraw only what you've paid in premiums, those funds can be generally accessed tax-free.

Wealth transfer. Life insurance can also be used to pass assets on efficiently from one generation to another. With proper planning, it can help reduce tax burdens for your beneficiaries.

Two paths to living benefits

Understanding the types of life insurance is essential to unlocking living benefits:

Permanent life insurance policies, including variable universal life, provide coverage for your entire life, as long as premiums are paid. Over time, they build cash value that you can use for major expenses such as retirement, medical needs, even business investments.

Think of it like buying a home; it's more expensive at the start, but it builds real value over time.

Term life insurance policies offer coverage for a set number of years, often 10, 20 or 30. They're generally more affordable but don't accumulate cash value.

However, many term policies include features such as accelerated death benefits, which allow you to access a portion of the death benefit if you are diagnosed with a serious illness.

In many ways, term life is more like renting; it's cost-effective and simple, but with no equity unless you use it during the coverage period.

Key considerations with living benefits

If you're considering a life insurance policy that includes living benefits, take the time to align the policy with your financial goals and needs.

Here are a few practical ways to evaluate your options:

Start with your goals. Before comparing policies, think about what you want this insurance to do.

• Are you looking for lifelong coverage or just for a specific stage of life?
• Will the living benefits be used for retirement income or unexpected medical costs?

The clearer you are about your goals, the easier it is to choose the right policy.

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Ask about riders. The right rider can make a good policy even more valuable.

For example, Prudential has a rider that allows consumers to access their death benefits early if they're diagnosed with a chronic or terminal illness. It allows individuals to manage real-life challenges with financial confidence.

A long-term care rider can help cover extended care needs later in life.

Understand the costs. Look closely at any fees for accessing the cash value, penalties for early withdrawals and other administrative charges.

A policy that seems affordable upfront might have hidden costs that affect its value over time.

Evaluate flexibility over time. Your financial needs will evolve, and your policy should be able to keep up.

Make sure the policy you choose offers options to adjust premiums, access funds or add coverage as needed.

The role of financial professionals in supporting you

Another recent study by Prudential found that many Americans feel overwhelmed when trying to understand their life insurance policies. Common sentiments include:

• "How do I make sure I don't use up my policy too soon?"
• "What does this mean for the final payout?"
• "Wait, life insurance can help with other expenses?"
• "I get lost in the jargon. One explanation contradicts the next."

A financial adviser can serve as both a guide and educator, helping to demystify these complexities and inform your decisions. Consider asking:

How does the cash value work, and when can it be accessed? Understanding the mechanics and timing of cash value access is critical to long-term planning.

Will using living benefits reduce the death benefit? In some cases, accessing funds now could reduce the amount available to beneficiaries later. In others, it might not.

How does this policy integrate with your broader financial strategy? Life insurance should be an active component of your financial plan, supporting your goals such as preparing for retirement and passing on wealth from one generation to another.

Life insurance is not just about protecting your family after you are gone. When designed and used effectively, life insurance can be an essential part of your financial strategy.

You need to be proactive and make your policy work just as hard for you as you do for your loved ones.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

We talk with Regina McCann Hess, a Certified Financial Planner, president of Forge Wealth Management and author of Super Woman Wealth: How to Become Your Own Financial Hero, about the conversations women need to have with their spouses ahead of the wealth they could inherit.

Q: Within the next two decades, women stand to gain $9 trillion as Baby Boomer men age and pass wealth to their wives. How can spouses have more-open financial conversations to ease this transition, and what are the top things to discuss?

Hess: I'm on a mission to start kitchen-table conversations, because money has always been a taboo topic at the dinner table.

Women need to know where their investments are, in both non-retirement and retirement portfolios. They should discuss how much they are actively contributing to these accounts and whether they have the ability to save more.

They should also review any debt they have. Is there a plan to pay off those loans, and what is the strategy to achieve it?

Another area to cover is life insurance. They should review not only whether they have life insurance, but also whether the beneficiaries and the contingent beneficiaries are up to date on any policy they do have.

Then I would check their estate planning documents. By setting up powers of attorney, you can make sure that someone is legally eligible to make health and financial decisions for you if you become incapacitated.

The beneficiaries on your will may need to be updated as well.

The overall financial plan is important to discuss, too. Have the couple had conversations to see whether today's actions are going to help them reach their goals and to determine whether their money will last throughout retirement, and hopefully beyond?

Q: What key steps can women take to educate themselves and protect their financial well-being?

Hess: Women should be active in meetings with the couple's financial adviser or planner. They should come to those meetings with prepared questions and request that the adviser explain financial concepts without jargon.

Another idea: Listen to financial podcasts, which range from beginner to advanced. I recommend Jill on Money with host Jill Schlesinger, So Money with host Farnoosh Torabi, and my podcast, Women and Wealth.

To protect their wealth, women need to create a strategy for long-term care. Discuss and determine what will happen if you have a health event that leaves you unable to care for yourself.

The plan can include staying in your home, but you must also consider the possibility and expense of moving to an assisted-living facility or nursing home in case your health deteriorates.

Discuss this with your family and determine who, if anyone, will help you.

Q: What are some common mistakes you see women make when they have to manage their wealth on their own after losing a spouse?

Hess: One is failing to update beneficiaries — on their retirement accounts, non-retirement accounts, wills, everything — to someone other than their spouse.

Usually, people choose other family members, such as their siblings or children. Many also add a nonprofit organization as a beneficiary.

Another mistake is not including the next generation in conversations about money and their role in saving, spending, preserving and donating.

You want your children to know what is important to you and how you envision your wealth being shared going forward.

Q: What should women look for in an adviser if they need help managing their wealth?

Hess: They should interview at least three people in person. Look at an adviser's body language:

• Are they making eye contact with you?
• Are they asking you open-ended questions so that you can elaborate on your values, your visions, your fears and what you need to get out of this relationship?

Ask how the adviser is paid. Even if somebody says, "You don't have to pay me a fee," there are fees hidden in whatever they are doing — they may be paid by commission, for example.

If they try to sell you something in that first meeting, that's a big red flag.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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How many times have you seen a TV commercial or received a letter stating that you can’t be turned down for this life insurance?

“Guaranteed issue” or “guaranteed acceptance” whole life insurance doesn’t require a medical examination or answering medical history questions for approval. In many cases, you must only meet the age requirements, usually between 40 and 85. Premiums are fixed, and coverage doesn’t lapse except in cases of premium delinquency.

Because coverage cannot be denied, guaranteed issue policies are ideally suited for individuals with pre-existing conditions or those who have been declined coverage for other types of life insurance. The limited death benefit can cover some end-of-life expenses, such as funeral costs, medical bills or outstanding debts, ensuring that family members aren’t left with those financial burdens. However, these insurance policies have four significant limitations.

1. 'Guaranteed' life insurance comes with higher premiums

While the ads tout low monthly premiums, the policies are actually expensive for the amount of coverage provided — mainly due to the absence of medical underwriting. The insurer assumes more risk and compensates by charging higher premiums.

2. Small death benefits

These policies typically offer minimal death benefits, often ranging between $2,000 and $25,000. This may be sufficient to cover funeral expenses but not significant financial obligations such as mortgage payments or income replacement.

3. Deferral of full death benefit

Beneficiaries usually don’t receive the full death benefit. Instead, they may only receive a return of premiums paid plus interest. Full death benefits typically vest after two or three years following the policy's effective date.

4. No cash value accumulation

With little or no accumulated cash value, you can’t borrow against the policy or build savings over time.

Other options to consider at lower premiums

“Simplified issue” life insurance policies may still require answering some questions about your medical history, but they do not require a comprehensive medical examination. “Guaranteed acceptance term” policies are also available. Be wary, however, of term life insurance policies that may automatically lapse at age 80 and have premiums that may increase in five-year bands.

Note: This item first appeared in Kiplinger Retirement Report, our popular monthly periodical that covers key concerns of affluent older Americans who are retired or preparing for retirement. Subscribe for retirement advice that’s right on the money.

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You’re thinking about buying some life insurance (or, as some affectionately call it, death insurance, since it typically pays on death, not life). Maybe you already have a policy in place and are wondering if it makes sense to keep it.

Here is a list of the top five reasons why you should have life insurance, even if your kids are grown and you’re lucky enough to have paid off your mortgage.

1. To cover your funeral expenses

Since we can accept that you are going to die at some point, and unless something unimaginable occurs, your body will be left. Most folks like to do something with said body. Have a major event where people can come and (hopefully) say great things about you, attend your burial and then eat some food.

The Kiplinger Building Wealth program handpicks financial advisers and business owners from around the world to share retirement, estate planning and tax strategies to preserve and grow your wealth. These experts, who never pay for inclusion on the site, include professional wealth managers, fiduciary financial planners, CPAs and lawyers. Most of them have certifications including CFP®, ChFC®, IAR, AIF®, CDFA® and more, and their stellar records can be checked through the SEC or FINRA.

Maybe you’ve requested that your loved ones sprinkle your ashes at the Pirates of the Caribbean ride at Disneyland. Yes, that happens more often than you would imagine. (It's also illegal, according to California law, unless you obtain written permission from the property owner.)

Regardless, all of these things cost money. For bare-bones funeral expenses — excuse the pun — you could be looking at close to ten grand! Your loved ones receiving your life insurance payout would help cover those costs.

2. To pay off your debts

Most people spend more money than they earn. A sad but true fact. When you pass away, that debt remains, and somebody will be expected to pay off your credit card balances and the personal loan you got from Uncle Arnie. Although Arnie may waive it, you don’t want to count on that.

How nice would it be to know that after you take your last breath, all the companies who lent you money and people who were kind enough to entrust you with their hard-earned buckies will get paid back without burdening anyone?

3. To help support those you leave behind

Unless you’re a freeloader extraordinaire, you and your partner both earn money and contribute to the expenses of the household. We call that a two-income family. Let’s do some simple math. Two incomes mean that each person is bringing in the bacon — maybe the ham — but there is money coming in from both people.

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Take one of them away, and you’re left with a one-income family that still has potentially the same expenses. Your life insurance could ensure that they aren’t booted to the curb by the landlord or the mortgage company when they can afford to pay only half of the rent/mortgage.

4. To settle your tax bill

Yeah, I went there. You know the old saying, Nothing is certain in life except death and taxes. After you die, your final tax bill will come due.

I’m not a CPA — unless CPA stands for Caffeine-Powered Animal. Be that as it may, when the taxman comes to collect, wouldn’t it be nice if your loved ones didn’t have to sell off their stuff to pay taxes that you owe?

Let me help you with that: The answer is yes, that would be very nice. Life insurance provides money to pay those taxes.

5. To leave something charity

Do you care about something in particular? Maybe you go to church or synagogue? Maybe you’d like to support the American Red Cross or a local rescue mission?

How cool would it be to be able to leave a parting gift in the form of a bag of money? Who knows? You may even get your name on a wall as an infamous donor.

Listen, life insurance isn’t about you. It’s about the people you leave behind when you shuffle off this mortal coil. No doubt, there are good uses for your life insurance once you’re gone.

With very little effort, you can choose the right person or organization to receive your life insurance proceeds — and make everyone better for it.

Want to learn more about insurance? Visit KarlSusman.com.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

When you initially applied for life insurance, you probably intended for the coverage to serve as a safety net for your family or a legacy for your beneficiaries. Life insurance's most well-known purpose is to provide a monetary benefit to your heirs upon your death.

However, your life insurance policy can serve you in several ways while you're still alive, too. Whether you're looking to cover unexpected expenses, supplement your income or access funds in a financial pinch, there are options to consider.

We'll discuss those options and their potential consequences. That way, you can decide when leveraging your coverage before death is a wise move for you and your loved ones.

What is cash value in life insurance?

The first three options presented in this article involve tapping the cash value of a permanent life insurance policy (coverage that lasts for your entire lifetime as long as you keep up with premium payments). Therefore, it's helpful for you to understand what cash value is and how it works.

Permanent life insurance policies have two main components: The death benefit and the cash value account. The death benefit, or face value of your policy, is the amount of money your beneficiaries will receive when you die.

Your cash value account contains a portion of the premiums you've paid since obtaining coverage, plus interest paid by your insurer. Over time (often many years), your cash value balance can grow to a significant sum.

You can leave the money alone indefinitely. But if there's cash in the account when you die, the insurance company will absorb it. The funds are not distributed to your heirs. They will only get the death benefit.

You can also choose to tap into it in various ways (discussed below) during your lifetime. Doing so could help you financially in the short term. However, your decision can also reduce your death benefit or put your policy at risk.

And if you need life insurance coverage, use this Bankrate tool to find affordable options fast:

Depending on your policy type, you may be able to access funds, cover expenses or even supplement your retirement income. The following are five smart ways to leverage your life insurance now.

1. Pay your premiums

If you have enough cash value built up, you can use it to pay your premiums, freeing up money in your budget for other purposes. However, you must keep track of your cash value account balance when you do this.

If you deplete your cash value account and don't resume making your scheduled premium payments, your policy could lapse.

2. Take out a loan

You can borrow against your life insurance and use your cash value to cover an expense similar to the way you might use a HELOC or home equity loan. Some retirees take out a cash value loan from their policy to supplement their retirement savings or avoid cashing out other high-performing investments.

This strategy has two benefits: A cash value loan will generally have a lower interest rate than a traditional loan, and you can usually receive loan funds tax-free. However, your heirs will receive a reduced death benefit if you don't repay the debt.

3. Surrender your policy

You can surrender your policy if you no longer need or want your life insurance coverage or can't afford your premiums. Doing so will trigger a withdrawal of your cash value.

Your life insurance will be canceled, so you won't have to make any more premium payments. However, your heirs won't get anything when you die, so you should think carefully before going this route.

4. Use your living benefit rider

The living benefit rider is an optional addendum to your permanent or term life insurance policy, which provides coverage for a specified number of years. If you become terminally ill (typically with a prognosis of a year or less), you can receive a percentage of your death benefit in advance to pay for medical care and related expenses.

You may have to pay a fee to use this rider, and the amount you receive will reduce the payout to your beneficiaries upon your death. However, exercising this option could prevent you and your family from having to liquidate other assets to pay for your treatment.

5. Sell it

If you're a retiree who no longer needs life insurance or you just no longer want to pay your premiums, you can sell your permanent or term life insurance policy. Selling your policy is sometimes referred to as a life settlement or viatical settlement.

A third party buys your coverage, takes over the premium payments and gets the death benefit when you die. You may not get as much as you expect from the transaction because:

• You won't get the full face value of your policy.
• You'll likely pay high broker fees.
• You'll have to pay taxes on the sale proceeds.

Still, if you don't need it anymore, selling it can be a smarter way to get rid of your life insurance than simply canceling it and walking away with nothing.

However, since selling your policy means sacrificing a large percentage of your death benefit and not leaving those funds to your heirs, you should only do this if you know your family know longer needs the financial protection life insurance can provide.

What to do before using your life insurance while you're alive

Here are a few steps you should take before using your life insurance before death:

• Make sure that using your life insurance in advance makes sense. Have you explored alternative solutions? For instance, getting a credit card with a 0% introductory annual percentage rate (APR) could be a better way to cover an expense than borrowing from your policy's cash value.
• Review your coverage details and your insurer's rules. For instance, does your policy have a living benefit rider, and if so, how much of your death benefit can you get ahead of time? What's the interest rate on cash value loans?
• Ask for guidance if necessary. If you need more information or want to explore your options, reach out to your agent, insurer, or other trusted financial professional.

Be smart about tapping life insurance benefits while you're alive

If you take out a loan on your cash value, make sure you pay it back. If the life insurance loan hasn't been fully repaid before you pass, your heirs will get less money. If you're using your cash value to cover your premiums, estimate how many months of payments it will cover and put a reminder on your calendar to resume payments before then. Remember, if you exhaust the funds, your policy could lapse.

Above all, reevaluate your needs with an annual insurance review. If you have plenty of assets to leave to your heirs already or your family is otherwise set up for financial success in the future, paying for a death benefit they don't really need may be a waste of your money.

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• How to Shop for Life Insurance in 3 Easy Steps

Kevin Warsh announced another pause on rate cuts at the Federal Reserve's June meeting on Wednesday, holding federal interest rates to 3.50%-3.75%. As a result, many Americans are figuring out how to best maximize yields on high-yield savings accounts and CDs while rates remain at current levels.

One financial move you might not realize you should make before rates drop any further is to buy whole life insurance.

An insurance policy and savings account wrapped up in one, whole life insurance can do more than provide a safety net for your family if you were to pass away unexpectedly. It can also play a key role in protecting your own financial future. Now is one of the best times to get a policy, as insurance companies tend to offer lower premiums or better cash value growth on whole life insurance policies when interest rates are higher.

That means shopping for a whole life insurance policy now could be your chance to lock in a low premium for the life of the policy or lock in an above-average fixed interest rate to provide guaranteed growth of your cash value.

How federal interest rates affect whole life insurance

For participating whole life insurance policies — where the life insurance company pays you a share of its profits in the form of dividends — the current higher federal interest rates can translate to higher dividends from the company's underlying investments, like higher bond yields.

For non-participating whole life insurance policies — where the company doesn't pay dividends, but offers you a guaranteed interest rate — the impact depends on how your policy works.

If you have a variable (or non-guaranteed) interest rate, for example, your earnings tend to go up when the company's investments go up because the insurer can afford to pay higher rates. And if you get a whole life insurance policy with a fixed rate now, you may be able to lock in today's above-average rates for the life of the policy.

Another indirect benefit of the current market is the chance to lock in a lower premium. When costs rise, consumers are less likely to buy life insurance, and existing policyholders may even surrender their policies because they no longer want to pay the premium. As a result, insurance companies are more likely to offer lower premiums and other incentives to win you over.

If you opt for a policy with a fixed premium, you can lock in that cheaper premium for life. In other words, you can enjoy potentially lower rates to get the same portfolio-hedging and retirement planning perks that a whole life policy offers in any economy.

Just make sure to shop around and factor in the benefits and growth potential as well as the premium when comparing different whole life insurance policies.

The benefits of whole life insurance as a low-risk investment

While whole life insurance policies are typically the most expensive type of life insurance, that higher premium can be worth the price for investors who want a lower-risk place to put their money during market volatility.

That's because the cash value of your policy is guaranteed. Instead of fluctuating, like your stock portfolio does, cash value in whole life insurance works more like a savings account. Any interest you've earned so far is yours once it's credited to your account.

Those earnings are also tax-deferred. Like a traditional IRA, you don't pay taxes on your earnings until you start making withdrawals. Even then, you only pay taxes once you've withdrawn more than you initially paid in via your premiums.

These tax benefits also make it a useful addition to your larger retirement portfolio. If you've already maxed out your 401(k) and hit your IRA contribution limit for the year, whole life insurance gives you another tax-deferred place to save up for retirement.

Meanwhile, in an emergency, borrowing against your life insurance is typically much more cost-effective than other retirement accounts. While taking out a loan against the cash value of your policy does carry an interest rate, it's often cheaper than the penalties that come with making early withdrawals from your IRA or 401(k).

Plus, as a loan rather than a withdrawal, the actual cash value of your policy is untouched, so you can continue earning interest on your full cash value while you pay back your loan.

Whole life insurance isn't a substitute for other investments

Whole life insurance has plenty of benefits that make it a valuable asset for risk-averse investors or retirement portfolios. However, it is still one of the most expensive types of life insurance you can buy. And the returns are typically lower than the returns you'd get from other investments.

So, you still want a healthy mix of assets in your portfolio to make sure you're getting the maximum growth potential for your level of risk tolerance.

But when used as a low-risk hedge against market volatility or another way to build tax-deferred wealth for retirement, whole life insurance can be a valuable asset, and right now happens to be one of the better times to get a new policy.

If you're not sure whether or not a whole life insurance policy is the right fit for your portfolio, talk to a financial adviser about your financial goals and concerns to figure out the best strategy for you.

Related content

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• What Is Term Life Insurance?
• 10 Things You Should Know About Life Insurance

A life insurance policy can provide your family with financial support after you die. Life insurance can help your beneficiaries with funeral costs, mortgage payments and other expenses.

Term life insurance, the most common type of life insurance policy, also tends to be one of the least expensive options.

If you want peace of mind knowing your family will have financial support if you pass, a term life policy is one potential solution, but it's important to make sure you understand how the policy works and whether it's the right move for your family.

What is term life insurance?

Term life insurance provides coverage during a specific period of time, such as 10, 20 or 30 years. If you pass away during that term and you're up to date on your policy payments, your insurance will pay a death benefit to your beneficiaries.

If you pass away outside of that term and you haven't renewed or extended your coverage, your beneficiaries won't receive a benefit.

How does term life insurance work?

When you buy a term life insurance policy, you're able to choose your term length. Most terms are between 10 and 30 years, but you'll usually pay higher premiums for a longer term.

You can also choose your death benefit amount. Determining how much life insurance you need is a personal choice and you'll need to consider factors like any savings your family has and the types of expenses your beneficiaries might face after your death.

Unlike other types of life insurance, like whole life insurance, term life insurance doesn't have a cash value component, so you're not able to borrow from or withdraw your benefit.

If you die during the policy term, your life insurance beneficiaries will receive a benefit. They can use that benefit for expenses, including funeral costs, daily living expenses, mortgage payments, future retirement needs, education expenses and more.

You can choose one or multiple beneficiaries, and while it's common for them to be family, beneficiaries can also be friends, a trust or a charity.

If you're still alive at the end of the policy term, your policy will end without a benefit being paid out. In some cases, you may have the option to convert the term policy into a permanent policy at the term end.

Other policies may give you the option to renew the policy, but you'll usually have to complete a medical exam and will pay higher premiums on the new renewed policy.

Alternatively, some life insurance policies include a return of premium feature that means you can have some or all of your premiums returned to you if you outlive the term. These policies tend to have much more expensive premiums than policies that don't include a return of premium feature.

What types of term life insurance exist?

There are several different types of term life insurance policies. All of these policies provide a specified death benefit if you die during the policy term, but there are some key differences between how they work.

• Level term: Level term policies, which are also called level premium policies, are the most common type of term life insurance. With these policies, your premium remains the same during the entire term, and your death benefit is a fixed amount.
• Decreasing term: Decreasing term policies feature a death benefit that gradually declines each year, but the premium stays the same during the entire policy's term.
• Increasing term: An increasing term policy features a benefit that increases over the policy's term, though the premium stays the same.
• Yearly renewable term: Yearly renewable term policies feature a one-year term, and you can renew the policy each year. However, the premiums will increase as you age, so these policies can quickly get expensive.  

How much does term life insurance cost?

Since term life insurance provides a benefit only during a limited amount of time, it tends to be one of the least expensive types of life insurance. This type of insurance can be ideal if you're looking for coverage at a low cost.

Many factors will affect your term life insurance policy cost, including the amount of coverage and duration of the term that you choose. Your gender plays a role, and males will have slightly higher premiums than females.

Your health also affects your rates. When you buy a policy, you'll need to answer some questions about your health, and you may be required to complete a medical exam.

If you're older, you'll pay higher premiums, and health issues, unhealthy habits like nicotine and tobacco use, medications you're taking and even your family history can affect your rates.

When does it make sense to choose term life insurance?  

Term life insurance has many advantages, but it also has some drawbacks.

Choosing a term life insurance policy makes sense in several situations:

• You need the most affordable coverage. A term life policy is usually more affordable than any sort of permanent life insurance, especially if you're young and healthy.
• You need temporary coverage. If your family is paying off debt or you want to have life insurance coverage until your children are grown, a 20-year term policy can give you that temporary coverage until your family is more financially stable.
• You can't afford permanent life insurance yet. A term life insurance policy can be a more affordable way to start your coverage, like when you're early on in your career and will have a higher income when the policy ends. If you choose a policy that's convertible, you can convert it into a permanent policy at the end of the term.

What other types of life insurance are available?

There are many advantages to term life insurance, but it's a temporary policy, and you need to make sure that it's right for your budget and goals.

There are several common types of permanent life insurance policies available, too.

• Whole life insurance policies provide coverage during your entire life, as long as you make your payments. These types of policies build cash value as you pay into them, and you can borrow against or withdraw from that cash value if needed, such as if you need to make an emergency home repair.
• Universal life insurance works similarly to a whole life policy, but it offers a bit more flexibility. With a universal life insurance policy, you can make adjustments to your premiums and death benefit.
• Variable life insurance features an investment component, so you can invest the policy's cash value in stocks and bonds. That investment component can help the benefit to grow, but if your investments don't do well, you could lose money.

The premiums for these types of policies vary, so it's helpful to get a quote for the type of policies you're interested in.

Think carefully about your personal financial situation, your health, your family's expenses and the type of financial support you want a policy to provide when deciding which option is best for you.

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• Do You Need Life Insurance When You're Young?

You have a family to protect and a legacy to leave, and you know a life insurance policy can help you do that. But with so many coverage options, it can be hard to choose.

There are two main types of life insurance: Term life insurance and whole life insurance. Both options offer a tax-free death benefit to your heirs, but beyond that, they function differently.

Let's explore whole life insurance, including what it is, how it works, how much it costs and how it compares to term life coverage. That way, you can decide which policy might be right for you.

What is whole life insurance?

Whole life insurance is a form of permanent life insurance, which means the coverage remains in force until you die, as long as you pay your premiums.

The death benefit, sometimes referred to as the face value of the policy, gets paid to your life insurance beneficiaries once your heirs file a claim and provide the insurer with a copy of your death certificate.

Generally, your beneficiaries will receive the funds in a lump sum. However, your insurance company might be willing to pay in installments or through an annuity.

On the other hand, term life insurance provides protection for a set period – often 10, 20 or 30 years. If you die within the term, your heirs will receive the death benefit, but if you die after the term ends, your heirs get nothing.

The cash value of whole life insurance

In addition to a death benefit, your whole life policy builds cash value (albeit slowly). This gives you options to use your life insurance while you're still alive. You can borrow from or withdraw it similar to the way you'd borrow from a 401(k).

You might also have the option to use that cash value to cover your premiums or purchase more coverage.

When you pay your premium, the money gets split between your insurance coverage, your cash value account and the insurer's expenses.

Your cash value will grow faster when you're younger because your actual insurance costs less since you're a lower risk. However, it can still take many years to accumulate a meaningful sum.

Your insurance company will pay a fixed interest rate on your cash value balance, helping it grow. Generally, the rate will be lower than you could get investing the money in the stock market, but higher than you could get stashing the funds in a traditional savings account.

Tapping into your cash value might help you if you're in a financial pinch, but doing so can have consequences.

For instance, taking a partial withdrawal or not repaying a loan can result in a lower death benefit for your heirs. If you use your cash value to cover your premiums and the money runs out, you must start making payments again, or your policy will lapse.

In addition, your heirs will only receive your policy's death benefit. Your insurance company will retain any cash value in your account after your passing.

Important note: While whole life insurance death benefits and cash value contribution withdrawals or loans are generally tax-free, any investment gains in your cash value account will likely be taxable when you take out those funds. That makes it all the more important to plan for using up your cash value in retirement.

Other features of whole life insurance

Your whole life policy might include additional benefits and features, such as dividend payments or riders. If your insurer issues participating policies, you're eligible to receive dividends.

If your insurer issues non-participating policies, you won't receive any dividends. Depending on your policy's rules, you might be able to apply your dividends to your cash value account or use them to buy more coverage.

The riders (addendums to your policy) you choose can enhance your financial plan. One popular policy addition is the living benefit rider. Under this rider, you can get a portion of your death benefit in advance if you're diagnosed with a terminal illness (generally with a prognosis of a year or less). You can use the money to cover your medical care.

Another popular rider is the waiver of premium rider. If you become disabled and unable to pay for your policy, your insurance company might allow your coverage to remain in effect as though your payments were made on schedule.

Whole life insurance premiums

Most people pay their whole life insurance premiums monthly. However, your insurance company might allow you to pay for your policy in a lump sum (very high upfront cost) or over a limited number of installments.

Your insurance company might also offer a modified premium schedule, where required payments start low and increase after a set number of years.

Whole life insurance costs

Since a whole life insurance policy lasts until you die and allows you to build and access cash value, it costs significantly more than a term life policy featuring the same death benefit.

These are the current average annual premiums for $500,000 in whole life coverage on non-smoking insureds, according to NerdWallet:

• 20-year-old female: $2,260
• 40-year-old female: $4,968
• 20-year-old male: $2,548
• 40-year-old male: $5,525

For comparison, here are the average annual premiums for $500,000 in term life coverage for non-smoking insureds in good health over a 20-year term:

• 20-year-old female: $211
• 40-year-old female: $340
• 20-year-old male: $243
• 40-year-old male: $410

Term life coverage costs a fraction of whole life coverage.

Use the tool below, in partnership with Bankrate, to explore some of today's best life insurance offerings:

Pros and cons of whole life insurance

Whole life insurance has pros and cons, such as:

Pros

• Coverage lasts your entire life.
• Your beneficiaries will get a payout upon your death.
• Your policy builds cash value that you can use in several ways.
• Your policy might earn dividends.
• Optional riders can enhance your policy's value.

Cons

• Coverage can be very expensive.
• Your cash value account balance can take many years to build.
• Tapping into your cash value can put your policy at risk.

Is whole life insurance right for you?

When you're trying to determine which type of life insurance is right for you, ask yourself a few questions:

• Why do I want this coverage? If you just want to protect your family while your kids are still in school, a less-expensive term life insurance policy might be your best bet. However, if you want to leave your heirs a financial gift no matter how long you live, a whole life insurance policy may be worth it.
• Can I afford the premiums? The thought of building up cash value is nice. But as you can see above, the price difference between term and whole life insurance is substantial. Before committing to substantially higher premiums, make sure your budget can comfortably accommodate the monthly spend.
• Are there better alternatives? Instead of whole life, some financial experts recommend obtaining a term life insurance policy and investing the difference in premiums to get protection and build wealth for future generations. However, this strategy may not work for you.

If you're unsure what kind of life insurance you need, consider speaking with an insurance agent or financial adviser for personalized guidance.

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• How to Figure Out How Much Life Insurance You Need
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If you're one of the 51% of Americans with life insurance coverage, you might consider borrowing against your policy if you need quick access to cash. If you're eligible, a life insurance policy loan might be right for you.

​Borrowing against your life insurance policy differs significantly from traditional unsecured loans. Typically, unsecured loans require a credit check to assess eligibility and determine interest rates. In contrast, life insurance policy loans do not involve a credit check, as the policy's cash value serves as collateral.

Borrowing against your life insurance doesn't require a credit check or a strict repayment schedule, making it a fast and flexible option. If you want to avoid tying up other assets or waiting for approval, you can access funds quickly. Plus, these loans often come with lower interest rates than unsecured loans. Let's break down the process.

How to get a life insurance policy loan

There are different types of life insurance, so you'll need to ensure your policy is eligible before borrowing against it. You can only borrow from permanent life insurance policies, like whole or universal life.

You can’t take out a life insurance policy loan if you have term life insurance. That’s because term life insurance doesn’t have a cash value component like permanent policies.

Remember, you’re borrowing something you eventually have to repay and that has a cash value. Because term policies don’t hold the same value, there’s no option to borrow loans from these types of insurance policies.

You can request a loan from your life insurance provider without providing a reason for why you need your funds.

But keep in mind your insurer sets the limit on how much you can borrow, which is usually no more than 90% of the policy’s cash value. While that sounds like a lot, it could take years for your account to have that much value to borrow the full amount.

​It’s important to note, that if a life insurance policy lapses due to an unpaid loan exceeding its cash value, the policyholder may face tax consequences.

The amount by which the loan surpasses the total premiums paid (known as the cost basis) is considered taxable income. This means that without receiving any actual cash upon the policy's lapse, the policyholder could incur a tax liability based on the policy's gains.

Use the tool below, powered by Bankrate, to explore and compare some of today's top life insurance offers:

Pros and cons of borrowing from your life insurance

Like every loan, there are pros and cons to borrowing against your life insurance policy. It might be worth it if you need to borrow money, but it’s not without its risks.

Pros

• No credit check or approval process. Request the loan from your insurance provider, and as long as your policy has enough cash value, you’ll receive your funds.
• Casual repayment. Often the timeline for repaying your loan is flexible. Policyholders are expected to pay back the interest and principal in their lifetime. If you don’t make payments on your loan, you won’t face a drop in credit score or repossession of your assets.
• No taxes. In most cases, life insurance policy loans don’t get taxed as income. You wouldn't owe income tax when you borrow from your life insurance policy. However, if the policy lapses or is classified as a Modified Endowment Contract (MEC), taxes may apply.

Cons

• There's still interest. Like any loan, you’re still on the hook for interest. While you don’t have any structured repayment plan, the longer you go without paying back your loan, the more interest will eat away at your policy’s cash value.
• Decrease in benefits. If you die before your loan gets repaid, the amount your beneficiaries get goes down. Your loan and any interest get repaid to your insurer before the death benefit payout.
• You could lose coverage. If you go long without paying back your loan, your cash value may get low enough that you’ll owe more than the plan is worth. There’s a chance you could face fines or fees from your insurance provider or your policy could be terminated.

Borrowing against life insurance is a useful tool when done carefully

If you need money now and have an eligible policy, borrowing money from your life insurance might be a good idea. You’ll get the cash relatively quickly without going through the normal hoops of a traditional loan. You get to repay your loan on your own time, so you don’t risk your credit score dropping if you can’t afford to make payments on time.

Given the complexities and potential risks, consulting with a financial adviser is recommended if you’re having trouble deciding the best path forward. They can provide personalized guidance based on your financial situation and goals, helping you make an informed decision. Borrowing from your life insurance isn’t risk-free. Consider the long-term impacts of borrowing a life insurance policy loan to see if it’s the right choice for you.

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The recent devastating fires in Southern California have highlighted the critical role of insurance in protecting our lives and financial well-being. Insurance isn't just about safeguarding your home; it's a comprehensive tool that can replace lost income due to disability, provide crucial support while traveling and help manage the significant costs of long-term care. In short, insurance acts as a financial safety net, mitigating life's uncertainties.

As a financial planner, I regularly review my clients' financial plans, updating their current financial information as their lives unfold. A critical component of these regular reviews is assessing their needs not only for life insurance but also for other vital protection essential to their financial well-being, such as auto, home, disability and long-term care insurance. It's crucial to remember that our insurance needs evolve as our lives change. Whether we’re getting married, having children or approaching retirement, regularly reviewing the types and amounts of coverage is essential for a comprehensive financial plan.

Insurance offers several key benefits:

Asset protection

Insurance protects your assets against financial losses from unforeseen events such as accidents, illnesses and natural disasters. It minimizes the risk of substantial out-of-pocket expenses and can replace lost income while offering a layer of security that allows you to manage financial uncertainties with confidence.

Cost-effective risk management

While insurance premiums represent an added expense, they are a relatively small price to pay compared to the potentially devastating financial impact of a major loss. Paying regular premiums can save you from large, unexpected expenses. Insurance is a proactive approach to risk management and is crucial to maintaining your financial health.

Enhanced financial security

Beyond safeguarding your assets, insurance can provide financial security that extends beyond your current savings. For example, life insurance can offer a significant payout to beneficiaries, creating a financial safety net for loved ones. This is especially important for young families with dependents.

Bridging the gap

Long-term care costs can be exorbitant, and government assistance programs often provide limited or no coverage. Long-term care insurance can help bridge this gap, protecting your retirement savings and ensuring access to necessary care without financially burdening your family. With a long-term care plan in place, you can enjoy peace of mind knowing that your future healthcare needs are adequately covered.

Building a financial legacy

By protecting your assets and using life insurance benefits to supplement your estate, insurance can be a powerful way to extend your impact beyond your lifetime. It can help you provide for loved ones and future generations. Your legacy could include providing educational opportunities while supporting causes that are important to you and can make a lasting impact.

Unfortunately, many people think about insurance only when a premium payment is due. However, insurance is a vital tool that can facilitate a quicker and smoother recovery from a wide range of life events. It provides peace of mind, knowing that you and your family can weather unexpected challenges without facing financial ruin. Review your situation with a financial planner to assess your specific insurance needs and ensure you have the right coverage to protect your future.

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The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

Financially successful people often focus on growing their wealth and legacy, using complex and diversified assets to do so.

Ideally, the result is an estate that can provide for future generations. At death, they often leave a mix of illiquid and liquid investments, real estate, a multitude of accounts and digital clutter that the heirs have to untangle.

People in their retirement years should consider streamlining their assets. A simplified estate strategy will expedite the division and settlement of the estate, minimize audit risk and reduce costs.

1. Consider your tangible assets

Do you really need multiple homes? Or are some underutilized and worth selling to create cash flow for other priorities?

Retirees often assume their children will want to keep a vacation home, but after bringing the kids into the conversation, the parents realize they have no interest in co-owning and maintaining it.

By selling the home during their lifetime, they avoid burdening their heirs with an unwanted asset they need to clean out and sell. Ensure the properties you keep are titled properly in a trust to avoid a lengthy, costly probate process.

2. Sort through your physical possessions

Clean out your home and have conversations with your heirs about what they want to keep. Donate the things no one wants and take the tax benefit while supporting causes you are passionate about.

This will not only reduce the burden on your family when you're gone, but it can also prevent conflict about who gets what later on.

If you have collectibles, artwork and other unique valuables, leave detailed instructions and valuations and identify potential buyers if they aren't going to an heir.

Someone with an extensive art collection may assume it is valuable only to learn that much of it has little resale demand.

On the flip side, one might be pleasantly surprised by the worth of their collections, but isn’t sure how to manage them.

Without proper documentation and a clear plan, heirs can be left scrambling to appraise and sell assets.

3. Look at your intangible assets

• Consolidate investments and financial accounts
• Close smaller bank accounts
• Pay off or collect outstanding debts and loans to family and trusts
• Reduce or stop investing in illiquid and long-term investments. Evaluate whether private equity and other hard-to-sell assets make sense. These holdings can be difficult to manage, transfer and value, creating a hassle for your estate. The unpredictable nature of capital calls can also create liquidity stress. Someone heavily invested in private equity faces repeated capital calls, possibly at inopportune times. For retirees, dealing with these obligations can be stressful, and for heirs, they can be even more challenging. Instead, consider gifting these illiquid assets to heirs or charity during life, which can reduce the estate tax burden and eliminate an administrative headache down the road.

4. Consolidate your team of advisers

If you work with multiple money managers, consider consolidating with advisers who have a succession plan to support the next generation. Involve your children or grandchildren in those financial discussions and introduce them to your trusted advisers.

5. Review life insurance policies

Update life insurance policies to align with your current circumstances and the needs of your beneficiaries.

One tax-efficient way to simplify your assets is private placement life insurance (PPLI), which provides immediate liquidity when you pass. Unlike traditional life insurance, PPLI allows high-net-worth individuals to integrate investment strategies within a tax-efficient insurance structure, offering both estate planning and wealth management benefits.

The policy’s cash value grows tax-free, and upon death, the proceeds are paid out to beneficiaries without the burden of income taxes.

Because PPLI is held within an insurance wrapper, it can also shield investments from capital gains tax and estate taxes, further preserving wealth for heirs.

Additionally, PPLI policies can be customized to include alternative investments and private equity, helping to streamline complex holdings into a single, structured vehicle.

6. Organize your digital life

Reduce your online clutter and avoid potential security risks by canceling unused subscriptions and accounts. Then, implement a digital estate plan, listing your remaining online accounts (banking, email, etc.), passwords and other necessary access information.

Designate someone to manage your digital assets when you pass to ensure the rest of your accounts are closed, data is preserved or deleted according to your wishes and digital property is appropriately transferred.

No one likes acknowledging mortality, but taking the time to downsize, consolidate and organize your assets will lessen the burden on your loved ones during a stressful time of grief.

Streamlining your estate plan also ensures your life's work and wealth are transferred efficiently, according to your wishes and with little family conflict.

Think of it as one of the gifts you leave behind: peace of mind for you and your loved ones, leaving a lasting legacy that reflects your values and intentions.

Related Content

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• How to Organize Your Financial Paperwork for Your Heirs
• Worried Your Heirs Will Blow Their Inheritance? Make a Plan
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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Estate planning is a cornerstone of financial security, far more comprehensive than drafting a will. It involves strategies to minimize taxes, streamline asset transfers and protect wealth for future generations. Whether you’re setting up trusts, exploring life insurance options or adapting plans to market conditions, estate and legacy planning equips you to confidently navigate retirement’s challenges.

Here are some tools and strategies to keep in mind in your own estate and legacy planning.

Trusts: Shields for your assets

Trusts are among the most effective tools in estate planning, offering protection during your lifetime and beyond. A critical aspect to consider is the five-year look-back period, which requires trusts to be funded at least five years before they can shield assets from long-term care costs.

For instance, if you establish a trust at age 70 and need long-term care at age 73, assets within the trust could still be accessible to creditors. By funding the trust five years earlier, those assets become safeguarded, ensuring they remain intact for your heirs. Timing is crucial in estate planning, and starting early provides the flexibility to address unforeseen needs.

Life insurance: More than a safety net

Life insurance is a versatile tool in estate planning, particularly for mitigating estate taxes. With the 2025 federal estate tax exemption at $13.99 million per individual, estates exceeding this threshold are taxed at 40%. However, this exemption is set to sunset in 2026, reducing the threshold to $5.6 million per person (about $7 million when adjusted for inflation).

For example, an estate worth $15 million today could grow to $20 million by 2026, leaving a $7 million tax liability for heirs. A life insurance policy can offset this burden, providing a tax-free legacy.

Modern insurance strategies

For high-net-worth individuals, innovative life insurance strategies can further enhance estate plans:

• Collateralized life insurance. Leverage existing assets to pay premiums, minimizing out-of-pocket costs.
• Hybrid policies. Combine life insurance with long-term care benefits, ensuring value whether the policy is used during your lifetime or passed on to heirs.

These options make life insurance a dynamic component of estate planning, offering both protection and growth.

Updating beneficiaries

One simple yet often-overlooked aspect of estate planning is maintaining up-to-date beneficiary designations for all aspects of your estate plan, from trusts to insurance policies. Life changes, like divorce, remarriage or the birth of grandchildren, can make previously selected beneficiaries obsolete.

Regularly reviewing and updating these designations ensures your assets are distributed according to your current wishes, avoiding unnecessary complications.

Adapting plans to changing conditions

Retirement planning doesn’t stop at implementation — it requires ongoing adjustments. Market conditions, tax laws and personal circumstances change over time, making flexibility essential.

Regular reviews of your estate plan ensure it remains aligned with your goals. Your advisers should address questions like:

• Are your income strategies resilient to market downturns?
• Have tax planning opportunities been maximized?
• Do your estate and legacy plans reflect current family dynamics?

For example, clients who prepared for the 2022 market correction through strategic reallocations avoided significant losses. Proactively adjusting plans to account for potential risks ensures long-term stability.

Building strong adviser relationships

A critical yet underappreciated aspect of retirement planning is the relationship with your financial adviser. It’s not enough for an adviser to offer a strong initial plan — they must provide ongoing guidance and support.

Frequent communication is key. Advisers who meet with clients only once a year to review portfolio performance miss the opportunity to address broader needs, like tax efficiency, estate planning and income strategies.

A robust advisory process might include quarterly meetings in the early years of retirement, gradually reducing frequency as the relationship and plan mature.

Additionally, consider your adviser’s stage of life. If your adviser is nearing retirement themselves, ask about their succession plan. Will their team provide consistent service, or will you need to transition to a new advisor? Ensuring continuity is vital for long-term planning success.

Strategies for estate and legacy resilience

Adapting to challenges isn’t just about having a plan — it’s about having the right strategies:

• Income planning for downturns. Create a diversified income plan with safe assets like annuities and bonds to withstand market corrections.
• Tax-efficient legacy strategies. Utilize tools like Roth conversions or trusts to minimize tax burdens for heirs.
• Innovative investment approaches. Work with advisers who remain engaged in finding opportunities to enhance your portfolio.

These strategies build resilience into your financial plan, ensuring it evolves alongside your needs.

To ensure your plan is robust and forward-thinking, consider these questions:

• Have you established a trust and funded it within the required timeframe?
• Are your beneficiaries current and reflective of your wishes?
• Does your adviser regularly review your plan to address changes in your circumstances or the market?
• Are you leveraging innovative tools like hybrid life insurance policies or collateralized strategies?

The bottom line

Estate planning and legacy planning are your tools to help create a secure future for you and your loved ones. By starting early, maintaining flexibility and working with a proactive adviser, you can protect your assets, adapt to changing conditions and leave a lasting legacy that reflects your values. With the right strategies, you can confidently navigate the challenges of retirement and beyond.

Want more guidance on retirement savings? Sign up for Kiplinger's six-week series, Invest for Retirement.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

As a financial adviser, I’ve seen firsthand how challenging it can be for widows to navigate their financial landscape after losing a spouse. The grief of such a loss is overwhelming, and the added burden of managing unfamiliar financial decisions often compounds the stress. However, 2025 can be a year of healing and empowerment. By adopting the right strategies and taking actionable steps, widows can regain control over their finances and build a stable, secure future.

Here are five key goals to consider:

1. Create or update your will

One of the most loving acts you can take for your family is ensuring your estate plans are up to date. A will is more than just a legal document; it’s a love letter to your family. A thoughtful and clearly laid out estate plan will protect your legacy and make sure that your loved ones are taken care of. Even more, you can name the causes and charities that are most important to you to pay your wealth forward and help others for many years after you pass.

The first step is to take stock of all your assets, such as cash and investment accounts, retirement assets, real estate, life insurance and more. Many individuals forget to include important sentimental belongings, which may or may not have value but could cause conflict if not addressed.

Once you have outlined all of your assets, be sure to choose a trustworthy executor to oversee your wishes. An executor is the guardian of your estate who ensures that any liabilities and taxes are paid, and all assets are distributed to those who you care about.

The good news is that you do not need to do this work alone. Enlist the help of an estate attorney to make the process smooth and ensure your plans are legally sound.

2. Review beneficiary designations

Beneficiary designations on some accounts, such as retirement accounts like 401(k)s and IRAs, annuities and life insurance policies, override your will. What this means is that whoever you name as a beneficiary on any of these accounts will receive your assets regardless of what your will says. This is because financial companies must honor the contract established through the beneficiary form, regardless of the will's instructions.

Big no-no’s include listing a minor, ex-spouse or deceased person as a beneficiary. You will not want to leave assets directly to someone who might have poor financial habits, is incapacitated or is in a legal battle with creditors. Talk to an estate planning attorney about different types of trusts that could help your loved ones but still protect the funds.

Be sure to review all of your beneficiaries to ensure they reflect your current intentions, to avoid legal disputes or unintended allocations. Don’t forget to name contingent beneficiaries as a backup. If you do not have a contingent beneficiary listed and your primary beneficiary has passed away, the assets go to probate and are distributed by the court, causing legal fees, headaches and significant delays.

For complex scenarios, consulting a financial adviser can help you navigate these choices effectively.

3. Revisit your budget

Widows often face a significant drop in income. According to the Journal of the Economics of Ageing, a woman’s income drops by 22% in the first two years after losing a spouse. If the primary income source is their partner’s Social Security income or salary, this percentage can be even higher.

Understanding your cash flow is important, especially for widows whose expenses have most likely changed after the death of their spouse. We recommend crafting a sustainable budget using the 50/30/20 rule — 50% for needs, 30% for wants and 20% for savings or debt repayment — which can provide structure and clarity.

Track your spending through budgeting tools like GoodBudget or YNAB to maintain control of your spending and identify areas for adjustment. This approach ensures you’re meeting your current needs while also planning for the future.

4. Invest wisely

Adjusting your investment portfolio to align with your new goals and risk tolerance is essential. The financial landscape that you shared with your partner has changed significantly, and the investment portfolio that was right for the two of you, as a couple, most likely needs to be tailored to your specific financial needs and goals.

You will want to make sure to diversify your investments and possibly minimize risks or explore income-generating options like dividend stocks or bonds if you need to generate additional income.

If you’re unsure of your next steps, seek guidance from a fee-only, fiduciary financial planner who understands your unique situation. Staying informed and rebalancing your portfolio on an ongoing basis are key.

With attention, information and care you can ensure your investment portfolio supports both your immediate needs and your future goals, empowering you to move forward with confidence and financial security.

5. Seek professional guidance

Navigating finances alone can feel daunting. A trusted financial adviser can provide tailored advice, helping you simplify decisions and create a road map for financial security. Studies consistently show that working with a financial adviser can significantly improve financial outcomes for all investors, especially widows as many may not have significant investment knowledge or experience.

According to studies cited by Investopedia, individuals who work with a financial adviser may have higher net portfolio returns over time compared to investors who go it alone.

Using best practices such as the appropriate asset allocation, tax-efficient investment strategies and portfolio rebalancing all add to this higher investment growth. In addition, your adviser will help you stay the course or sell when appropriate, helping you sidestep making the big mistake of selling during a market drop or buying in when assets’ values are inflated.

Final thoughts

The journey toward financial stability is deeply personal and different for everyone, based on their individual circumstances, goals and emotions. What is true for all widows is that moving forward financially on your own requires patience with yourself and grace, and is best done by breaking these larger financial actions into smaller steps.

Whether it is revisiting your estate planning, reviewing your budget or reassessing your investments, create a calendar to tackle one of these strategies each quarter in 2025. By taking small, intentional steps, widows can move forward with confidence and clarity. The opening months of a new year present an opportunity to rebuild, find empowerment and create a secure future.

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• Social Security Strategies to Help Widows Replace Lost Income
• Should I Hire an Estate Planning Attorney Now That I Am a Widow?

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

As of the second quarter of 2024, Americans had $40 trillion in pre-tax retirement accounts, such as 401(k) plans, 403(b) plans and IRAs, according to the Investment Company Institute. These accounts are fully taxable at ordinary income tax rates to either the owner or the inheritor of these accounts.

Under current law, once a pre-tax account owner is age 73, they’re required to begin taking required minimum distributions (RMDs) for life or until the account is depleted. As a financial adviser since 1996, I’ve typically seen one of two scenarios unfold: Some individuals withdraw funds, pay their taxes and spend the money. Others invest the withdrawn funds in another tax-deferred or taxable account, which either increases their own taxes or defers additional taxes for their heirs. I refer to this as The Tax-Deferred Disconnect.

For those who don’t need the income, there are strategies and techniques available to leverage the required minimum distribution to offset the tax burden on these accounts. Today, I’m writing about one such strategy.

Become informed

Let’s review a hypothetical example:

George, age 65, has a $500,000 IRA and does not need to withdraw or spend these funds to support his family’s lifestyle. His wife, Gayle, is 64, and they have two children.

At age 73, George begins taking his RMDs and pays his taxes on those distributions each year. At age 80, George passes away, and Gayle, now 79, inherits the IRA. Assuming modest annual growth and continued minimum withdrawals, the account value should grow while Gayle owns it.

At age 90, Gayle passes away, and the children inherit the IRA, which has grown, hypothetically let’s say, to $600,000. Each of the two children inherits $300,000, which they could either take as a lump sum or withdraw over a maximum of 10 years, paying taxes on each withdrawal. If the children have had successful careers and are in higher tax brackets already, these distributions could push their taxable income higher and possibly make everything else on their tax return more expensive.

Think differently

If George and Gayle won’t need the income, they could consider alternative strategies that avoid passing a large tax burden to their children. For example, they could donate the IRA to a favorite charity at death and replace the taxable IRA with a tax-free life insurance policy of equal value for their children to inherit. 501(c)(3) non-profit corporations are tax-exempt and they would receive the IRA funds tax-free. Here’s how it could work: Withdraw a small amount annually from the IRA, pay the taxes, and use the after-tax funds to pay the premiums on a $600,000 life insurance policy. Life insurance benefits are typically tax-free, so the children inherit $600,000 tax-free, and your favorite charitable organization would inherit $600,000 tax-free.

The Tax-Deferred Disconnect happens when account holders fail to realize that they could be leaving their heirs with a substantial tax liability, significantly reducing the value of their inheritance, in lieu of discovering planning strategies to mitigate the future tax liability of qualified retirement accounts.

Possible next steps

Proactive planning helps ensure your wealth benefits your loved ones and your values while mitigating unnecessary tax costs.

• Review your beneficiary designations. Ensure your IRA and retirement accounts have up-to-date beneficiaries.
• Reevaluate your insurance options. Discuss the potential of leveraging life insurance to replace taxable dollars with tax-free dollars. A financial professional could help design a plan that aligns with your legacy goals.
• Implement a Roth conversion strategy. Consider gradually converting portions of your traditional IRA or 401(k) into a Roth IRA. Though this requires paying taxes on the converted amounts in the year of the Roth conversions, the funds grow tax-free and could be withdrawn tax-free by your heirs, reducing their future tax liability.

The bottom line

You don’t have to accept the Tax-Deferred Disconnect as inevitable. With proactive and thoughtful planning, you could maximize your legacy while reducing tax liability. By leveraging strategies like charitable donations and tax-efficient life insurance planning, you could turn potential tax dollars into meaningful contributions and tax-free inheritance for your loved ones.

Imagine leaving behind an efficient transfer of your qualified assets to your heirs and also a legacy that funds causes close to your heart — whether that’s supporting a cancer hospital, funding scholarships or simply reducing the tax burden to your heirs. It’s not just about managing taxes — it’s about taking control of your financial legacy.

Insurance products and services offered by Jim Sloan & Associates, LLC. Investment advisory services offered through MariPau Wealth Management, LLC an SEC Registered Investment Advisor. Please note that the use of the term “registered” to refer to our firm and/or our associated persons does not imply any particular level of skill or training. Melton & Company, LLC and MariPau Wealth Management, LLC are not affiliated entities. While the processes mentioned in this article have been designed with care, financial outcomes can never be guaranteed as investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. None of the information contained in this article shall constitute an offer to sell or solicit any offer to buy a security or any insurance product. Insurance may be subject to fees, surrender charges and holding periods which vary by insurance company. The information and opinions contained in this article are provided by the author and have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed. They are given for informational purposes only and are not a solicitation to buy or sell any of the products mentioned. This article is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation. Jim Sloan and Jim Sloan & Associates, LLC do not give tax or legal advice. Tax laws are subject to change and can affect results. The firm is not affiliated with the U.S. government or any governmental agency. Hypothetical examples have been provided for illustrative purposes only and should not be construed as advice designed to meet the particular needs of an individual’s situation.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

“Life insurance. Do I actually need it? Why?” “How much should I have?” These are the questions financial planners hear all the time.

The answer to number one is there’s a good chance you do need life insurance. Why? Because you want to make sure that after you pass away, those around you aren’t left struggling to pay bills (and yes, this goes for young, single people as well). Things get a little trickier as we try to figure out how much life insurance coverage is needed because so many factors go into that decision. So, let’s get into the process of understanding all these factors and how they work together.

What life insurance terms mean

Insurance isn’t the simplest topic, which often adds to confusion and uncertainty around exactly what may be needed. One common phrase people hear includes “term life insurance,” which is a type of life insurance that pays out a death benefit to beneficiaries if you pass during a set period of time. This differs from “permanent life insurance,” which is designed to be a guaranteed death benefit payment.

“Cash value” refers to the accrued monetary value that can be accessed outside of the death benefit while the insured is still alive — or the amount of money that’s accumulated in your life insurance policy over time.

Finally, there are “premiums,” which refer to what you pay for life insurance coverage. Premiums can be paid monthly, quarterly, semiannually or annually. Gender, age and health all factor into how much you pay for life insurance.

What should you consider before you purchase a policy?

Each person and family’s circumstances are different, but there are several themes for consideration, including debts, employment, marital status, overall health and, of course, budget. And it’s important to remember these factors all influence one another as well.

Let’s take marital status as an example. Those who are married, have a partner or have a family who depend on your paychecks, must have a plan in the event you pass unexpectedly. Take a look at exactly how your debt plays a role here as well — if there is substantial debt, ensuring you’re leaving your family debt-free is meaningful. For individuals with one income, you should ensure a large enough life insurance death benefit for your surviving family to live on so they don’t have to change their living situation or standard of living.

One often overlooked area is what happens if a stay-at-home parent passes. These individuals may need life insurance just as much as the one earning a paycheck. Why? For that household to continue, there will likely be increased costs such as daycare, nannies, babysitters, cleaning services, transportation costs or food preparation services — all of which the stay-at-home parent was likely providing.

For households with two incomes, it may be possible to support the household with one income, but you need to consider whether that income is enough to avoid a change of lifestyle. For most families, going from two incomes to one is a significant adjustment.

Often, we hear from unmarried people who assume they don’t need life insurance as they don’t have any dependents. Sure, for some this is the case, but let’s not forget any debt an individual may have or costly funeral expenses that other family members need to cover.

Single or not, we always encourage those applying for life insurance policies to better understand their debt situation. Are there enough assets that can be converted to cash to cover this debt, and also is there enough extra to pay for your end-of-life costs? You’d be surprised how often we uncover debt without any assets or a life insurance policy to cover the bills.

Further, those who are self-employed or part of a business partnership have extra considerations, as their passing may impact the business. Life insurance may be a way to help minimize or eliminate the financial impact of your passing. The main concern would be the future of that business and how employees are affected.

In terms of budget, it’s important to remember what’s affordable and what’s realistic for premiums. Those with health conditions and/or who are older will face higher premium amounts. Insurance companies view these individuals as higher risk and therefore charge more for the services.

What should you do next?

If you’re trying to figure out how much life insurance coverage you may need, solid next steps include:

• Determine the financial impact of your passing and the goal of your life insurance plan. If you need help with this, there are a few methods that can be used by a financial adviser or life insurance agent to determine your coverage amount.
• Review if you have existing life insurance. If you are working, do you have employer- or employee-paid health insurance through the company? Can you increase this, and if so, by how much? What is the cost of the coverage?
• Create a monthly budget to better understand what kind of premium you can afford. If you find after all bills are paid and your monthly savings goal is met, you have unspent cash in your budget, this would be good information to have in your life insurance analysis.
• Discuss the information in the previous three steps with your financial adviser or life insurance agent. That person will be able to recommend a life insurance policy that works for you and clarify your ideal coverage amount. Make sure to ask about the process of applying so you know what to expect. Quickly take care of any requirements requested of you, and the insurance company will be able to tell you your actual premium amount.

As time passes, make sure to review your beneficiary designation. Death, divorce, marriage, family additions and even relationship changes are a handful of reasons to make updates. You also may find as you get older that you may need more or less coverage as your needs change. Your life insurance plan should be an ongoing discussion with your financial professional. Even being underinsured is better than being uninsured.

The views expressed here are those of the author(s) and do not necessarily represent the views of TruStage^TM. TruStage^TM is the marketing name for TruStage Financial Group, Inc. its subsidiaries and affiliates. Corporate headquarters are located in Madison, Wis. CPI Qualified Plan Consultants, Inc. and CMFG Life Insurance Company are subsidiaries of TruStage Financial Group. Annuity insurance products are issued by CMFG Life Insurance Company, located in Waverly, Iowa. Each Insurer is solely responsible for the financial obligations under the policies and contracts it issues. All contracts and forms may vary by state and may not be available in all states or through all broker/dealers.
Securities distributed by CUNA Brokerage Services, Inc. (CBSI), Member FINRA/SIPC, a registered broker/dealer, 2000 Heritage Way, Waverly, Iowa 50677, toll-free 866.512.6109. CBSI is a limited business broker/dealer (Member FINRA/SIPC), a fully owned subsidiary of TruStage Financial Group, Inc. Non-deposit investment and insurance products are not federally insured, involve investment risk, may lose value, and are not obligations of or guaranteed by the financial institution. Representatives offer retirement and investment education but do not provide investment, legal or tax advice. Participants are encouraged to consult their financial professional. TruStage™ Insurance products and programs are issued by CMFG Life Insurance Company, MEMBERS Life Insurance Company and other leading insurance companies. The insurance offered is not a deposit and is not federally insured, sold, or guaranteed by any financial institution. Product and features may vary and not be available in all states. All guarantees are based on the claims-paying ability of the insurer. All guarantees are subject to the financial strength and claims paying ability of the issuing insurance company. CBSI, GEN-7434151.1-1224-0127

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Just when you thought it was safe to go into the water, here’s one more thing to think about now that the election is over: How will the newly elected politicians across the U.S. affect my insurance premium? Even more generally speaking, which governing style or philosophies — Democrats’ or Republicans’ — are better for my insurance premium? Does voting one way or another, whether it is local or national, have an impact on my insurance premium?

In a word, yes. Participating in your local, state and federal elections does have an impact on your insurance policies, not only in the premium, but in the availability. Not only that, but election results have an impact on the types of policies you have to choose from, the insurers that offer coverage, where they are and more. Let’s look at how each political party tends to lean, and remember, these are general examples, not concrete methodologies. You can watch my video about this, too.

Republicans vs Democrats on insurance

The folks on the right stand for deregulation. They tend to advocate for reducing regulations and ensuring insurance companies greater flexibility in product offerings and pricing strategies. They also lead tax reforms that benefit insurers, such as the Tax Cuts and Jobs Act of 2017. The elephants in the room also like the idea of making Medicare more of a private product rather than one that the feds control. Lastly, there is a history of Republican support for tort reform, which could limit litigation costs and liabilities for insurers.

OK, time to see how the donkeys measure up. Democrats were largely responsible for the implementation of the Affordable Care Act, aka Obamacare. They also want to expand coverage for Medicare, arguably so anyone wishing to participate could. Democrats also tend to have policies that aim to stabilize insurance markets through regulations, focusing on non-discriminatory practices and ensuring a level playing field. They are also responsible for the Consumer Financial Protection Bureau (CFPB), which has enhanced oversight of financial products, including insurance products.

Whew, OK, so we have a ton of stuff that those on both sides of the aisle have done. But wait, you were asking which political party is responsible for your insurance premium going up, going down or your policy being renewed or canceled. Let me provide a little more detail from each side before answering that direct question.

Who the insurance commissioners are

The department of insurance or finance in each state of the U.S. has some form of insurance commissioner. This is the individual most directly responsible for how insurance products are handled in your state. The following states have an elected insurance commissioner: California, Delaware, Georgia, Kansas, Louisiana, Mississippi, Montana, North Carolina, North Dakota, Oklahoma and Washington. Of all those states, only California, Delaware and Washington have insurance commissioners who are affiliated with the Democratic Party. Governors appoint the commissioners of the remaining states, so it’s likely that those commissioners are affiliated with the same party that holds the governor’s office.

Let’s have a peek at auto insurance premiums. Of these 11 states, the most expensive average premium can be found in Louisiana, a Republican state. But guess what? The least expensive state for auto insurance on average is North Dakota, also a state with a Republican insurance commissioner. Interesting, but not entirely useful for our purposes.

How about availability? If we look to see of these same 11 states which have the most insurance companies offering policies, that’s useful in our quest to see which political party works best for the insurance industry, right? Well, turns out that California lists 115 active insurance companies, the fewest, and Washington has 125, the most. And darn it, both of those states have Democratic insurance commissioners.

How satisfied are people with how their claims are handled?

How about claims? We purchase insurance, and if we have a claim, we want it handled. So let’s consider claim-satisfaction scores. Well, shockingly again, we see California with the highest score of 876 out of a possible 1,000, and Washington at 874 out of a possible 1,000. Both again, Democratic-leaning commissioners.

OK, how about overall consumer reporting on the best states, insurance-related included. Well, according to the 2024 U.S. News & World Report Best States Rankings, Utah holds the top position, and Louisiana ranks last. Both are Republican insurance commissioner states.

So where does this leave us? I’ll tell you precisely where it leaves us. It leaves us with no clear winner. Both Republican and Democratic insurance commissioners, elected by each state, can take up both the top and bottom spots when it comes to all of these metrics measured. Top and bottom! How can that be? We can only take away from this the fact that there is no political affiliation that is better than another when it comes to insurance regulations and how those can affect your insurance experience.

Wait, maybe we are on to something. Is it possible that neither the Republican Party nor the Democratic Party works perfectly or has all the right answers?

Want to learn more about insurance? Visit KarlSusman.com.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Is your life insurance policy just a safety net for when you're gone, or does it offer real support when life gets unpredictable?

Life insurance has traditionally been viewed as protection for your family's financial future after you've passed. You think about the mortgage, your income, any debts. But what if life throws you a curveball while you're still here? What if you suddenly face a long-term disability or an unexpected illness?

Enter living benefits. More than a buzzword, these are crucial features that could redefine how we view life insurance. At its core, a life insurance policy with living benefits means accessing part of the policy's death benefit while you’re still alive, offering financial assistance during unforeseen challenges.

What living benefits are available?

That depends on whether you buy term or permanent life insurance coverage.

Term insurance is less expensive, but it only provides coverage for a limited period of time. Permanent insurance includes whole, universal and variable life policies that are designed to provide coverage for the rest of your life. With all these policies, only a portion of the premiums you pay goes toward the cost of insurance. Much of the remainder is allowed to accumulate as what is called cash value.

• With whole life policies, cash value grows at a guaranteed fixed rate over the life of the policy. In addition, whole life may offer dividends that are based on the profitability of the issuing insurance company.
• With universal life policies, cash value grows at a rate that is typically tied to prevailing interest rates and may be used to pay part or all of a premium on occasion. Of course, you must be certain you have enough cash value in your account to sustain your policy.
• With variable life policies, you have the ability to invest cash value in your choice of professionally managed, diversified portfolios of stocks, bonds and other securities. Depending on how your investment options perform, your cash value may grow more dramatically than it would with other forms of permanent coverage. However, it may also decrease in value if your investment options incur losses.

With all these policies, cash value is allowed to accumulate on a tax-deferred basis. What’s more, you gain two important living benefits:

• You can access cash value, if you wish, through withdrawals or loans. Withdrawals are tax-free so long as they don’t exceed the amount of premiums you’ve paid into the policy. Loans are also income tax-free as long as the policy continues to remain in effect until the insured’s death. You should realize, however, that accessing cash value without replenishing it at some point may cause your policy to lapse or reduce its death benefit. What’s more, policy loans are subject to interest rate charges, albeit at a lower rate than loans offered by banks and other financial institutions.
• If cash value grows sufficiently, you can use it to pay your insurance premiums. There are no tax consequences to using your cash value in this way. Compare this permanent life insurance benefit to term insurance which offers no cash value and imposes premiums that must be paid out-of-pocket each year.

Beyond cash value: What other living benefits are available?

Whether you choose permanent or term coverage, you may be able to add riders to your policy that offer such living benefits as:

Accelerated death benefit. People diagnosed with a terminal illness shouldn’t have to face additional challenges, but too often, the financial hardships that accompany these diagnoses are considerable. An accelerated death benefit rider will pay all or some of your policy’s death benefit while you are still alive. Granted, any payout you receive will reduce the death benefit available to your beneficiaries, but the ability to meet medical and other expenses during an unfathomably difficult stage of your life can help you and your family focus on more pressing priorities.

Critical illness benefit. Similar to an accelerated death benefit, this rider pays all or part of your policy’s death benefit if you are diagnosed with a serious but not necessarily terminal illness, such as a stroke or heart attack. Again, any payments you receive are deducted from your policy’s death benefit.

Disability rider. Also known as a waiver of premium rider, this living benefit enables you to forgo premium payments on your life insurance policy if you become disabled and unable to work. Depending on the terms of your rider, there might be a waiting period between the time you are diagnosed and the time you can stop paying premiums. Importantly, this rider does not impact your policy’s death benefit.

Two other important notes. First, most insurance carriers do not allow you to add these riders to existing coverage. They must be chosen when you purchase your life insurance policy or, in some cases, they are offered automatically. Second, including riders in your coverage will result in higher premium payments.

What about long-term care?

Long-term care insurance has changed dramatically in recent years. Policies that provide benefits to pay for nursing home, assisted living or other long-term care expenses are still available, but they do not pay a death benefit in the event you don’t require long-term care at some point in your life. What’s more, premiums can increase periodically, sometimes dramatically, and failure to pay them will lapse your policy.

To address these problematic issues, some insurance providers have created hybrid policies that combine long-term care with permanent life insurance. If you don’t require long-term care, your beneficiary receives a death benefit. If you do require long-term care, you will be able to access payments with no tax consequences. However, any payments you receive will reduce your policy’s death benefit accordingly. In addition, you can obtain this coverage without worrying about premiums increasing over time.

For many people who have purchased long-term care policies in the past, the idea of being able to provide loved ones with a death benefit is appealing, but does that mean you should get out of any long-term care policy you bought years ago in favor of a new one?

Not necessarily. Older policies tended to provide choices that newer ones don’t — for example, the amount of coverage, how long coverage will last, the length of the waiting period before coverage begins, whether coverage is adjusted for inflation, and so on. And many newer policies impose considerably higher premiums than they have in the past. Before you make a decision you might regret, talk with your financial advisory team, and get the guidance you need to determine your best options.

CRN202512-7435758

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Many people procrastinate about estate planning. It’s easy to understand why; after all, it’s difficult facing our mortality, and deciding and documenting what we’re leaving behind to our loved ones can get complicated.

But without a suitable estate plan in place, sorting out your financial picture after you pass could create complications for your beneficiaries. There are numerous pitfalls with insufficient estate planning. To help avoid them, here are some key aspects you should address to ensure your plan is solid.

Choosing between a will and a trust

Wills and trusts are legal instruments tailored to pass your assets to your heirs in the ways that you wish. A will takes effect after you die, whereas a trust, with someone designated to oversee it, can manage your assets while you’re still living.

A will is often used as a cost-effective option for those with smaller estates. A trust is often implemented when one has a large estate, wants more control over asset distribution and values privacy. Trusts help to bypass probate — the court-supervised process for distributing your property. Probate is a public process that is costly and time-intensive due to professional and administrative expenses. Depending on the type of assets or items that you own, the court requires professionals to assess an accurate value and ensure that they’re being distributed properly to the rightful heirs.

Selecting the right person to administer the estate

Often, people choose family members to administer the estate, but that can be challenging, especially if they don’t understand tax laws and have the expertise to manage certain types of complex assets, real estate and retirement accounts. In some cases, the process often becomes more expensive and time-intensive.

Then there are the family dynamics to consider when you choose an executor. If family members don’t get along or disagree on how the estate is being handled, that may also add more time and expense — in addition to mental anguish. If you do go the professional route to administer the estate, you want to balance the cost of paying an estate expert versus having a family member navigate the different pieces.

Understanding tax considerations and reducing the burden on heirs

You want to create the smallest possible tax burden for your heirs. Without an estate plan for tax considerations, your heirs could get hit hard.

Wills do not avoid estate taxes. Also known as the “death tax,” the federal estate tax is a tax that’s levied on a person’s inherited assets. The federal estate tax ranges from rates of 18% to 40% but generally only applied to assets over $13.61 million in 2024 (for 2025 the estate tax exemption rises to $13.99 million for individuals and $27.98 million for married couples). Some states also levy an estate tax. An estate’s value may determine whether it’s exempt from the state tax or not, and those thresholds vary from state to state.

Here are some ways to lower your heirs’ tax burden:

• A life insurance plan may remove tax consequences for your heirs. The death benefit, whether it’s with a term or whole life policy, is generally not subject to income taxes unless the beneficiaries receive payouts in installments.
• A living trust typically will include language that may maximize the estate tax exemptions available in the state they reside in. Most states have estate tax thresholds that are much lower than the federal threshold — Oregon’s exemption, for example, is just $1 million. A properly designed trust may be an important tool in helping ensure that the allowable exemptions are fully maximized, potentially saving heirs a substantial sum.
• Gifting your heirs annually while you’re still alive may be the most direct way to minimize inheritance tax. For 2024, the annual gift tax exclusion is $18,000, which generally means a person can give up to $18,000 to as many people as he or she wants without having to pay any taxes on the gifts. For example, a grandparent could give $18,000 to each of their 10 grandchildren this year with no gift tax implications. In 2025, the exclusion rises to $19,000, with married couples effectively being able to double this amount to $38,000 per recipient.
• Converting retirement accounts to Roth accounts could make sense. Heirs may pay tax on any inherited retirement benefits if they are in a 401(k) or individual retirement account (IRA). But if they inherit a Roth 401(k) or Roth IRA, they will not have to pay taxes on them. If you have retirement funds that you won’t need, you may want to consider a Roth conversion to help reduce the tax burden on the assets your heirs inherit.

Long-term care

Statistics show that well over half of seniors will at some point need long-term care. Planning for that possibility with long-term care insurance may be important in terms of preserving assets for your heirs. Even if you believe you have enough retirement assets to pay for your long-term care, consider the scenario if you, your spouse or both of you develop a long-term care need. What if you don’t have some type of LTC insurance? Imagine working all your life to accumulate assets, then falling ill and spending everything you’ve earned on care, leaving significantly less or nothing to your heirs.

Think of all the time people spend planning for a vacation or buying a house or car. But ultimately estate planning is more important than all of those. Take the time to get your affairs in order and shield your loved ones from undue stress. Having a solid, comprehensive estate plan in place may give you peace of mind and could make the passing of your wealth, property and other assets to your loved ones smoother.

Dan Dunkin contributed to this article.

The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

I wrote an article in February titled If You’re Retired, Do You Still Need Life Insurance? I was quickly inundated with hate mail from life insurance agents, but the feedback from everyone who isn’t paid a commission to sell life insurance was pretty positive.

The reality is that life insurance is meant to cover working capital, which is the present value of all future earnings, as well as liabilities. Both shrink over time.

There are reasons to keep life insurance in retirement, such as the desire to leave a fixed, guaranteed amount or as a way to cover estate taxes. This article is for those who consider they no longer need the coverage and no longer want to pay the premium.

If you are retired and have a term policy, you need to work with your planner to confirm you don’t need the coverage. If that turns out to be the case, the question is: Do you drop the policy now or when the term expires? Most private policies come in terms between 10 and 30 years. Once that term expires, they renew at exponentially higher premium rates. Often, we work with clients to see which policies cover their needs at the most affordable cost and then drop the expensive excess.

Here are five options if you’re retired and have a permanent policy:

1. Surrender the policy

I see this option utilized most often when people need cash, not because this was their plan all along. If you surrender the policy, the insurance company will send you the cash value, less any outstanding loans.

There are two major drawbacks here: You lose the insurance coverage (I know, that’s the point) and you have to pay taxes on the difference between premiums paid and cash value received. That gain is taxed as income, not as a capital gain.

2. Use the cash value to pay the premium

This is typically an option for universal life insurance policies, not whole life. Whole life policies specify the premium term at issue.

If the pain point of the insurance is the cost and you still want some coverage, this may be your best bet. You can call your insurance company or your insurance agent to run an “in-force illustration” showing what would happen if the premiums were paid by cash value. In instances with large balances, the policy may stay in force for the rest of your life. In other situations, you may have to reduce the death benefit to keep the policy in force.

3. Take loans against the cash value

There’s an army of TikTok influencers peddling life insurance retirement plans (LIRPs). To be clear, these are typically universal life insurance policies and are in no way retirement plans. The basic premise is this: Fund a life insurance policy with as much money as is allowed to keep its tax-favorable status. In life insurance jargon, this is called max non-MEC (modified endowment contract). When you want to access the cash value, you can take tax-free loans.

Spoiler alert: This is much more complicated than it seems. You can access the funds tax-free in the form of loans, and we have done this for clients. The downside is that this is not a “set-and-forget” scenario or guaranteed income stream. You must evaluate how much you think you can pull out annually without the policy collapsing. In other words, what’s the maximum withdrawal before you actually run out of cash value and the policy goes away, possibly creating a taxable situation?

Remember, the cash value loans are tax-free because they are loans. It’s just like taking out a $1 million mortgage; that $1 million is not taxable because you must pay it back. In the LIRP scenario, loans are paid back at death, reducing the death benefit. This plan can work, but it requires an attentive agent who fully understands the nuances of your policy.

4. Sell the policy

You’ve seen these TV ads. If they seem a bit sketchy, they’re not. They’re one level below that. There is an entire life settlement industry that may be willing to buy your policy. You can sell the policy directly to an agency or through a broker who will attempt to solicit multiple bids for your policy.

When you buy a life insurance policy, you want to be as healthy as possible to minimize the cost of insurance. When you sell a policy, you want to be as unhealthy as possible, as this will increase the amount buyers are willing to pay. Depending on the sale price, you may or may not owe taxes on the sale.

5. Exchange it for an annuity

If you sell an investment property and follow all the necessary steps to exchange it for another rental property, you can defer the taxes on the gain via Section 1031 of the Internal Revenue Code. Insurance has its own like-kind exchange, called a 1035 exchange.

A 1035 exchange allows you to exchange life insurance for life insurance or life insurance for an annuity. An annuity can do a number of different things, but in its purest sense, it will provide guaranteed lifetime income. This is a set-and-forget scenario if you use a fixed annuity. The upside is that rates are much higher than they have been for the last 15 years. They have started to fall as the Fed cuts rates, but you can likely still snag a good deal. The downside is that a certain portion of your income may be taxable.

Before you try to figure out which option is best for you, you need to ensure that you don’t need the insurance. Most financial planning software will have an insurance needs analysis. You can try a free version of our software here.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

When it comes to financial planning there are so many ways to attack it. Additionally, I find one of the hardest things for people to do is to prioritize their needs. Oftentimes, individuals conflate importance with immediacy, as in the sooner something is approaching, the more important it must be. Although I certainly understand this mindset, I don’t believe it is the appropriate way to handle one’s finances.

I’d like to take a stab at listing in order of priority how, I believe, we should be looking at our finances. Naturally, it is not one-size-fits-all and, of course, I, nor anyone else, can tell you what is most important to you.

1. Protect yourself and your family

To me, the biggest and most important thing you should focus on first is protecting yourself and your family from a tragedy that could derail everything. This usually means making sure you have appropriate insurance coverage. Let’s face it — you can always work longer and make more money, but only if you are physically able.

All too often, I see individuals who are in a terrible bind because they didn’t have a contingency plan with proper insurance. Life, disability, long-term care, health, property and casualty — these are the basics of a good foundation to build off of. Without proper insurance, you are building a financial plan on a house of cards.

2. Get rid of destructive debt

Next on my list is bad debt, like credit cards. I want to make a clear distinction — I am not referring to mortgages or car loans. Rather, I’m referring to those credit card debts with high interest rates. These can simply crumble a family financially and need to be addressed.

You need to have a well-thought-out plan to eliminate high-interest debt, and it is equally important to ensure that you don’t end up back in this hard-to-recover-from place.

I rank this as a top priority because people can be stuck with high credit card debt for years, especially if they make only the minimum payments.

3. Save for emergencies

Simply put, you should have three to six months of expenses saved in an emergency fund that’s easily accessible. Many times, people end up with high-interest credit card debt simply because one unexpected expense broke their finances. Having a nest egg or slush fund to insulate you from that situation is highly important.

4. Save for retirement

Finally, something fun to talk about, right? There is an epidemic in our country, and that is that most people don’t have enough savings, or aren’t saving enough, to ensure they can afford a comfortable retirement.

You cannot borrow for retirement, and at some point, you might be forced to retire. The last thing you want is to be staring down a 30-year retirement but unable to afford the lifestyle you’re accustomed to.

Additionally, the sooner you start saving and the more effort you make in this area, the better your options will be to live the retirement of your dreams.

5. Focus on other savings goals

Now that emergency and retirement savings are on target, you can focus on other savings priorities, whether they be college for your children, a second home or a big project. These items aren’t critical to your financial plan, and there are generally other means to achieve these goals, such as borrowing for college.

I am not suggesting these shouldn’t be important to you now, as they may seem more important to you than how comfortable your far-off retirement will be. But everyone will need to retire, yet everyone won’t need a secondary home.

6. Consider paying off constructive debt

It is probably a tie for me on the next, and last, two categories. I’ll give a slight edge to paying off constructive debt, like a mortgage or car loan. If you have a low mortgage rate, though, I see very little benefit to aggressively paying off a home, except for the peace-of-mind factor. After all, if you are mortgage-free, you’ll have fewer fixed expenses heading into the next stage of your life, which can leave you feeling mentally clearer and more able to continue making good financial choices.

7. Give to charity

It might seem messed up to have charitable giving as the least important piece of your financial plan. Certainly, a great argument can be made that it is the most important, and I even have clients who prioritize this over almost anything else. I get it and actually highly admire those people.

That said, if I am looking out for my client’s finances first and foremost, like I’m supposed to, and the things above aren’t in a good spot, giving money away seems, well, conflicting at best.

Let the debates begin, but I’m sticking to my story that this is what I feel works best for most people. There are exceptions to every rule, and people can always shuffle this deck to their own circumstances. This is just my opinion on what I’ve seen work best in my 20-plus career.

Hope you enjoyed it, and stay wealthy, healthy, and happy.

Diversified, LLC does not provide tax advice and should not be relied upon for purposes of filing taxes, estimating tax liabilities or avoiding any tax or penalty imposed by law. The information provided by Diversified, LLC should not be a substitute for consulting a qualified tax advisor, accountant, or other professional concerning the application of tax law or an individual tax situation.

Nothing provided on this site constitutes tax advice. Individuals should seek the advice of their own tax advisor for specific information regarding tax consequences of investments. Investments in securities entail risk and are not suitable for all investors. This site is not a recommendation nor an offer to sell (or solicitation of an offer to buy) securities in the United States or in any other jurisdiction.

A copy of Diversified’s current written disclosure brochure which discusses, among other things, the firm’s business practices, services and fees, is available through the SEC’s website at: www.adviserinfo.sec.gov.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Life insurance can be a tricky topic to navigate for anyone. For some, it's an important financial tool that can help them protect themselves and their loved ones in the event of an untimely death, while for others, it’s simply throwing away money for something that most likely won’t happen anytime soon. There are different reasons why you may want to consider getting life insurance or increasing the coverage you already have.

This article will discuss why life insurance is essential and what benefits it brings to you and your family’s future.

Why is life insurance so important?

About 50% of Americans say they don’t have life insurance because it’s too expensive, according to research by Forbes Advisor. And, according to LIMRA, 42%, or more than 100 million Americans, say that their life insurance coverage is insufficient. Most reservations against life insurance usually stem from the stark difference between present cash outlay and future benefits. This could be because of:

• A lack of understanding about how life insurance works
• Not knowing the types of life insurance and what works best for your needs
• Hesitancy in paying cash today for a far future event
• Paying for something that you, yourself, will not receive in the future

True enough, most life insurance payouts will not benefit the policyholders because, as the name suggests, life insurance is based on the policyholder’s life and can be claimed only upon their death.

Albert Kim, vice president of Talent at Checkr, says, “A compensation package with life insurance policy in place is now one of the most non-negotiable terms jobseekers are looking for from their potential employers. This emphasizes how important the role life insurance plays, especially at an age where funeral costs are only getting more expensive.”

Kinds of life insurance

Depending on your need, policy length, premiums and benefits, many types of life insurance are available. Some of the most common:

• Term life insurance. This type of life insurance covers the policyholder for a fixed policy term, typically 10, 20 or 30 years. The premium and coverage usually do not change for the term, and the policy is renewable after the term has expired (usually with an increase in premium).
• Whole life insurance. This is usually more expensive than term life insurance. It has a cash value (saving) component and keeps the policyholder insured for as long as the policy is active and premiums are paid.
• Universal life insurance. Like whole life insurance, this also has a cash value component, which can earn interest. Compared to the first two, UL insurance features flexible premiums and benefits that can be adjusted over time.
• Final expense life insurance. If your goal is to help your loved ones cover your end-of-life medical bills and funeral and burial expenses, this life insurance offers more affordable premiums, even for older and less healthy individuals.
• Variable life insurance. This is a permanent policy whose cash value is invested in assets such as mutual funds. Because of this, the cash value may rise or fall, depending on the market.

The right type of life insurance, based on your needs and goals, gives you the peace of mind of leaving your loved ones financially free and secure. Here are some reasons why you need it, courtesy of small-business owners who know the score:

1. To protect your income

If you are the sole income earner in your family, life insurance is crucial for you, more than anyone else, to secure your loved ones' financial stability in case of your untimely demise.

According to Roman Zrazhevskiy, founder and CEO of MIRA Safety, “Adequate life insurance coverage helps ensure that breadwinners' children, parents or families receive monetary compensation upon their death that would last them just enough until they can earn income on their own to pay for household and other necessary expenses otherwise paid by the deceased policyholder and breadwinner.”

2. To protect your family and beneficiaries

Everyone works hard to give their families the life they dream of. However, accidents and unfortunate events are unavoidable, and nobody can predict when something might happen to you.

Nora Sudduth, founder and owner of Nora Sudduth Coaching, says, “Aside from business coaching, I find it important to emphasize to my clients the importance of leaving a legacy not only to their business, but to their families — and that is by making it a point that no amount of sales or marketing ROI (return on investment) can ever replace time spent with family and making sure they are comfortably living despite any unforeseen emergency.”

3. To cover final expenses

One of the benefits of life insurance is to help your loved ones cover the costs of your burial arrangements after your death. According to the National Funeral Directors Association, a funeral with viewing and burial costs an average of $8,300, and a funeral with cremation costs an average of $6,280.

Kyran Schmidt, co-founder of Outverse, says, “Most people don’t realize it, but AI has significantly lifted a huge burden among employees burdened by repetitive work that adds to the physical and mental stress causing sickness and death among many workers.” He adds, “A work life insurance policy only covers final expenses, but not the grief and loss your family lives with for the rest of their lives.”

Final expense life insurance covers not only burial, funeral or cremation expenses, but also final medical, nursing and legal expenses.

4. To help pay off debt

Your debt doesn’t go away when you die. When a lending institution has unpaid debt, it may go after your remaining assets or estate to settle that debt, potentially leaving your family less to rely on. Even if debt collectors are prohibited from transferring any liability for your debt to your surviving loved ones, hearing from debt collectors can still stress your family.

"With the help of life insurance, your family may use your insurance proceeds to help reduce the burden and stress of settling your unpaid debts or (keeping) debt collectors from touching your remaining estate,” says Chris Aubeeluck, head of sales and marketing at Osbornes Law.

5. To donate to charitable institutions

Aside from your loved ones, you can also use your life insurance payouts to provide more for a charitable institution or nonprofit organization. There are many ways you can do this, including:

• Charitable giving riders. A rider on your life insurance policy provides that a qualified institution will receive a percentage of your policy’s face value after your passing, subject to maximum limits.
• Gifting your policy. Gifting life insurance policies will allow your donee to receive the full policy amount. As a donor, you will also receive tax advantages by reducing your total taxable estate and your estate tax.
• Naming a charitable institution as beneficiary. One of the most common ways to provide life insurance proceeds to a charitable institution. This reduces a donor’s taxable estate and gives you all the cash value benefits while you are still alive for permanent life insurance policies with added cash value that functions similar to investments, while giving the lump sum amount of the payout to your charity or charities of choice.
• Gifting policy dividends. If you don’t want to give the full amount of your policy but still want to gift a portion of your benefits to a charity, you may donate the dividends from the cash value of a permanent life insurance policy. Doing this allows you to retain ownership of the policy but also benefit from tax advantages of the donation.

Erin Acheson, vice president of Business Intelligence at ZeroEyes, says, “It is important to remember that in assigning, gifting or naming charitable institutions as beneficiaries, they must meet the IRS’ qualifications on charitable contributions as outlined in 501(c)(3) as a qualified organization, especially when you mean to take advantage of the tax benefits of contributors to charitable institutions.”

6. To provide access to cash

Some types of life insurance, like whole life and universal life insurance, offer a cash value together with your normal life insurance death benefits. Simply put, your premiums for life insurance with cash value are generally more expensive than ones with no cash value, because your premiums are divided between your cash value and life insurance benefits.

Policyholders who purchase policies with cash value components can benefit from this arrangement by having immediate access to cash in case of an emergency, through partial surrenders or withdrawals of the cash value (which may decrease the death benefit).

The insurance company may also allow the policyholder to take out loans against the policy or use the cash value to pay policy premiums.

According to Tom Golubovich, head of Marketing and Media Relations at Ninja Transfers, “Cash value components aren’t new in life insurance policies, as many policyholders get them to get two-in-one benefits in one premium payment.” He adds, “Although, it is important to read the fine print before agreeing to any cash value-inclusive policies to better understand the tradeoffs it entails with your actual life insurance benefits.”

Life insurance policy premiums are highly dependent on your age, gender and overall health, so the younger and healthier you are when you buy life insurance, the lower the premiums you’ll have to pay to get the maximum death benefits.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Have you had a conversation with your family about life insurance?

It might not feel like the most natural discussion to have around your dinner table, yet it’s one of the most important. While the topic can feel a little heavy, it doesn’t have to be. Talking about life insurance and the steps you’re taking to protect your family can be reassuring and empowering to everyone in your family.

September is Life Insurance Awareness Month, an ideal time for families to start or continue conversations about money management, financial planning and life insurance. Some of the latest research helps us understand why it's critical to have these conversations in the first place.

In fact, in January 2024, 51% of consumers reported owning life insurance, which is down significantly from 63% in 2011, according to LIMRA’s annual Insurance Barometer Study. In addition, 22% of people who own life insurance say they do not have enough coverage.

Another study, commissioned by Prudential, showed that while people with higher household incomes are more likely to have life insurance than those with lower incomes, 15% of those with household incomes of $100,000 or more do not have any life insurance coverage.

The main reason to have life insurance is because you want your loved ones to receive money after you die to help them financially. But there are many other reasons, too. Let’s start by understanding the opportunities to include life insurance as part of your overall financial plans.

Opportunity #1: Life insurance is more affordable than you think.

The LIMRA study showed about 3 of 4 Americans overestimate the true cost of a basic term life insurance policy.

The cost of life insurance for a healthy 30-year-old male is around $158 per year for a term policy. Term life insurance is a cost-effective way to have the death benefit protection you need for a period of time and can be a perfect starting point.

The truth is you can get more from your life insurance policy than what you pay for it. The value in these types of policies goes beyond what your heirs receive when you die. In addition to the death benefit, permanent life insurance can have the ability to grow cash value, an optional chronic illness benefit and more.

Opportunity #2: It’s simple to buy life insurance.

Today’s life insurance applications are digital and easy to fill out on your own, or with the help of your financial professional. The underwriting interview is typically simple and quick. Many times, a link to the interview can be sent to you when your application is received. You can complete the interview at your own pace on a laptop, tablet or smartphone.

And if you’re healthy, detailed medical questions or screenings may not be necessary. If additional medical information is needed, it can often be obtained electronically. If you’ve ever been turned down for life insurance for a health condition, it’s worth trying again, as more people are insurable than ever before.

Opportunity #3: You can access some life insurance benefits while you’re still alive.

You can buy policies that have potential to grow tax-deferred cash value, and you may be able to take tax-free loans and withdrawals* and use the money any way you choose. You could pay for things like a wedding, a down payment on a home or supplement your retirement income using cash value in the policy.

There are times when you might choose to use cash value from a life insurance policy as income. The advantage is that you will generally pay no income taxes or penalties on what you withdraw, there are no age requirements, and there are no required minimum distributions (RMDs). You can also use the death benefit for yourself if you’re chronically or terminally ill.

Opportunity #4: Life insurance offers financial protection for your loved ones.

Life insurance can help maintain your family’s lifestyle and dreams. If you were to die unexpectedly, the livelihood of your family could be at risk. There are expenses related to housing, food, clothing, college, etc., that will not die with you.

Life insurance can also help reduce estate taxes for you and your beneficiaries. Your estate tax burden may not seem problematic today, but if your assets are positioned well, they will grow, and your future estate could be affected by tax laws.

Another important factor to consider: Life insurance can be a great way to protect and potentially enhance your legacy. It can give your surviving spouse or other dependents income when you’re gone. When you die, your surviving spouse or other dependents will likely still need income, and a generally tax-free death benefit** could provide that.

Expanding the conversation

I’d encourage you to use your conversations about life insurance as a springboard to talk to your family about the broader topic of financial planning, as well.

Here are a few steps to consider when starting these conversations with family members at any age:

Make it personal. Ask your family members what they think about saving for a big purchase or how they feel about money and spending. If you have a family vacation or event coming up, consider using that as the focus. Encourage open-ended questions that prompt thoughtful discussions.

You might also share your own experiences with money, including mistakes and successes. How did you learn about the importance of saving? This can help demystify financial topics and show that it’s OK to talk about money openly.

Keep it fun. There’s no reason you can’t have a little fun during these conversations. You can use games, apps and books to make learning about finances enjoyable and engaging. For example, some online platforms like SplashLearn offer interactive money games, and financial literacy apps can be helpful.

Stick with it. Money doesn’t need to be a taboo topic. By starting these conversations early and continuing them throughout life, you can ensure that every family member is informed, prepared and confident about their financial decisions.

When your family members understand what it takes to manage money, they can make more informed decisions. These decisions span everything from what to buy or not to buy all the way through whether they’re financially ready to retire. One of the gifts you can give them is the confidence to make these decisions.

I hope Life Insurance Awareness Month encourages you to break the silence and make talking about life insurance, and finances, a normal part of our family members’ lives. They’ll be better off as a result.

* Outstanding loans and withdrawals will reduce policy cash values and the death benefit and may have tax consequences.

** IRC $101(1)(a) for death benefit proceeds typically received income tax free and IRC $101(g).

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Death and taxes, right? I mean, we know those are the two things we can always count on. On a happier note, one of these we have to deal with only once rather than the other, which we have the joy of facing repeatedly throughout our lives.

So why, if we all die, does literally every single person on the planet not have life insurance? Seems like a no-brainer that if a life insurance policy will pay out moola when you do, then it’s a good deal to have, right? Let me explain with examples of some of the more common rejections to this logic that even Mr. Spock can’t argue with. (For those of you who aren’t pop-culture-inclined, Mr. Spock is a Star Trek character known for his logic.)

Common rejection No. 1: I have no dependents.

Yes, I’ve heard this before. “I don’t have kids! I’m single! Why would I want to pay for life insurance?” I’m going to go out on a limb here and say you’re not an entirely selfish person, so you do in fact care about things other than yourself. With that in mind, sure, you have no kids or significant other, but what about an interest in a charitable organization? One that helps other people, other kids, other places? No? How about Doctors Without Borders or the American Red Cross? No? How about animals? If you have a furry friend, then you have a heart for them and their kind. You could leave a chunk of cash to the Humane Society to stop animal cruelty.

In other words, you can make an organization the beneficiary of a life insurance policy if you have no kids or significant other.

Common rejection No. 2: I have no debt.

Good for you. You are in the incredibly small and ever-shrinking minority of people who have no debt. You’ve done well for yourself, but what about helping those you love and survive you get a jump on their finances? Why not be sure that your kid(s) don’t start out their lives in debt from college? Why not be sure that your spouse doesn’t have to go out and find a better job to keep food on the table?

Having no debt is great, but it doesn’t alleviate the fact that you need money coming in in addition to having less money going out.

Common rejection No. 3: I don’t believe in life insurance.

Never quite sure where to go with this argument. You don’t have to believe in life insurance for it to work. It is a contract between two parties — you and an insurance company. You pay money to the insurance company, and when you die, the insurance company (with few exceptions) will pay out much more money than you paid it to whomever or whatever entity you wish. No belief required!

If you knew you could buy a stock for $1 and that upon your death it would be worth $500, you’d buy it, wouldn’t you?

Common rejection No. 4: I can’t afford it.

Left the best for last. This is a legitimate objection that is worth a conversation. Life insurance does come in many flavors, types and costs, with as many different benefits as well. Depending on when you buy life insurance, the price tag can vary dramatically.

Chances are, if you plan ahead and play your cards right, you can usually find something that you can eke into your budget. Usually. Not always, but usually if you look hard enough. So, go. Look hard enough.

This isn’t a life insurance sales pitch, despite how it may read. I’m not selling you anything, and it doesn’t help me or hurt me if you rush out and buy life insurance or don’t. But let me tell you a true story. (Warning: This story involves domestic violence.)

I sold a life insurance policy to one of my clients years back. She was, if memory serves, in her mid to late 20s or early 30s. Good health, basic home, average income, job, divorced with a 16-year-old daughter. A few months after she bought the policy, her boyfriend violently killed her. He set the house on fire before killing himself. I received a call from her daughter the next day, and I was in total shock. I made the necessary calls for her to the insurance company, and it overnighted the death benefit check to me. I had it less than 24 hours after I called, which was probably less than 36 hours after her mother died.

My client’s daughter came to my office. I will never forget how she looked — so very young, her eyes red from crying. We sat in awkward silence for a few moments, and I gave the obligatory comments about being sorry, shocked — just what she would expect. Then I handed her the envelope with the check. She asked me if I knew how much it was for. I said I did, at which point she opened the envelope and looked at the check. Her sadness migrated from sadness to shock, then, I dare say, relief. She looked up and thanked me, said it was much more than she was anticipating.

After she offered me far more thank-yous than I had earned, I told her as I walked her out that she had nothing to thank me for. This was all about her mom. Her mom did this, not me. She did it for her.

So next time you’re scrolling through your mental list of reasons why you can’t or shouldn’t have life insurance, keep in mind that someday you will die. I guarantee it. And when those you care about are grieving, life insurance is one simple and sure way to provide them with some much-needed relief during an extremely painful time in their lives.

If you or someone you know is dealing with domestic violence, you can find free help and resources by calling the National Domestic Violence Hotline at 1-800-799-SAFE (7233) or visiting its website, www.thehotline.org.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

While life insurance isn’t the most fun topic to discuss, it is an important part of your financial planning and, ultimately, the plan for your retirement. How can you determine how much insurance you truly need, though?

The first question to ask yourself is: Do you want or need life insurance? Since “want” is a very personal topic, I won’t spend much time there. Rather, the question is on need. So, how do you determine if you “need” life insurance? For starters, ask yourself, “If I suddenly passed away, would that leave a financial hardship for someone who is relying on my continued financial support?” If yes, then you likely have a life insurance need. The antithesis would be if someone isn’t relying on your financial support, and by that, I mean either assets or income.

For example, if you and your spouse are retired and/or have enough funds squirreled away you could retire, then truthfully you don’t have a life insurance need. You see, if you passed away, your significant other isn’t relying on an insurance policy to supplement your assets, as you’ve worked diligently over a lifetime to save ample assets.

Let’s talk numbers

Once you determine that you need life insurance, you’ll need to determine the type and how much. You can likely skip over the type, as most people can opt for term life insurance — but you’ll want to choose what is best for you and discuss it with a financial adviser or insurance agent.

To figure out the correct amount of coverage you need, you can also work with an insurance agent or financial adviser. They will likely work backward by determining what financial outlays will need to be taken care of when you’re no longer here (which sounds morbid, but it must be discussed). Let’s pretend that you’re currently 35 years old with two children and a single income of $200,000 per year. Your family may want to have the mortgage and college for the children taken care of if you were to die, so you’ll need to account for a mortgage (let’s say that is $400,000) plus anticipated college expenses for the two kids (let’s say $350,000). Let’s add in an existing student debt of $250,000 for the parents.

So far, we’d want to cover at least $1 million worth of life insurance coverage, just to cover student debts, future college expenses and the mortgage. We still haven’t touched on expenses for the surviving spouse, who now has no income coming in and still has children to care for — so you’d likely want to add in coverage here. You may want to add in $1 million of coverage for every $50,000 of residual income that you’d like to leave behind. So if you want $150,000 per year of residual income, you’d want to plan for $3 million in additional coverage. Add that to the million we’ve already added up, and now we’re at $4 million of coverage on the working spouse.

Don’t forget to cover the other spouse

Just because the other spouse isn’t working doesn’t mean that they don’t need coverage also — if they were to die prematurely, the family would experience financial hardship and additional costs. You’d likely need to add in the same $1 million for the debt coverage on this spouse, plus another $1 million to account for about $50,000 per year in residual income to cover expenses such as a nanny or childcare until your children are grown.

While it seems like a lot to leave behind, it goes fast, and term insurance is relatively inexpensive comparatively. It’s easier to protect your family with insurance and continue to invest and also protect your retirement as best you can at the same time.

Diversified is a registered investment adviser, and the registration of an investment adviser does not imply any specific level of skill or training and does not constitute an endorsement of the firm by the SEC. A copy of Diversified’s current written disclosure brochure which discusses, among other things, the firm’s business practices, services and fees, is available through the SEC’s website at: www.adviserinfo.sec.gov.

Diversified, LLC does not provide tax advice and should not be relied upon for purposes of filing taxes, estimating tax liabilities or avoiding any tax or penalty imposed by law. The information provided by Diversified, LLC should not be a substitute for consulting a qualified tax advisor, accountant, or other professional concerning the application of tax law or an individual tax situation.

Nothing provided in this article constitutes tax advice. Individuals should seek the advice of their own tax advisor for specific information regarding tax consequences of investments. Investments in securities entail risk and are not suitable for all investors. This site is not a recommendation nor an offer to sell (or solicitation of an offer to buy) securities in the United States or in any other jurisdiction.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

It would be nice if there was an investment that could offer retirees growth potential, principal protection and complete liquidity. However, it doesn’t exist. There’s no such thing as a perfect investment, product or strategy. Nothing does everything well.

Traditionally, many investors have allocated a portion of their portfolio to bond funds in an effort to lower their overall risk while maintaining liquidity. The problem is bonds and bond funds are different. Bonds are guaranteed by and only as good as the entity that backs them, while bond funds are actively traded funds focused on the bond market bonds and can lose principal.

When retirees and near-retirees realize that their diversified portfolio of various stocks, ETFs and mutual funds, blended between the equities market and the bond market, is technically at risk, many start to look elsewhere for more safety. This is especially true when you consider the markets’ historical patterns, which I covered in my article Four Historical Patterns in the Markets for Investors to Know.

This article is intended to highlight the benefits and detriments of five investments and products that offer principal protection with growth potential. Please note investments and products that offer growth potential and principal protection are likely to underperform your standard benchmark indexes during the good years. However, because they offer principal protection, they won’t lose money in the down years (assuming there are no fees associated with the investment or product). Also, make sure to consider the credit rating of the entity that offers these investments or products. The principal protection offered is only as good as the entity that is backing them.

Liquidity could be an issue

Lastly, these investments and products also lack liquidity. Remember, there’s no such thing as a perfect investment, product or strategy. If you want growth potential and principal protection, you’ll have to give up some or all liquidity for a period of time. Consider for a moment that you probably don’t need access to all of your money in any given year. However, making sure a portion of your portfolio cannot lose ground may help you sleep better at night.

Don’t fall into allocation ambiguity and blindly guess how much needs to be protected. Design your lifestyle and legacy plan first and then build your portfolio around those requirements. If you want help understanding how to do this, you can learn more about how to create a retirement plan that’s designed to last longer than you without locking up assets into lifetime income streams from insurance companies in my book, How to Retire on Time. Let’s dive in.

1. CDs

Certificates of deposit, or CDs, are cash-equivalent products that offer a fixed rate for a fixed period of time. Because they are heavily influenced by interest rates, many banks may be hesitant to offer too high of a rate for too long of a period of time.

CDs tend to help with short-term protection needs. If the Fed were to drop rates, the new CD rates may not be enough to maintain your lifestyle expectations.

If you want protection with reasonable growth potential longer than two years, you may want to consider another option on this list.

2. Bonds

Bonds (not bond funds), like U.S. Treasuries or corporate bonds, are debt instruments guaranteed by the entity that backs them. Technically, you can sell a bond before its maturity if needed. However, if you were to sell before it matures, it would be sold at market price. That means you could sell it for a gain or a loss. If you want the protection, you would need to hold it until maturity.

Bonds may be a good fit if you want protection with a slightly longer duration than a CD, even though the short-term CD may have a higher rate. You never know when the Fed will increase or decrease rates. It is important to note that if interest rates were to go down, your bond would become more valuable, in case you decide to or need to sell it early. Otherwise, you can buy a bond and hold it to maturity, knowing what the rate is expected to be.

Be careful when picking high-yield bonds. The higher the yield or rate offered, the riskier the bond. Remember, bonds are only as good as the entity that backs them.

3. Fixed annuities

Fixed annuities, on the surface, are similar to a CD but from an insurance company. Insurance companies and banks operate differently. You may be able to get a higher rate for a longer duration through a fixed annuity. Once the annuity matures, you can liquidate it and spend it or move it into another investment or insurance product (e.g., fixed annuity, fixed-indexed annuities, etc.). If you are working with non-qualified funds, you can defer the capital gains tax by moving the cash from one non-qualified annuity into another non-qualified annuity through what’s called a 1035 exchange.

If you are younger than 59½, proceed with caution. Distributions from annuities before the age of 59½ may be subject to a 10% penalty. It is a retirement product that has limitations.

4. Fixed-indexed annuities

Many people do not realize that fixed-indexed annuities can be used as bond or CD alternatives, offering growth potential and principal protection on your cash value. In other words, fixed-indexed annuities do not have to be used as an income strategy. Many investors use them as an asset-preservation strategy to help hedge against downside market risk.

In a nutshell, here’s how they work. When the fixed-indexed annuity’s benchmark index, such as the S&P 500, goes up, the annuity’s cash value increases as well. When the benchmark index goes down, the principal of the annuity is maintained.

Assuming you picked an annuity with an annual reset, each year, a new “floor” is established. That means, unless you were to take a withdrawal or your annuity has fees associated with the policy, you cannot lose ground. Each year is a new year when the fixed-indexed annuity can grow its cash value or maintain the cash value of the previous year.

That said, I can’t emphasize the following enough: Not all fixed-indexed annuities are built the same. Just like some CDs may offer a 5% rate while others may offer a 0.5% rate, some fixed-indexed annuities have more growth potential than others. Your research and due diligence are incredibly important.

Here are a few words of caution for those considering using fixed-indexed annuities as a bond or CD alternative. Don’t add features you don’t need. If you are looking for potential cash growth and principal protection, don’t add on lifetime benefit riders or try to make your policy into a makeshift long-term care policy. The additional fees may compromise its original purpose of growth potential on the cash value with principal protection.

Also, many times an insurance company will have an annuity with and without a cash bonus offer. Annuities that offer a bonus, known as bonus annuities, tend to have less growth potential throughout the life of the policy. Because the bonus option may offer less growth potential, you may end up with less cash overall at the end of the policy, even when you calculate the cash bonus in the beginning. If you want your cash to grow, compare the options and their long-term growth potential.

I have found that fixed-index annuities, when sufficient shopping and research have been conducted, may offer more growth potential over the longer-term time horizon than CDs, Treasuries and fixed annuities. However, you must shop around and vet the insurance companies’ reputations, renewal rates and credit ratings. Make sure you also spend time understanding the benchmark index associated with any annuity. There are many new indexes focused on back-tested hypothetical results. That doesn’t make them bad. This means you may want to proceed with caution.

5. Cash value life insurance

Cash value life insurance, or permanent life insurance, can be used as a source of principal protection to help you through turbulent times. Even though some life insurance policies may have a cash component, they should not be considered investments.

You should only consider life insurance, whether it be indexed universal life insurance or whole life insurance, if your primary focus is to have a death benefit. The cash value associated with the policy, the tax strategies that can be implemented alongside the policy and so on should all be secondary objectives when considering life insurance. When funded and structured correctly, these secondary strategies can act as a nice complement to a retirement plan.

If you want to consider cash value life insurance, I would recommend exploring your options with an independent insurance agent who is also a licensed investment adviser and tax professional. The additional licenses may be able to help you explore a more comprehensive strategy with your policy than through a professional who is limited to only an insurance license. In other words, if their disclosure states they do not offer tax advice, how can they recommend an IUL for tax planning purposes?

Conclusion

Having principal protection can be helpful during difficult market conditions. If your portfolio is causing you to lose sleep, then maybe you are taking too much risk. I believe every investor should operate within their emotional and economic limits. Overall growth is important, but at what cost? Consider the potential benefits of having some of your portfolio’s principal protected.

If you are wondering how much should be protected, consider putting together your lifestyle plan first, then explore the tax and other strategies you want to implement. Once you understand your plan and the strategies designed to help bring that plan to life, you can start designing your portfolio.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Benjamin Franklin once famously opined that nothing in the world could be certain but death and taxes. But when it comes to estate planning, how can you separate the certainty of the former from the burden of the latter? Permanent life insurance is something to consider.

Despite the fact that few individuals want to contemplate death, life insurance can be a critical part of estate planning for most individuals in a way that other investment and insurance products are not.

The nature of insurance is that you pay into something you hope you don’t need but provides a safety net in the event of an unforeseen circumstance. Though you’d never own an automobile or home without insuring them, a successful journey with car or homeowners insurance might mean that you never use or benefit from it. But life insurance is different in that we’ll all experience a qualifying event, and some policies can accrue a cash value that can be borrowed against or withdrawn during our lifetimes.

Why permanent life insurance?

Life insurance is most often bucketed into two categories: term and permanent. Term life insurance provides the policy’s beneficiary with a death benefit if the insured dies during the policy period — e.g. 10, 15 or 20 years. Once that term is up, the coverage has to be renewed, by providing evidence of insurability, to keep any benefit. However, some term policies include a conversion provision that allows the policy owner to convert the term policy to a permanent policy during a specified period of time (i.e, up to age 65) without evidence of insurability.

Permanent life insurance never expires, as long as you pay the premium. Both types of insurance can be appropriate for different financial situations or life stages, but when considering insurance’s role within estate planning, permanent is the most pertinent.

Consider these advantages of permanent life insurance:

• High benefit-to-premium value in early policy years
• Known and predictable death benefit
• Benefits are paid in cash
• Cash value grows tax-deferred
• Benefits may not be subject to income or estate taxes
• Low risk of carrier default

Life insurance, like most other investments, provides the most benefit when you start it early. Unlike other investments, though — where the principal benefit to early investing is the power of compounding — life insurance investors benefit because “younger and healthier” means better policy eligibility and premiums. It also means that in the unfortunate instance that death benefits need to be paid in the early years of the policy, the benefit will far outweigh any premiums that have been paid.

Those benefits are unique as well because they are made available in cash to beneficiaries, which can help to settle outstanding financial obligations or death expenses. Guaranteed cash benefits can extend beyond the immediate financial needs of estate settlement or inheritances, though, and prevent a beneficiary from being forced to sell a business, real estate or other interest-bearing investments to cover living expenses. Setting beneficiaries can also ease concerns about equitable treatment among heirs when it comes to the distribution of assets.

How your beneficiaries use a life insurance benefit is up to them, but how they choose to receive it will determine if or how they are taxed. Life insurance benefits are generally available as a lump sum, timed installments or even as annuity payments. For most, choosing a lump-sum payment means avoiding income or estate taxes on the benefit, while receiving benefits over time could mean taxes on additional interest earned. A financial adviser can help assess what type of payout option would be most advantageous for you or your beneficiaries.

Permanent life insurance has benefits that extend beyond death benefits to beneficiaries. As you continue to pay your premium, your policy will accumulate a cash value that can be borrowed against. Borrowing from your life insurance policy can be an effective alternative to a standard bank loan since the only collateral is the policy itself. Still, you’ll want to speak with your adviser before considering a loan from life insurance, as any loan would be repaid with interest and could affect the death benefit from your policy.

A few considerations

While permanent life insurance can be a beneficial component of most estate plans, there are challenges to consider. Specifically:

• Higher premiums for permanent vs term life insurance
• Higher premiums or denial of coverage due to age or health conditions
• Policies are not FDIC-insured in the case of insurer insolvency
• Lower benefit to premium value in later years of policy

The primary challenge of permanent life insurance is that it becomes harder and more expensive to get as you age or if you have certain health challenges. That’s why it’s advantageous to get started with a permanent policy while you’re young and to keep up with the premiums to prevent the policy from lapsing. The solvency of the insurer can be an issue, but that can be mitigated by doing research and paying attention to the independent ratings agencies that grade them.

In his oft-quoted quip about death and taxes, Franklin was commenting on the projected permanence of the newly ratified U.S. Constitution — it had nothing to do with life insurance or finances. But when it comes to estate planning, the peace of mind of a burden-free benefit to your loved ones is worth consideration.

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Determining whether to purchase life insurance is a big decision. There are numerous policies that provide different types of coverage. Some are for a specific period of time, and others are for life. In light of National Insurance Awareness Day, which is June 28, now is the perfect time to assess whether purchasing life insurance is right for you.

Just like any other insurance plan, life insurance requires you to pay premiums in exchange for coverage. These premiums can be paid through a series of payments or all at once, depending on what works best for your budget. However, you’re not required to purchase a life insurance policy, so it’s important to determine whether you can afford it before moving forward.

In addition to the financial aspect, there are other factors to consider. If your death and the loss of your income would cause financial hardship for your beneficiaries, a life insurance policy may be a good choice. Life insurance can also cover your end-of-life care, funeral expenses and any outstanding debt in the event of a premature death. If any of these apply to you, life insurance might be a feasible solution.

The different types of life insurance

Before purchasing a life insurance policy, it’s important to know the different types that are available. Some are temporary and some are permanent.

Term life insurance is an example of a temporary policy. These policies typically provide coverage for 10, 20 or 30 years. There are also different subcategories for term life insurance.

Decreasing term life insurance is a renewable type of insurance with coverage that decreases as the end of the term nears. These policies also have a predetermined rate.

With convertible term life insurance, policyholders can convert the term policy into a permanent one.

Renewable term life insurance gives policyholders a quote for the year the insurance was purchased. From there, the policy’s premiums increase annually.

If you’re interested in receiving lifetime coverage, a permanent policy might be more suitable. Permanent life insurance is usually more expensive than term, but the coverage will last until you die or stop paying the premiums. Similar to term life insurance, there are different types of permanent coverage.

One common type is whole life insurance. In addition to providing life-long coverage, this policy also offers a cash value component, which is like a savings account. The cash value component allows the policyholder to take out loans or pay premiums.

Universal life insurance also provides a cash value component, but unlike whole life insurance, the cash value component earns interest. Another perk is that the premiums are flexible, and the policy provides options for level death benefit or increasing death benefit. A level death benefit is a payout from the policy that remains the same regardless of when the policyholder dies. An increasing death benefit is a little different. This type of benefit allows the policyholder to increase the payout amount over time, but the premiums are more expensive.

Another type of permanent life insurance is an indexed universal policy. This type of insurance allows the policyholder to earn a fixed or equity-indexed rate of return on the cash value.

The last option is a variable universal life insurance, which gives the policyholder the option to invest the cash value into a separate account. This policy also includes flexible premiums, and policyholders can choose between a level or increasing death benefit.

How life insurance premiums are determined

In addition to understanding the different types of policies, it’s important to understand the premiums, which are based on a number of different factors. For example, your health and age are huge factors that determine the cost. Therefore, maintaining your health as best you can and purchasing life insurance as soon as you need it may help lower the cost. But how do you know if you actually need it?

As briefly mentioned earlier, life insurance is about providing your dependents with financial support after you're gone. Parents with minor children or children who have special needs could benefit greatly from life insurance. If one parent dies, these policies can help supplement the surviving spouse’s income. If you have a child who requires life-long care, life insurance can help cover that cost once you and your spouse have passed away.

However, parents aren’t the only ones who can benefit from life insurance. These policies can also be useful for adults who jointly own property, families who can’t afford funeral expenses, married pensioners and those who have pre-existing medical conditions.

Purchasing life insurance can be a great way to make sure your beneficiaries have financial support once you pass away, but it comes at a cost. If you’re considering buying life insurance, determine just how much you’ll need and do your research. Meeting with a financial adviser can help determine what kind of policy works best for you and your situation. The last thing you want to do is purchase a policy you can’t afford or one that doesn’t provide the coverage you need.

Pat Simasko is an investment advisory representative of and provides advisory services through CoreCap Advisors, LLC. Simasko Law is a separate entity and not affiliated with CoreCap Advisors. The information provided here is not tax, investment or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

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When you originally invested in your life insurance policy, you were likely thinking about taking care of others after your lifetime. But you may now find that you and your family no longer need that extra layer of financial protection. You may have even asked yourself, “Should I surrender or cancel my policy?”

If you’re philanthropically inclined, you can contribute your life insurance to a 501(c)(3) public charity, like a donor-advised fund. By contributing your policy during your lifetime, you’re able to use the value of your policy to benefit your favorite causes, while also claiming a current-year income tax deduction (if you itemize) and potentially reducing your estate tax liability. You can also name a charity now to be a beneficiary of your policy after your lifetime, helping to extend your charitable legacy.

What are the different ways you can donate life insurance?

There are two primary methods to contribute life insurance to charity, and each one has different timing and tax benefits.

1. Transfer the policy ownership and beneficiary interest to your favorite charity, which is generally possible with permanent life insurance. After taking ownership, the charity may opt to surrender the policy for its cash value. (Life insurance companies often allow a policy owner to “surrender” their policy — in other words, cancel it to receive a cash value, minus any surrender charges and fees.)

Tax benefits to this method:

• Life insurance is considered an ordinary income asset, meaning that surrendering a policy for its cash value would trigger ordinary income taxes for you on the policy’s appreciation — even if you took that money and then donated it to charity. But, by contributing your policy directly to charity, you potentially avoid the tax you would otherwise incur if you surrendered the policy yourself and donated the proceeds. And because U.S. public charities are tax-exempt, the charity can surrender the policy for its full, untaxed value, maximizing the impact of the contribution.
• Assuming you itemize your deductions, you may also claim a current-year tax deduction for the policy contribution. Because life insurance is an ordinary income asset, the deduction is limited to the lesser of the policy's value or your adjusted cost basis in the policy (generally, premiums paid to date).
• An added benefit is that the policy’s value could potentially be removed from your gross estate, lowering your estate’s eventual tax burden.

2. Retain ownership of your policy but name a charity as a full or partial beneficiary. In this situation, the charity would receive a designated payout from the insurance company after your lifetime. While you can’t claim a charitable income tax deduction during your lifetime in this situation, your estate will be entitled to claim a charitable estate tax deduction for the beneficiary proceeds distributed to charity at your death.

This method can offer you more flexibility in case your circumstances change (you can change the beneficiary named on your policy), and it can be appealing to those who might not otherwise be able to make a significant gift during their lifetimes. Keep in mind that you may need to continue paying policy premiums for the remainder of your life.

More advanced donation strategies exist, including options that replace income. If you’re interested in exploring those strategies, contact your tax adviser or estate planning attorney.

What types of life insurance can you donate?

You can donate both permanent life insurance (including whole life and universal life) and term life insurance to charity, but the donation options differ.

Permanent life insurance policies hold cash value that can be surrendered. A cash value policy (in particular, a paid-in-full cash value policy) can be an appealing donation because you have the option of gifting during your lifetime, not just at the end of it. And by gifting during your lifetime, you may be able to take advantage of the tax benefits described above.

On the other hand, term life insurance donations have their limitations. While term policies can still be used to benefit charity, gifting during your lifetime is not an option. You can only name a charity as an end-of-life beneficiary. And because term policies are only active for a specified period, you should investigate whether the term policy could expire during your lifetime.

Can you donate life insurance to a donor-advised fund?

A donor-advised fund account, like the one offered by Schwab Charitable™, is a simple, efficient and tax-smart giving solution. By contributing to a donor-advised fund, you can potentially reduce tax burdens, invest contributed assets for tax-free potential growth and recommend grants to qualified U.S. public charities immediately or over time.

Donor-advised funds like Schwab Charitable are public charities themselves. Subject to prior due diligence review, Schwab Charitable can accept your policy as a charitable contribution and surrender it for a cash value. The funds are then made available for you to recommend investments and grants.

Once you have an account open, you may also name your account as a beneficiary of your policy. Recommended grants to charities after your lifetime would then be based on your account’s succession plan or granting history.

Maximizing a gift during a donor’s lifetime: A case study

Years ago, Shannon invested in permanent life insurance, ensuring that her family would be cared for after her lifetime. Now in retirement, Shannon realizes she’s accumulated more wealth than her family needs, even without the life insurance policy, and she decides she wants to make a charitable impact during her lifetime.

Shannon learns that the value of her life insurance policy can be used as a charitable contribution. Alongside her financial adviser and tax adviser, she explores her policy surrender options and how she can maximize charitable impact.

Option 1: Surrender the policy herself and then contribute the post-surrender proceeds. Shannon’s policy has a $500,000 surrender cash value, with $200,000 in basis (premiums Shannon has paid over the years), without a loan against it. Because life insurance is an ordinary income asset, if Shannon surrendered the policy herself and then contributed the proceeds, she’d incur income tax on $300,000 (the policy gains). Assuming a 24% income tax rate, the post-surrender charitable contribution would be reduced from $500,000 to $428,000. (For simplicity, this hypothetical example assumes no surrender charge or other fees.)

Option 2: Contribute the policy directly to charity, which then surrenders the policy for its cash value. If Shannon transferred the policy ownership to her desired charity and let the charity handle the surrender (rather than Shannon surrendering the policy herself), she would eliminate the taxable income. And, as a tax-exempt entity, the charity would not pay income tax when surrendering the policy. Unlike the first option, the charity would receive the full $500,000 value. (Again, for simplicity, this hypothetical example assumes no surrender charge or other fees.)

Here’s a chart showing the tax impact for Shannon and the charity:

Note: This hypothetical example is only for illustrative purposes. The example does not take into account any state or local taxes or potential surrender fees. The tax savings shown are the tax deduction multiplied by the donor’s marginal income tax rate (24% in this example) minus the income taxes paid. In Option 2, the deduction is limited to the $200,000 policy basis.

Other considerations when donating a life insurance policy

1. Loans against the policy can complicate your charitable contribution.

If you have taken out any loans against the insurance policy, you may be subject to IRS “bargain sale” rules, which can generate taxable income for you and lower the value of your charitable deduction.

2. Annual limits apply to charitable deductions.

If you itemize deductions when filing taxes, your deduction for a during-life contribution of a cash value life insurance policy is generally limited to 50% of your adjusted gross income (AGI). Any deduction amount above this AGI limit may be carried forward for up to five additional tax years, subject to AGI limits in each year.

3. Qualified appraisal requirement rules may apply.

To claim a charitable income tax deduction for during-life contributions of permanent life insurance policies, you must not only itemize income tax deductions, but also must obtain a qualified appraisal from a qualified appraiser if the claimed deduction is greater than $5,000. You also must file IRS Form 8283 with your taxes for the tax year that the life insurance gift is made.

4. You may potentially minimize your gross estate’s tax exposure.

Your life insurance is included in your gross estate after your lifetime. By donating your policy during your lifetime or by retaining your policy’s ownership and naming a charity as a policy beneficiary, you can reduce the value of your gross estate, potentially minimizing its eventual tax exposure.

5. Donors must work directly with their policy administrator to update ownership and/or beneficiary information.

It can take time to finalize the policy ownership transfer through your policy administrator (insurance company), which could result in a delay in making the gift. If you’re planning to make your contribution near year-end, consider starting the process early to avoid any deadlines for yearly tax deduction eligibility. Please note that most charities want to know if you are planning to donate a life insurance policy, whether during or at the end of your lifetime. Some due diligence review before acceptance may be required by the recipient charity.

It’s simple to contribute to your donor-advised fund account, but life insurance and other non-cash assets can be nuanced. Refer to online resources, or experts, such as the Charitable Strategies Group at Schwab Charitable for specialized knowledge on contributing complex assets to charities.

Please be aware that gifts of appreciated non-cash assets can involve complicated tax analysis and advanced planning.

A donor's ability to claim itemized deductions is subject to a variety of limitations depending on the donor's specific tax situation. Consult a tax adviser for more information.

Contributions of certain real estate, private equity, or other illiquid assets may be accepted via a charitable intermediary, with proceeds transferred to a Schwab Charitable donor-advised account upon liquidation. Call Schwab Charitable for more information at 800-746-6216.

Schwab Charitable Fund™ is recognized as a tax-exempt public charity as described in Sections 501(c)(3), 509(a)(1), and 170(b)(1)(A)(vi) of the Internal Revenue Code. Contributions made to Schwab Charitable Fund™ are considered an irrevocable gift and are not refundable. Once contributed, Schwab Charitable has exclusive legal control over the contributed assets.

Schwab Charitable does not provide specific individualized legal or tax advice. Please consult a qualified legal or tax adviser where such advice is necessary or appropriate.

Schwab Charitable™ is the name used for the combined programs and services of Schwab Charitable Fund™, an independent nonprofit organization. Schwab Charitable Fund has entered into service agreements with certain subsidiaries of The Charles Schwab Corporation. (0624-7PJ3)

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

When it comes to choosing an insurance agent or broker, consider the same process you’d use when finding a competent and reliable medical provider.

Imagine the following scenario. During your annual physical, your doctor says that you need to have surgery. It’s a pretty big procedure, but he or she says you should get it done sooner rather than later. What do you do? Likely, you’ll start trying to find a good surgeon, asking your doctor for recommendations, checking with friends and family to know if they have had a positive experience with one, checking with your insurance company to see if they have any recommended surgeons. You may go online and check Yelp or Google to see reviews about doctors as well.

Once you find a few potential surgeons, what do you do next? Schedule your surgery? Probably not. You’ll want to meet them first. Talk with them. Let them see your health history. Find out how many surgeries of this type they have done in the past, what their success rate has been. When seeing the doctor, you will likely also be assessing their personality and bedside manner. The staff in the office play a large role in your overall level of comfort with them, too. If all goes well, you still won’t schedule your surgery on the spot. Chances are, you will still poke around more online, ask around, verify information you’ve found so far. Then, and only then, after going through all these machinations surrounding which doctor is just right for you, will you decide on one, pull the trigger and schedule your surgery.

All of this is entirely reasonable. This is surgery after all — it’s your body, your life. In a similar vein, when selecting an insurance agent or broker, the individual that you may entrust with assisting you in protecting your assets, from your home, your car, health insurance, even life insurance (and we’re right back to your body), it may not occur to you that not all agents and brokers are created equal.

Insurance agents are not all the same

Before you shrug this off, I will agree that you are worth more than any house, any car, any business. Having said that, having the appropriate insurance protection at a price point you can live with can be a matter of financial life-or-death. Ending up with the wrong agent can cost you, not only in potentially paying more in premium than is necessary, but also in not having the appropriate coverage if you have a claim. Nothing chaps my hide more than when a new prospect comes to me and tells me about a claim they were denied coverage for and why, and the why is their agent simply didn’t give them what they asked for.

Not all insurance agents and brokers are created equal. I remember long ago when I was a mere little guy in college, thinking I was going to be a pediatrician, because, well, doctor or lawyer, right? I had to dissect a fetal pig for one of my courses. Things did not go well, comically so, and I was ready to throw in the towel. My father told me to remember, and I quote, “Don’t worry about grades. The doctor who graduates from medical school with a C average still has MD after their name.” A strange comfort, and I never forgot what the ramifications of this were in every industry.

To sell insurance policies, each state has guidelines for the licensing process that an individual must go through. Imagine hours and hours of instruction and tests — yes, plural tests — that are state-dependent, but in no state is it a simple task. But guess what? The exam is pass-fail. And even if you pass the first time, you have, as my father indicated, the same insurance license as the person who failed the exam repeatedly before managing to pass.

You may also know of the incredible phenomenon with pass-fail exams. If you fail, you could have “just missed it by one question.” However, if you pass, then you might have “only missed one or two questions,” because, yes, exactly. I tell you this so that you understand that licensed insurance experts really are not all the same.

Tips for choosing an insurance agent or broker

Here are some important tips to keep in mind the next time you are seeking out someone to be your insurance agent or broker:

1. Check the status of their insurance license online. All state departments of insurance have a website where you can put in a name and get a history of the licensee. See if they have any reprimands on file, any noncompliance notices, fines or restrictions on their license.

2. Find out how long the agent or broker has been licensed and in the industry. Don’t knock the newbies, but all things remaining the same, they may not have the experience you require.

3. Look for any insurance designations other than the basic insurance license. While only the license may be required to begin offering insurance policies, there are designations out there for an individual who wants to put in the time to go that extra mile. Each of them will show you that this person wanted to do more than the minimum. They wanted to learn more and do more, and that hopefully means they will perform better for you.

4. See which insurance companies the agent or broker is approved to do business with. If you don’t recognize a single insurance company that they represent, that’s a red flag. Better insurers tend to kick less-savory agents to the curb rather than allow their brand to be tarnished by schlocky representation.

5. Ask the agent or broker how long their average client has been with them. If they are unwilling to tell you, or they give you a vague answer, then you should worry. Good agents and brokers will be proud to tell you that what we call in the business their “retention numbers” are high, meaning clients that come to them stay with them.

Far be it from me to knock my brethren insurance agents and brokers. I make it a point to try very hard never to knock the work of another professional. Yes, I try. But when it comes to protecting the things that belong to you, it may not appear so important now how or through whom you purchase your insurance policy, but I guarantee that if a claim comes down the way, you will be glad you took the time to select someone who cares enough about what they do for a living to do more than the bare minimum when it comes to educating and continuing to educate themselves on the insurance marketplace.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Let’s face it: You have to be motivated to create an estate plan.

Like many, I viewed estate planning as a necessary but daunting task that I could easily put off until later in life. Then my older brother died. What followed his passing transformed my understanding of what it means to take care of your loved ones.

The unexpected loss of my brother to a heart attack at age 65 was deeply traumatic for our family, especially his wife and children. He couldn’t prevent his untimely passing, but what he did do was protect everyone he loved.

We quickly learned he had thoughtfully and meticulously prepared for the unforeseen, sparing his wife from the additional burden of navigating their business and finances during such a devastating time. He left her detailed instructions in a family trust document that included everything from their investments to managing and selling their rental properties, including contacts for property managers. He provided passwords to accounts, up-to-date financial snapshots and clear directives on how he wanted his assets distributed, along with explanations for his choices. (I told you — meticulous!)

While two-thirds of Americans still lack a simple will, personal experiences can spur action. One out of six Americans without a will say they are motivated to get one after the death of a loved one, according to a 2024 study by Caring.com. I have deep respect for my brother’s thoughtfulness, which is why I’ve started to develop my own estate plan and consulted with estate planning experts from my Wealthramp network of fee-only financial advisers.

I’m learning firsthand that the simplest lives are layered with complexities: children, pets, savings, retirement accounts, real estate, debts, personal belongings. It starts by taking a full inventory of what you own and providing access to the information, such as your medical wishes. What if you’re incapacitated and unable to speak for yourself?

Estate planning is more than just a financial necessity; it is the gift you can give your loved ones that will help them when they need your help the most. It ensures that you, not the state, decide how your affairs are handled and who receives your assets.

Six simple, essential steps to get your 'what if' plan together

You now know why I’m motivated to get my plan in place and might wonder how to begin organizing your own affairs. Here’s my list of six simple steps that I recommend for anyone, regardless of age or assets:

1. Inventory your assets and liabilities.

Catalog everything you own that holds either monetary or sentimental value. Simultaneously, make a list of all your liabilities, including mortgage balances, car loans and any other outstanding debts. Consider working with a fee-only financial adviser who can help you get a full and accurate snapshot of your investments and create a solid financial plan to guide your family.

2. Select your beneficiaries.

Decide who will inherit your assets. This could include family members, friends or charitable organizations. And keep them updated, as these designations can even override your will.

3. Establish a health care directive.

This vital legal document outlines your wishes for medical treatment if you become unable to communicate. Designate a trusted individual to make health care decisions on your behalf and discuss this responsibility with them thoroughly.

4. Decide whether to draft a will or a trust.

A simple will might suffice for your needs, but consider creating a living trust, which can bypass the often lengthy and costly probate process. This step is also where you appoint guardians for any dependents, including children or pets. Plus, what it now costs to create a legal trust is now almost the same as drafting a will.

5. Plan for business continuity.

If you own a business, implement a succession plan to ensure smooth operations and continuity in your absence.

6. Evaluate life insurance needs.

If your family relies on your income, calculate how much term life insurance is necessary to replace your earnings should something happen to you.

Each of these decisions not only significantly impacts your family but also evokes strong emotions, highlighting the need for clear communication.

Communicating your intentions

While it’s great to leave detailed instructions like my brother did, it can be even more helpful to deliver them personally.

That means having a real conversation that sets clear expectations and prepares your family, reducing the potential for misunderstandings or conflicts by explaining the rationale behind how and why you’ve chosen to allocate your assets.

For example, consider a scenario where you own a business that only one of your children has shown interest in and contributed to, while the others have not. Therefore, in this case, equal division may not equate to fairness. Your children should know why.

Typically, it’s advisable for parents to initiate this sensitive conversation, as it concerns decisions that may not be relevant to others until the parents choose to disclose them. You’ll want to decide how much information about your estate plans you wish to share. For some, transparency can prevent disputes, especially between siblings.

What, then, are the most valuable assets that cause the most contention among families?

Let’s discuss Mom and Dad’s house

Over the next 20 years, Gen X and Millennials are expected to inherit about $76 trillion in assets, including real estate. For many, the family home represents a significant portion of this wealth.

Most questions about passing on a house to the next generation come from the adult kids who will inherit their family home. Here are the two most common questions they ask.

First, should I be added to the deed now before my parents or loved ones pass away?

Estate planning experts generally say the answer is a hard no. Adding you to the deed can complicate decision-making, as both child and parent now share ownership of the home. It also means that when you sell the house, you’ll lose a huge capital gains tax break. The IRS allows heirs a step-up in cost basis compared to inheriting the property directly through a will or estate plan.

Second, what happens when I (or we) inherit the property?

Assuming there’s a legal will or trust outlining the heirs and their entitlements, it’s important to understand the implications if you’re poised to inherit your parents’ house. This could be one of the largest financial gifts of your life.

Hilary Daniel, CFP®, a financial adviser at Modera Wealth Management and fiduciary on Wealthramp, emphasizes the importance of finding out if there’s an outstanding mortgage (or reverse mortgage) on the property. “If so, you and any other parties that inherit will need to continue to pay the lender to avoid foreclosure,” she says.

Daniel also advises being aware that if a home is inherited by multiple parties, any heir has the legal right to force a sale of the property. “You might need to buy out other inheritors if you wish to retain the home.”

But what if you want to sell?

The step-up provision means your cost basis will be the market value at the time of the original owner’s death, potentially eliminating capital gains tax if sold immediately. If you decide to live in the property and sell it later, be aware of the home sale exclusion, which allows up to $250,000 (or $500,000 for joint filers) to be excluded from tax if the home was your primary residence for at least two out of the past five years.

And if you want to keep it?

Daniel points out, “Inheriting a home also means inheriting its upkeep costs.” This may include homeowners association dues, insurance and regular maintenance. So, assess whether these expenses fit your budget.

Older brothers are often known for their tough love, but I’m grateful that mine left me with invaluable wisdom by setting an example of caring and foresight. I hope the mere consideration of life’s unpredictability inspires you to organize your estate, rather than waiting for a harsh reality to force your hand.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

You love your insurance company as much as the next person, and paying premiums to it is right up there with paying your taxes. I’m frequently asked by clients when is the right time to buy life insurance; they don’t want to pay premiums longer than is absolutely necessary. I hear this from twentysomethings, thirtysomethings, 40, 50, even folks in their 70s and 80s. My answer is always the same: The best time to purchase life insurance is before you die.

I may be oversimplifying to some extent since some life insurance policies are meant to be acquired early in life, as they provide living benefits, savings, tax benefits and all sorts of other perks. At its core, life insurance is structured to pay a lump sum of moola when you shuffle off your mortal coil. So if we’re just looking for that result — a death benefit when you die — when do you buy?

Let’s walk through some of the different factors, and then we can come to the answer together. The first and most important item on your checklist to be aware of is when you buy life insurance, since the premium you pay will in great part be determined by a snapshot of you the day you purchase the policy. Think of it like a Polaroid picture of you — it shows you then and only then. It doesn’t change, get older or get sicker — or healthier, for that matter. The picture stays the same. Meaning when you sign on the dotted line, you lock in your current age, health, gender, employment type, hobbies, the works.

For example…

If you’re a 45-year-old man in generally good health, lacking the proclivity for extreme sports and work in an office, not a dynamite-manufacturing facility, then the life insurance company will decide on your premium based on those factors, for better or worse. If you smoke — let’s not get into more detail about what it is you’re smoking — have a spare tire or two you’re lugging around with you and spend your weekends cliff jumping, well, then, that is what the insurer will offer you a policy based on. The premium you will lock in for these two potential versions of you will differ greatly.

Understand that once you accept the premium and the policy is in effect, even if you gain or lose weight, change occupations or add or subtract extracurricular activities, the premium you are paying is not going to change, generally speaking. Ergo, the ideal time to purchase a life insurance policy is when you’re as young as you can be, healthy and present the least likelihood of dying. Makes sense, right? Assuming you are looking for the lowest premium possible, this could be the best opportunity you’re going to have when you apply.

Most of the time, as the mere mortals we are, apologies to the superhumans reading, as we age we may become less than the optimum versions of ourselves. We may develop a health condition, become injured or take up a less than savory habit. And we definitely will get chronologically older. So under all circumstances covered thus far, buy the policy when you are as young and healthy as you can.

There’s always a caveat

And now comes the caveat. If indeed you purchase your policy when you are young, healthy and in the best shape of your life, this means you will be paying premiums for the longest period of time, assuming you live a long life. So how does this balance out with the lower premium you are paying? What makes more financial sense — paying less for a longer period of time or paying more for a shorter period of time? Are you starting to get the idea on why answering the question of when to buy can be so tricky?

If you aren’t scratching your head yet, let me add to your quandary. There are some types of life insurance policies, referred to as term life policies, that provide a death benefit for a finite period of time. So if you were to purchase a 30-year policy, meaning it will pay a death benefit for the entire 30-year period from when you make your initial purchase, when you are 30 years old, healthy and strong, that policy will expire when you are 60 years old. Guess how much more likely it is for a sixtysomething to die prematurely than a thirtysomething. Yes, as you surmised, much more likely, and then your policy expires? Not a good-sounding deal.

There are other options

As luck would have it, your good buddies at the insurance companies have a solution for you. You can purchase a policy that lasts until you are age 100, or even older, if you like. Just keep coughing up those bucks, and they will keep that policy going. You may have heard of policies such as this referred to as either whole life policies or universal life policies. Each company has its own policy, its own guidelines and provisions, so it is crucial to read the policy and ask all of your questions before you buy.

So did you get your question answered, or just come up with more questions? Hopefully, a bit of both, and provided you are clear on what it is you want, and that there are options out there for you to choose from, go out there and shop between many insurance companies, or find a great insurance broker to do the searching for you. Ask questions and be clear on what it is you are looking for, and chances are, you can get the life insurance policy you’ve been hoping for.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Often, one of a client’s biggest goals is making sure their spouse is protected if they pass away. Choosing the best distribution option for your pension when you retire is an important decision.

Many people think they should take the survivor option to make sure their spouse is left in the best financial position. However, if you get creative with your planning, you may be able to create a better outcome than just taking the survivor option.

Taking the survivor option means you have to pay for that benefit, which in turn means that you don’t get as much money from your pension while you are alive.

For example, we had a client whose pension paid $5,000 a month for their lifetime. If they selected the survivor option (which would pay the spouse 50% of their pension for life), they would give up 10% of their pension going forward.

This means $500 per month would be deducted from their benefit, and they would receive $4,500 per month. When they pass away, the spouse would receive $2,500 a month for the rest of their life.

It may not be obvious whether this is a good or bad option without digging into the numbers. I don’t know about you, but $500 a month seems very expensive. Just think what you could do with an extra $500 a month in retirement.

Since the No. 1 goal of many people reading this article is for their spouse to be taken care of, let’s see what other protection options there may be for that $500 a month.

Consider life insurance

Some clients we work with consider replacing this survivor option with life insurance. What type of life insurance could you get for $500 a month? Someone who is 60 years old, depending on health, could get a permanent life insurance policy with a death benefit of about $350,000.

This means that if you passed away, $350,000 would go to your spouse at any time as long as you continued to pay on the policy. Or you could get around $1 million of death benefit with a 20-year term life insurance policy. This would last for 20 years, then go away, which is why you get more benefit for what you pay.

Typically, we would look at utilizing a combination of both to ensure the spouse has enough to live on if something were to happen.

How much does your spouse need to live the retirement they want? That is a determination you would need to make for yourself, but I can tell you that typically the life insurance benefit could be nearly as much as, if not more than, the $2,500 a month benefit they could have gotten by taking the pension by finding the right combination of term/permanent life insurance coverage.

The life insurance benefit would also be tax-free, while the pension payment would be taxable each year — and it could be taxed at the single rate vs the married rate, which is less advantageous for your spouse. (This is known as the “widow’s penalty.”)

An additional benefit is that if your spouse passes away first, you could now leave this insurance money to your kids tax-free. Also, many life insurance policies have a long-term care option that allows you to accelerate the death benefit if you were to need that care.

If you purchase a permanent life insurance policy, many have a cash value buildup that you could access and then cancel the policy if your spouse passes away first — meaning that what you paid into the policy is not wasted.

Keep in mind that you must be insurable to take advantage of this option, and the cost will depend on how healthy you are. For those who are younger and healthier, this can be a viable option.

I would suggest working with a financial planner who specializes in comprehensive planning — including pension and life insurance planning — to help you run the numbers to see if this is a good option for you. If it is, they can help you find the best vehicle to fit your situation and goals. (I wrote a book for those with pensions, The 2% Club, that you can request for free here.)

Another concern to keep in mind

This type of planning can also be beneficial for those who may be concerned about the long-term viability of their pension. In recent years, pensions have shown signs of stress as people are living longer and there are fewer people paying into them. As a result, many pensions are underfunded.

Exploring options beyond your pension could mean more control for your retirement.

It could also be beneficial not to choose the pension survivor option if your spouse is older than you or is not expected to live as long as you. The bottom line: You don’t want to pay for something you may never benefit from.

If you decide not to take the pension survivor option, it’s very important that you have a plan in place to make sure your spouse is taken care of in the event that you pass away first.

If you’re not eligible for life insurance, or you don’t have enough investments to self-insure, then in some cases, I would counsel you to take the pension survivor option to ensure your spouse is covered, even if that means not maximizing your pension benefit. In this case, the risks outweigh the potential benefits.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

As Baby Boomers transition into retirement, ensuring financial security becomes paramount in the face of potential uncertainties. From market fluctuations to health care expenses and longevity risks, navigating these challenges requires proactive planning and strategic decision-making. Here are six actionable steps for Baby Boomers to protect their finances and secure a prosperous retirement.

Before diving into specific strategies, it's crucial for Baby Boomers to grasp the various financial risks they may encounter in retirement. These risks include market volatility, health care costs, inflation and the need for long-term care. By recognizing and addressing these risks, Boomers can better prepare themselves for the financial challenges ahead.

1. Building an emergency fund.

A robust emergency fund serves as a financial safety net, providing Baby Boomers with peace of mind in the face of unexpected expenses or income disruptions. While conventional wisdom suggests setting aside three to six months' worth of living expenses, retirees may benefit from a larger emergency fund to account for potential health care or long-term care costs.

Baby Boomers should carefully assess their current expenses and financial obligations to determine the appropriate size of their emergency fund. Additionally, they should consider potential health care costs, including deductibles, copays and out-of-pocket expenses, when calculating their emergency fund needs.

By setting aside a sufficient amount in their emergency fund, Boomers can protect themselves against unforeseen financial emergencies and maintain financial stability in retirement.

2. Ensuring sufficient insurance coverage.

Reviewing insurance policies is essential to ensure Baby Boomers have adequate coverage to mitigate various risks in retirement. Health insurance plays a critical role in covering medical expenses, while long-term care insurance can protect retirement assets from the high costs of assisted living or nursing care. Additionally, life insurance and disability insurance provide financial protection for you and/or your loved ones in case of illness or death.  

Baby Boomers should thoroughly review their insurance policies to understand the extent of coverage provided and any limitations or exclusions. They should also assess their potential health care needs in retirement and consider purchasing supplemental insurance, such as Medicare Advantage plans or Medigap policies, to fill gaps in coverage.

3. Diversifying investments and managing risk.

Diversifying investment portfolios is key to mitigating risk and preserving capital in the face of market volatility. While reducing exposure to equities near retirement is prudent, certain financial products, such as annuities, offer protection from market fluctuations while providing a reliable income stream. Annuities with guaranteed income features can help cover income needs not fully met by Social Security benefits.

Baby Boomers should work with a financial adviser to develop a diversified investment strategy tailored to their risk tolerance, financial goals and time horizon. This strategy may include a mix of stocks, bonds, mutual funds and other asset classes designed to generate income and preserve capital.

4. Properly preparing for health care costs.

Health care expenses can pose a significant financial burden in retirement, making it crucial for Baby Boomers to prepare adequately. In addition to Medicare coverage, long-term care insurance should be considered.   

Baby Boomers should carefully evaluate their potential health care needs in retirement and explore various insurance options to mitigate the financial impact of medical expenses. They should research Medicare coverage options, including Parts A, B and D, as well as supplemental Medigap policies or Medicare Advantage plans.

5. Considering investments that combat inflation.

Preserving purchasing power is essential in retirement, necessitating investments that keep pace with inflation. Certain stocks or mutual funds focusing on sectors with growth potential or dividend-paying companies can provide a hedge against inflation while generating income for retirees.

Investment options may include dividend-paying stocks, real estate investment trusts (REITs), inflation-protected bonds and  Treasury inflation-protected securities (TIPS). By allocating a portion of their investment portfolio to inflation-fighting assets, Boomers can mitigate the erosive effects of inflation on their retirement savings and maintain their standard of living in retirement.

6. Setting up an estate plan.

Establishing a comprehensive estate plan is vital as Baby Boomers age. This includes naming financial and health care powers of attorney to make decisions in case of incapacity. Additionally, having a will or trust ensures assets are distributed according to the retiree's wishes, minimizing the risk of disputes or legal challenges.

Baby Boomers should work with an estate planning attorney to create a comprehensive estate plan that reflects their wishes and protects their assets for future generations. This may include drafting a will or trust to specify how assets should be distributed upon death, designating beneficiaries for retirement accounts and life insurance policies and appointing trusted individuals to serve as executors or trustees. Additionally, Boomers should consider establishing advance directives, such as health care proxies and durable powers of attorney, to ensure their wishes are honored in the event of incapacity.

Navigating financial uncertainties in retirement requires proactive planning and a multifaceted approach to risk management. By building an emergency fund, ensuring sufficient insurance coverage, diversifying investments, preparing for health care costs, considering inflation-fighting investments and setting up a comprehensive estate plan, Baby Boomers can safeguard their financial well-being and enjoy a secure retirement.

As they embark on this next chapter of their lives, Boomers can take comfort in knowing they've taken proactive steps to protect themselves from unforeseen challenges and pave the way for a prosperous future.

Justin Stivers is an investment advisory representative of and provides advisory services through CoreCap Advisors, LLC. Stivers Law is a separate entity and not affiliated with CoreCap Advisors. The information provided here is not tax, investment or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

When you think of your life insurance plan, what is the first thing you think of? For many, it’s being thankful there is a plan in place to help your family financially after you pass away. While this is an important component, there are more benefits to having life insurance.

Life insurance is meant to help your family cope with the loss of income when you pass by paying out a benefit. However, some life insurance policies have a cash value component and can also be used to save for retirement. While we all know the importance of having a life insurance plan, there are a few options to choose from. Each has benefits, but to pick a policy that is right for you, the key is to know their differences.

Term life insurance

The most common type is term life insurance. These plans provide a death benefit that will pay beneficiaries over a specific period of time. Once the term expires, you can either renew it, let it expire or convert it to a different type of life insurance. With these plans, the only value is the guaranteed benefit after you pass. They do not feature any other savings components.

Premiums for this plan are usually based on your age, gender, health and how much the policy would pay out if you pass away. In some cases, you may have to go through a medical examination to determine your qualifications. They may ask you questions about your current medications, smoking status, occupation, family history or hobbies. If you pass during the policy term, your beneficiaries will receive the cash benefit. This is typically used to settle your funeral expenses, health care costs or any type of debt you may have had.

While this is the most common practice for this payment, there are no restrictions on how the money can be used.

Whole life insurance

Unlike term life insurance, which lasts a specific amount of time, whole life insurance policies are one of several policies that are permanent. This means you are covered for your entire life, and as long as you continue to pay the premium, your policy will never expire. Whole life also has a cash value component, which you can draw on or borrow from as the policy owner. Part of your premium will go toward the death benefit and part will go toward the cash component.

This cash value offers a benefit to you while you are still alive, unlike other insurance plans. You can request a withdrawal of funds or a loan. There will be interest on these loans, but the rates are typically lower than you would see with a personal loan. However, it is important to know that if you decide to withdraw or borrow against your policy, you will be reducing your death benefits.

Indexed universal life insurance

Indexed universal life insurance is another permanent option for life insurance. Similar to whole life insurance, this also has a death benefit as well as a cash value component. With indexed universal life insurance plans, you may see higher earnings. This is because it is tied to a well-known stock market index such as the S&P 500 or the Nasdaq-100.

If you have an indexed universal life insurance plan, you can borrow against the cash you accumulate in the policy. Keep in mind that if you don’t pay it back, the money is deducted from the death benefit.

An attractive feature of these plans is their flexibility. You can increase your premiums or lower them during times of hardship. The cash value that you build up can be used to lower or potentially cover your premiums without subtracting from the death benefit.

Embrace the benefits of life insurance

Don’t depart from this earth leaving your loved ones with huge bills. Most of us know the importance of having life insurance, but many don’t have the proper education on which plans to consider. Life insurance is not a simple, one-size-fits-all decision, so I always recommend working with a financial adviser who can help you find the right policy for you.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

At its core, estate planning is about ensuring that your assets are distributed according to your wishes once you’ve passed away. It's also about minimizing the financial burdens on your loved ones to make the process as smooth as possible during a difficult time. Life insurance plays a crucial role in this process, offering a range of benefits that can help preserve your wealth and provide for your family's financial security.

One of the primary benefits of life insurance in estate planning is its ability to provide immediate liquidity. When someone passes away, there are often significant expenses that need to be covered such as funeral costs, outstanding debts and estate settlement fees. Life insurance can provide the necessary funds to cover these expenses quickly, ensuring that your loved ones aren't left scrambling to come up with the money or forced to sell off assets at a disadvantageous time.

Life insurance can also be an effective tool for mitigating estate taxes. Depending on the size of your estate, it may be subject to estate taxes, which can significantly reduce the amount of wealth passed on to your beneficiaries. However, life insurance proceeds are typically not subject to estate taxes, meaning they can be used to offset these tax liabilities and ensure that your beneficiaries receive the full value of your estate.

Equalizing inheritance when it’s complicated

When it comes to your beneficiaries, life insurance can help equalize inheritances, especially in more complex situations. In some cases, you may have assets that are not easily divisible, such as a family business or a piece of real estate. By naming certain beneficiaries as recipients of life insurance proceeds, you can ensure that each beneficiary receives an equal share of your estate, regardless of the nature of the assets involved.

For business owners, life insurance can be an essential tool for ensuring the continuity of their business operations. In the event of your death, life insurance proceeds can be used to provide the necessary funds for a smooth transition of ownership, allowing your business to continue operating without interruption and ensuring that your family is financially taken care of.

Furthermore, life insurance can be used as a means of charitable giving. By naming a charitable organization as the beneficiary of your life insurance policy, you can support causes that are important to you, leaving a lasting legacy that benefits others. Charitable donations made through life insurance policies may even be eligible for tax benefits, providing further incentive to include philanthropic goals in your estate planning.

In addition to these practical benefits, life insurance also provides peace of mind. Knowing that your loved ones will be taken care of financially in the event of your death can provide a sense of security and relief, allowing you to focus on enjoying life without worrying about what will happen when you're gone.

Factors to consider

When incorporating life insurance into your estate planning, there are several factors to consider. First and foremost, it's essential to ensure that you have adequate coverage to meet your family's financial needs in the event of your death. This may include considering factors such as outstanding debts, funeral expenses and ongoing living expenses for your loved ones.

You'll also need to carefully consider the type of life insurance policy that best suits your needs. There are various types of life insurance policies available, each with its own features and benefits. For example, term life insurance provides coverage for a specific period, while whole life insurance offers coverage for the duration of your life and includes a cash value component that can be used as an investment vehicle.

In addition to selecting the right type of policy, you'll also need to carefully consider who you name as the beneficiary of your life insurance policy. This decision can have significant implications for how your assets are distributed after your death, so it's essential to choose beneficiaries thoughtfully and review your beneficiary designations regularly to ensure they align with your wishes.

Life insurance plays a vital role in estate planning, offering a range of benefits that can help preserve your wealth and provide for your loved ones' financial security. By incorporating life insurance into your estate plan and carefully considering factors such as coverage amount, policy type, beneficiary designations and regular review, you can ensure that your assets are distributed according to your wishes and that your family is financially taken care of once you’re gone.

Justin Stivers is an investment advisory representative of and provides advisory services through CoreCap Advisors, LLC. Stivers Law is a separate entity and not affiliated with CoreCap Advisors. The information provided here is not tax, investment or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

The importance of life insurance transcends monetary value by encapsulating emotional reassurance, legacy preservation and strategic financial planning.

While it is a crucial part of the financial planning process, it is also something that is often overlooked. According to Life Insurance Marketing Research Association (LIMRA), at least 106 million Americans, or 41% of Americans, don’t believe they have enough life insurance coverage.

Without life insurance, you may pass away with financial obligations that become the responsibility of your heirs. While there is no one-size-fits-all approach, here are three ways that life insurance can help:

1. Creating a cash safety net and providing emotional security.

By carving out a pre-determined sum of money, life insurance helps ensure that dependents are not burdened with insurmountable financial challenges when a loved one passes away. Without this safety net, families might find themselves in the worst-case scenario of grappling with financial hardships, potentially jeopardizing their future and well-being.

Additionally, the peace of mind that life insurance can provide during unpredictable moments is invaluable. For example, if the main breadwinner in a relationship suddenly passes, the family will have a source for income replacement if their financial situation takes a turn for the worse. Knowing that loved ones will be cared for, debts will be settled, and dreams will be realized can help alleviate anxiety and foster a sense of stability for all.

2. Leveraging cash value.

Having a life insurance policy also serves as a strategic financial tool, offering tax advantages and investment opportunities. Depending on the type of policy selected, individuals can leverage life insurance to accumulate cash value over time.

This cash value component provides the flexibility for policyholders to access funds for various purposes, such as supplementing retirement income, covering unexpected expenses or pursuing lifelong dreams. However, it is important to note that withdrawing funds from your policy reduces the death benefit for your heirs if it is not paid back.

Earlier in my career, I worked as a financial adviser and wrote a policy for my client that included an investment feature to create cash value growth. That cash value was eventually used by my client when their business was struggling, providing them with much-needed liquidity when financial institutions would not. The liquidity allowed them to turn their business around, with enough success that they could repay the policy loan in full.

3. Leaving a lasting legacy.

The legacy that life insurance can provide may come in many different forms, from ensuring quality education for children to leaving behind an inheritance that can support future generations.

When working with the previously mentioned client, I had to deliver a life-changing $2 million check when they unfortunately became widowed. This experience allowed me to see firsthand the lasting legacy and support that their life insurance policy provided. The death benefits from her husband’s policy gave my client the means to provide for their two young children and money to support their business needs.

This one policy served as both a cash safety net in troubled times while her husband was living and a conduit for allowing their aspirations and accomplishments to endure when he was gone.

In essence, life insurance empowers individuals to live fully, knowing that legacy will endure, and loved ones will thrive, regardless of life's unpredictable twists and turns.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

The idea of life insurance is unpleasant in nature. I’m going to give you, the insurance company, money every month. I know that I will never see any benefit in exchange for this premium. The only way my family gets anything is if I die while the policy is in force. As I write this, I now get why people really hate this insurance. But you know what’s worse? Seeing a family who has lost a key earner have to sell their home because they can no longer afford the payment.

There are many methodologies to quantify your life insurance need. At their core is protecting against outstanding debts, replacing human capital and paying for future goals, like college. Human capital in this context represents the present value of future earnings: If I were to buy you out of your career, what would it take?

Needs change over the years

If life insurance needs are the Y axis and your age is the X axis, the chart tends to look like the top of a triangle over your lifetime. Early in your career, when you’re living with three friends from college and paying $485 a month in rent, your life insurance needs aren’t very high. By the time you have kids and buy that “forever home” but still have a long career ahead, you have reached the tip of the triangle. As you pay down your debts, your kids get older and you approach retirement, that need decreases.

Now, here you are, retired. Those cute little babies made paying the premiums bearable. Those babies are now 35 and not so cute. You’d rather write a check for a down payment on a trip to Italy than to Northwestern Mutual.

Because we work with retirees, we are dropping much more insurance for clients than we are adding it. We always start with a needs analysis. Most financial planning programs can put together an actual needs analysis by plugging in all the other necessary inputs of a financial plan: assets, liabilities, income, expenses and goals. If a client comes back, as many do, with no insurance need but is carrying three policies with $500,000 in combined coverage, we will figure out which policies we should drop today, let expire or keep. We generally drop annual renewable term policies first, as they can get very expensive for the age demographic we work with.

More goes into the decision than math, though

I should mention that this is never a purely mathematical decision. About 10 years ago, we had a client with $5 million in assets and no liabilities drop a significant amount of insurance. He later got cancer and died. Yes, on paper, dropping the insurance was the right decision, but it makes me think twice every time we make the recommendation. It makes me have a conversation with the spouse regarding the trade-off of premium payments and a check should an untimely death occur.

It's interesting how underinsured people are early in life and how overinsured they are in their later years. Wherever you are in life, I’d encourage you to do an analysis and to close that gap.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Have you designated a life insurance beneficiary? Providing for loved ones upon your death remains a priority for many people. That’s why it’s important to choose beneficiaries. Failure to do so could tie up death benefits in probate court, and court costs could reduce how much your loved ones receive.

What is a life insurance beneficiary?

A life insurance beneficiary is the person or entity you name to receive the death benefit from the policy. Beneficiaries could be one or more persons, the trustee of a trust you establish, a charity or your estate. If you do not name a beneficiary, the death benefit automatically is paid to your estate.

There are two types of life insurance beneficiaries: primary and contingent. The primary beneficiary is the person or entity named in the policy to receive the death benefits. The contingent beneficiary receives the death benefit in the event the primary beneficiary cannot be found.

How does a life insurance beneficiary work?

When a person purchases a life insurance policy, he or she chooses a person, persons or entity to receive the death benefits upon the policyholder’s death. This could be the person’s spouse and/or children, other loved ones, or even a charity. When the policyholder dies, the beneficiaries file a claim to receive their portion of the death benefits.

What are the rules for the beneficiary?

While choosing life insurance beneficiaries is up to the policyholder, there are some basic guidelines to follow to ensure your wishes are carried out.

1. You don’t have to name beneficiaries.

Life insurance beneficiaries are not required, but not naming beneficiaries could make it more difficult and time-consuming for your heirs to receive the death benefits of the policy. Even if you state beneficiaries in your will, it’s important to name them on the insurance policy as well.

2. You can name as many beneficiaries as you want.

This means you can name your spouse or partner, your children and other loved ones to receive the death benefits of the life insurance policy.

3. Your state may require you to name your spouse as a beneficiary.

If you live in a community property state, check your state’s requirements regarding life insurance benefits. Your spouse may be entitled to a specific portion of the death benefits of any life insurance policy.

4. Changes to life insurance beneficiaries must be done by you.

It’s important to keep your life insurance beneficiaries up to date. If there’s a major life change such as a divorce or death, you are responsible for updating your beneficiaries to reflect these changes. Otherwise, your death benefits may go to someone you don’t want to have them. Making changes to your will does not automatically carry over to your life insurance benefits.

Does the beneficiary get all the life insurance money?

In most cases, beneficiaries will receive the full amount of the life insurance death benefits. In some cases, they will have to pay estate taxes on the life insurance payout if the policyholder’s estate, including the life insurance payout, is worth more than a set amount. According to the Internal Revenue Service, that amount for 2024 is $13.6 million. As such, many beneficiaries will not have to pay estate taxes on a life insurance payout.

If beneficiaries choose an interest-based payout instead of a lump sum, they would have to pay taxes on the interest.

Who should be your life insurance beneficiary?

When selecting your life insurance beneficiary, think about who you want to provide for after your death. For many people, this is a spouse, children, grandchildren or other loved ones. However, it could be another person or persons you hold dear.

Can a minor be your life insurance beneficiary?

Yes, minors can be your life insurance beneficiaries. However, they must be 18 or 21 (depending on your state) to receive the death benefits. Therefore, it’s important to either name the minor’s caregiver as the beneficiary or set up a trust for the minor and name the trust as the beneficiary. With a trust, you will need to choose a trustee to manage the funds for the minor until he or she reaches 18 or 21 years of age.

Bottom line

Choosing the right life insurance beneficiaries is essential to ensuring your loved ones are financially supported after your passing. Regularly reviewing and updating your beneficiary designations—especially after significant life changes like marriage, divorce, the birth of a child, or the loss of a loved one—helps keep your policy aligned with your current wishes.

By keeping your policy up to date, you can ensure the death benefit is distributed as intended, minimizing the risk of complications or disputes during an already difficult time.

Read More

• How Much Life Insurance Do You Need?
• How to Shop for Life Insurance in Three Steps
• Are You Too Young for Life Insurance?
• Four Ways Life Insurance Can Grow and Protect Your Wealth

Planning for retirement is tricky.

There can be a lot of uncertainty involved. You try to make good decisions with the information you have, save what you think you’ll need and hope for the best.

But often, you don’t truly know if you’ve made the right calls until you’re actually retired.

Many Americans are feeling uncertain these days, according to the Employee Benefit Research Institute’s 2025 Retirement Confidence Survey. Only 22% of workers and 32% of retirees feel “very confident” they will have enough money to live comfortably throughout retirement.

In my years working with financial advisers and talking to those nearing retirement, I’ve learned a lot about what works and what doesn’t. Through these experiences, I’ve gathered insights that many find out too late.

Kiplinger's Adviser Intel, formerly known as Building Wealth, is a curated network of trusted financial professionals who share expert insights on wealth building and preservation. Contributors, including fiduciary financial planners, wealth managers, CEOs and attorneys, provide actionable advice about retirement planning, estate planning, tax strategies and more. Experts are invited to contribute and do not pay to be included, so you can trust their advice is honest and valuable.

As you prepare for retirement, here are the five crucial things I’ve learned that people wish they’d known sooner.

No. 1: The value of good, trustworthy financial advice

Selecting a financial adviser is a pivotal decision, yet many choose based on a friend’s tip or stick with their workplace’s 401(k) representative. These advisers, while knowledgeable, may prioritize their company’s interests over your financial health and offer limited advice confined to your employer’s plan.

The wiser course? Hire an independent, fee-only financial adviser who offers comprehensive services, including critical tax and cash flow planning.

Plus, this person has no ties to specific funds or investment products and will offer strategies aligned with your unique goals, potentially saving you significant amounts in unnecessary fees.

For example, using low-cost, tax-efficient ETFs could keep over $100,000 in your pocket instead of being lost to fees from pricier investments recommended by commission-based brokerage advisers.

Wealthramp is a service I created specifically for consumers looking for fee-only advice.

A sound adviser relationship keeps you invested even when markets falter and, overall, helps guide you to make smarter money decisions.

This is not just about immediate savings — it’s also about future cash flow and tax planning that fortifies your retirement security.

No. 2: You don't need a big income to start saving and investing

A common roadblock many face is the belief that they don’t earn enough to start investing for retirement, or that a small amount doesn’t matter. This misconception can lead to missed opportunities that compound over time, just like the investments we forgo.

The truth is, waiting to save because you anticipate higher earnings in the future is a gamble on time you can’t afford.

The power of compounding interest means that even small, consistent investments can snowball into significant sums over time. This is a certainty you can count on.

For example, investing just $50 a month at a 7% annual return will grow to over $23,000 in 20 years. Now, imagine if you increase that amount as your income grows.

Furthermore, if you invest in a tax-advantaged account, like a Roth IRA, which allows tax-free withdrawals in retirement, or a traditional IRA and 401(k), which invest pre-tax dollars, you’re effectively using tax savings to boost your retirement fund.

In other words, money that would have gone to taxes is now working for you.

Let’s not forget the potential boost from employer matching in your 401(k), which is essentially free money.

Even if your employer matches only 50% of your contributions up to a certain percentage of your salary, this can significantly increase the growth of your retirement savings.

No. 3: How much catch-up contributions can be a game-changer

Reaching your 50s can come with a jarring realization: Retirement is closer than you think, and your savings may not be on track.

It’s at this stage that catch-up contributions can become a game-changer, potentially making the difference between an uncertain financial future and a comfortable retirement.

In 2025, the IRS permits those 50 and older to contribute an additional $1,000 to a traditional IRA on top of the standard $7,000 limit, a modest increase that can have a substantial impact over time.

For self-employed individuals over 50 with a SIMPLE IRA, there’s an even greater opportunity: You can contribute an extra $3,500 above the $16,500 limit. As for 401(k) contributions, you can not only max out at $23,500, but also add an additional $7,500, allowing for a total of $31,000 per year in pre-tax savings.

Despite these incentives, according to Vanguard's 2025 How America Saves report, only 16% of retirement savers make these additional contributions.

While contributions to a Roth IRA don't offer an immediate tax break, they do promise tax-free growth, which can be significantly advantageous for those in higher tax brackets.

In 2025, you can contribute $7,000 to a Roth IRA. If you're 50 or older, you can add an extra $1,000 per year, for a total of $8,000. Keep in mind that the amount you’re allowed to contribute to a Roth is based on your income.

No. 4: There really is a right amount of insurance coverage

One of the less talked about aspects of financial planning is the balance of having just the right amount of insurance — not too much and not too little — at each stage of your life.

Throughout your working years, you could be paying for insurance that’s unnecessary, and these excess premiums can amount to a substantial sum over time.

How can you tell if your coverage levels are appropriate? Unfortunately, you’re unlikely to get an unbiased evaluation from someone who profits from selling you more insurance.

Looking for expert tips to grow and preserve your wealth? Sign up for Adviser Intel (formerly known as Building Wealth), our free, twice-weekly newsletter.

As retirement nears, you’ll likely be bombarded with pitches for life insurance and annuities. The biggest mistake you can make is letting the fear of insufficient retirement savings drive a decision to buy an annuity that’s complex and truly not appropriate.

Insurance offerings are not investments. They are dense legal contracts in which the critical information buried in the fine print is easily overlooked or misunderstood due to the complexity.

To navigate the insurance landscape, seek the counsel of an independent fee-only financial adviser (who doesn't sell insurance) to provide a comprehensive review of your family’s insurance needs.

They can help you determine the precise level of protection you need, without the conflict of interest inherent in commission-based selling.

No. 5: The importance of having your affairs in order at all ages

Estate planning is crucial for everyone, not just the wealthy, and it’s best handled sooner rather than later. On some level, you may know this, but somehow people tend to ignore the task.

These documents are not just for distributing your assets; they are essential tools for decision-making in times when you might not be able to express your wishes.

Whether it’s a health care proxy, power of attorney or a living will, these legal instruments are the only way your loved ones can possibly know your desires and can respect your wishes regarding life-or-death medical decisions and end-of-life care.

Furthermore, if you’re planning to leave money or property to loved ones, consider the benefits of doing so while you’re still alive. This can not only provide you with the joy of seeing them use and appreciate your gift, but also can be a wise move for tax purposes.

Without these documents, you leave the distribution of your estate and the decision-making at critical moments to the state’s default laws. This abdication of control can lead to outcomes you never intended.

Ultimately, having your affairs in order is a straightforward act of responsibility and kindness to your family.

Retirement planning is a multifaceted journey that demands attention to detail, a proactive mindset and a willingness to seek and follow expert advice.

Take these lessons to heart, and you’ll be better equipped to navigate the road to retirement with confidence.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Picture this: You’re doing well in both your professional and family life. You’ve planned for retirement and have ample savings on hand. Your child has just graduated from college. Then, after experiencing unexplainable back pain, your child goes to the hospital — just as a precaution. Days later, over the phone, the doctor delivers a diagnosis that no parent ever wants to hear: cancer.

It’s a scenario more common than you think: More than 15,000 children between the ages of birth and 19 are diagnosed with cancer each year in the U.S., according to the American Childhood Cancer Organization. And it’s exactly what happened to one father and son I know, whom we’ll refer to as Henry and Brian for their privacy.

For them, like many families in this situation, navigating cancer was a harrowing experience, and it took not just an emotional toll, but a financial one. Since treatment requires ongoing and regular inpatient and outpatient visits, as well as frequent hospitalizations, parents can rack up hundreds of thousands of dollars in medical debt, according to the U.S. Environmental Protection Agency.

Dealing with cancer is hard enough without also having to navigate financial duress. With that in mind, here are several financial considerations that parents should be aware of if their child faces a life-changing diagnosis — and what they can do to cover their expenses.

1. Health insurance isn’t always enough.

Health insurance can be a lifesaver in tough medical situations — but don’t expect your health insurance carrier to cover everything. There may be additional costs depending on your plan’s deductible, out-of-pocket maximum and co-pays.

Some of the biggest expenses that most parents have difficulty accounting for stem from out-of-network health care. When Brian first underwent treatment, for instance, his health care provider was considered in-network. Because of that, his health insurance plan covered 90% of his monthly medical bills, saving Henry almost $70,000 a month. But somewhere along the way, the family was forced to change carriers, and they soon discovered Brian’s plan would no longer cover his hospital bills at the same rate. It wasn’t until they contacted the carrier that they were able to negotiate for in-network coverage.

2. Your finances will be impacted in more ways than you think.

Parents need to consider expenses beyond health care. That means being prepared for housing, transportation, paid and unpaid leave from work and other living expenditures, which can be significant — particularly if their child must receive treatment in a different city, state or country. Families who plan to relocate close to a treatment center can expect to spend thousands on the move.

Last-minute flights can also be a major expense, costing as much as $2,000 during the peak travel season. In Henry’s case, these expenses added up to an extra $10,000 a month on top of Brian’s medical bills.

3. There are numerous ways to fund treatment.

Finding the money to cover cancer treatment isn’t easy, but there are multiple options at your disposal. Consider leveraging these financial opportunities (in the order below) to help manage the cost of your child’s treatment:

• Savings and checking accounts. These should be your first go-to, as the money is readily available.
• Friends and family. Consider borrowing from your loved ones before you borrow from banks.
• After-tax investment accounts. Unlike retirement plans, after-tax investment accounts do not have hardship withdrawal provisions, which makes them easier to withdraw from in case of a medical emergency.
• Retirement accounts. Retirement plans such as Roth IRAs and 401(k)s allow you to withdraw cash penalty-free for unreimbursed qualified medical expenses, so long as those withdrawals don’t exceed 10% of your adjusted gross income.
• Life insurance. You can borrow against the cash value of your child’s permanent life insurance potentially tax-free. This means it’s important to lock in your child’s life insurance policy as soon as possible — children with critical illnesses are often considered uninsurable, and it’s one of the most efficient ways to create an estate for the next generation.
• Home equity line of credit. You can borrow up to 85% of the value of your home, minus what you owe, by opening a second mortgage. Note that, after the draw period, you typically will have to pay this mortgage off within 20 years.
• Liquidate real estate. If you have a substantial amount of equity in your home or other properties, you may be better off selling them altogether than taking on high-interest debt.
• Credits cards. With the average interest rate on credit cards sitting at a sky-high 27.81%, you should rely on them only as a last resort.

4. The situation for “adult kids” is different.

Brian was 23 years old when he received his diagnosis — but what if he had been older?

If your child is over the age of 26, you’ll need to prepare several legal documents right away, including a power of attorney, living will, health care proxy and advance health care directive, so that you can make decisions for your child if they are incapacitated or unwilling to undergo treatment.

If possible, you should pursue these rights as soon as your child turns 18, so that you’re not scrambling to obtain court orders while your child is undergoing treatment.

5. The end of formal treatment is not the finish line.

One of the biggest costs during this experience isn’t financial — it’s emotional. Understandably, you will likely be distracted by your child’s diagnosis, and you may not perform to your fullest, be it at work, home or church. The smallest moment — a smell, a sound, a television commercial — can bring you to tears. Your career goals will almost certainly become less of a priority.

That’s why it’s important to recognize that this journey won’t stop after your child has come home from the hospital. As Henry sees it, cancer treatment has three stages: diagnosis and initial care, formal treatment and resolution, and recovery. Formal treatment can take years, and the recovery stage, which is often the least talked about, can be the most challenging to face.

You may have to accept that your child may never be the same after chemotherapy due to the treatment’s impact on their body and mind. The long-term impact of this irrevocable shift is a weight both you and your family will carry forever. But now your child has another opportunity to pursue the life they want to live.

There is no such thing as over-saving or over-planning

Though no one wants to envision their child getting sick, evaluate your financial plan to make sure you are ready for the unexpected.

And if your child has received a cancer diagnosis, know that could be light at the end of the tunnel. Brian, for instance, ended up changing his professional direction. He pursued a law degree and is now a partner at a law firm.

Cancer and other life-threatening diseases are horrific enough. Getting your financial house in order won’t change the diagnosis, but it could help ease the burden so that you can focus on what really matters — getting your child the care they need.

This article has been obtained from an outside source and is provided as a courtesy by Stephen B. Dunbar III, JD, CLU, Executive Vice President of the Georgia Alabama Gulf Coast Branch, you should consult your own legal and financial professional regarding your particular circumstance. Applications for life insurance are subject to underwriting. No insurance coverage exists unless a policy is issued and the required premium to put it in force is paid. Guarantees are based on the claims-paying ability of the issuing insurance carrier.

Stephen Dunbar offers securities through Equitable Advisors, LLC (NY, NY 212-314-4600), member FINRA, SIPC (Equitable Financial Advisors in MI & TN). Annuity and insurance products offered through Equitable Network, LLC. Equitable Network conducts business in CA as Equitable Network Insurance Agency of California, LLC, in UT as Equitable Network Insurance Agency of Utah, LLC, in PR as Equitable Network of Puerto Rico, Inc. GE-6038756.1(10/23)(Exp.10/25)

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

A common perception of life insurance is that it’s just for people well into their careers with good, if not high, incomes and a spouse or children who have become used to their standard of living. Until you’ve achieved all that, common wisdom says, life insurance simply isn’t necessary.

That stance, however, is short-sighted. Life insurance isn’t just for protecting comfortable or luxurious living conditions for your survivors. It’s also, if not primarily, for protecting their ability to financially survive should you pass away unexpectedly.

Viewed through that lens, life insurance suddenly begins to make sense much earlier in life. A good rule of thumb to determine whether you should have a life insurance policy is to ask yourself, “If I were to die, would anyone important to me suffer financially?”

At the beginning of their career, most people are still in their 20s. They’re still figuring out how “adulting” works and, for the first time, juggling a number of commitments with real stakes. Their priorities are often centered around getting a job with benefits that cover medical and other expenses. Often, first jobs require a massive time commitment; expectations for entry-level positions have never been higher than today.

Somehow, amidst working far more than 40 hours per week, those in their early careers must balance other life demands, from household tasks to staying in shape. Somewhere in there, maintaining some semblance of a social life is on the list of priorities as well.

A shift begins in your late 20s

In short, young people are busy, with the vast majority of their time commitments focused on building their individual lives. However, often in their late 20s, a shift begins. They start combining their lives with the lives of other people.

That doesn’t always mean getting married. Simply moving in with a significant other, getting engaged or having children is enough to shift their focus away from themselves.

It’s important to realize that even if you aren’t middle-aged with kids in college doesn’t mean you don’t have expenses that would keep recurring should you suddenly pass away. If you live with someone, your landlord or bank is unlikely to reduce rent or mortgage payments simply because you have died; your partner will be required to pay the entire amount without your income to help.

Will they be able to do so without financial strain? Will they be able to pay your funeral expenses, which can cost upwards of $10,000? In short, will the loss of your income affect their finances? If the answer is yes, it may be time to consider a life insurance policy. Once you’ve reached that conclusion, it’s important to understand the two main types of life insurance: term and whole.

What is the death benefit?

All life insurance includes what’s called a death benefit. Simply put, this is an agreed-upon amount of money that will be paid to your designated beneficiaries after you pass away.

Term life insurance begins and ends with the death benefit. If you die during the policy’s term — typically five to 20 years, the death benefit will pay your beneficiaries. Once the term expires, you can begin a new term policy. Your premiums may increase; after all, life insurance is essentially the insurance company betting you will still be alive after the term concludes. The older you get, the less likely that becomes, meaning premiums increase to offset the risk.

The next option is whole life. Insurance agents often like selling these policies. Especially for younger people, whole life policies are considerably more expensive than term life insurance. Whole life has a number of extras that can be nice to have but may not be worth it, depending on what stage of life you’re in. These extras include a cash-value component, which is essentially an investment account funded by part of your premiums. You can withdraw money from this account while you’re still alive, which allows the life insurance policy to benefit you as well as your beneficiaries.

The other main advantage to a whole life policy is that, provided you pay your premiums in full and on time, your premiums never change. You’ll pay the same when you’re 25 as you will when you’re 65. This is why whole life policies are more expensive — the insurance company knows that if you maintain the policy in good standing, you are guaranteed to die while it is still in effect. As such, the company needs to charge more in order to reduce the risk they will lose too much money on the policy.

Different types of life insurance

There are differing schools of thought as to which type of life insurance you can get, but that answer can be distilled to something simpler when you’re in your 20s: What do you need or want the policy to accomplish?

• Needs-based. How much money would be gone if you were to suddenly pass away? Are you paying half the mortgage? Do you pay the grocery bills? Add up all of the financial contributions you make; that’s the amount your dependents need just to continue living as they have been.
• Goals-based. Depending on your unique situation, merely ensuring your dependents’ current financial needs may not be enough for you. For example, you might have a child and recognize that if you pass away unexpectedly, your child could miss out on nearly two decades of savings to help pay for their college education. A higher insurance payout could cover today’s expenses while leaving enough to put away for tuition: Increasing the death benefit on your life insurance can help ensure your family will be able to meet future financial goals.

Everyone’s situation is unique, but in general, money often tends to be short at the beginning of your career, and term life insurance is a much less expensive way to ensure your loved ones will be taken care of. It can be an important part of your financial plan early in life.

Not every life insurance policy is created equal: A Certified Financial Planner (CFP) is well-versed in the intricacies of life insurance and is well-equipped to help you decide which option is best for you to work in harmony with your overall financial plan.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

From high-quality security cameras to elaborate alarm systems, people spare no expense to keep their home safe. But what are you doing to protect your retirement home?

You worked hard to build a solid foundation with good saving and spending habits, and years of investing have helped the walls of your retirement home take shape. Protecting that home is critical. While you may have a strategy to lower your taxable income or a portfolio that protects against market risk, have you thought about your long-term care (LTC) plan?

Planning for the worst matters

Everyone hopes to pass away peacefully after a long, healthy retirement. Unfortunately, life rarely plays out that way. My family could never have predicted the impact LTC would have on our finances.

When my father stopped to help someone with a flat tire on the side of a road, he was tragically sideswiped by a passing car. He spent the rest of his life recovering from the accident and never left the nursing home. Paying for 27 years of LTC cost my parents everything they had, including their 401(k) plans and the home they raised their family in.

We never saw this tragedy coming, and the same could be true for you. We don’t know what life has in store for us, but you’ll be thankful for the security LTC protection can provide.

The cost of LTC adds up quickly. On average, a semiprivate nursing home room costs over $80,000 per year, according to LongTermCare.gov. Keep in mind, the need for LTC is typically a progression: You may need in-home care to start, eventually transition into assisted living and then a nursing home. Those phases can stretch out over many years, even decades.

While traditional health care coverage and Medicare may cover some short-term services, most long-term assistance is not covered, such as an extended nursing home stay or in-home assistance. Paying for these services on your own may hinder your ability to meet day-to-day expenses in retirement, and you run the risk of depleting any legacy you were hoping to leave to your loved ones.

Long-term care plan options

The Assistant Secretary for Planning and Evaluation (ASPE) estimates that 70% of today’s 65-year-olds will need some type of LTC in retirement. Since traditional health care coverage and Medicare do not cover any ongoing assistance, those who need LTC are left with four options:

Self-funding. You can pay for LTC out of pocket, dollar-for-dollar. If you end up being a part of the 30% who won’t need LTC in retirement, this option could work in your favor. But that’s a major gamble! There’s no way to know if you’ll need LTC or not, and being forced to self-fund your LTC needs can quickly deplete your retirement savings that were earmarked for other retirement expenditures.

Long-term care insurance. In exchange for a monthly premium, long-term care insurance policyholders can receive coverage for their LTC needs. Depending on the terms of your policy, you may pay a premium for 10, 15 or 20 years. No matter how much money you pay in premiums, most policies do not offer a payout if the policy goes unused, and there is no death benefit to your beneficiaries. Many people are uncomfortable with that risk.

Life insurance. Most people know about term and whole, but there are other types of life insurance with features designed to protect you from LTC risk. Some indexed universal life insurance (UIL) and universal life (UL) insurance policies allow you to tap into the death benefit during your lifetime to cover any LTC costs. Unlike an LTC insurance policy, if the LTC features of a IUL or UL insurance policy go unused, your beneficiaries will receive the full tax-free death benefit when you pass away.

Talk to a retirement planner during your lifetime about the insurance options available to you. Life insurance coverage is dependent on a medical exam, so if you have certain health issues, it may not be a viable solution for you.

Fixed indexed annuities. A fixed indexed annuity (FIA) with an income rider can include LTC benefits. If you purchase an FIA, you’ll pay an insurance company a lump sum of money, and after a certain number of years, you’ll receive an income stream that pays out monthly for the rest of your life. If you add LTC benefits to your contract, you can receive a double payout when an LTC need arises. Let’s say your FIA pays out $2,000 every month. If you need to pay for any LTC, that monthly payout will increase to $4,000.

An accelerated benefit stream can usually only kick in once you’ve held the policy for five years, and the benefit is typically capped at five years, although some policies are only three years. However, the normal income stream from an FIA will continue throughout the lifetime of the policyholder.

Finding the right fit

Deciding what kind of fence to build around your retirement home is a personal decision. There are benefits and drawbacks to every LTC option, and what’s right for one person may not work for another.

While it’s important to be proactive, buying LTC insurance or life insurance at a young age could get very expensive after years of paying premiums. On the other hand, waiting to purchase a policy could put you at risk of paying high premiums because of any health problems you may have developed in your 50s and 60s.

It’s important to meet with a trusted financial adviser who can help you determine the right time to buy and what type of protection your family needs. No two situations are alike, but an adviser can help you weigh the pros and cons specific to your assets, family history, medical history, tax plan and beneficiary needs. I recommend working with a professional who has the experience and industry knowledge needed to keep you and your loved ones safe from the potential burden of LTC.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Unpredictable markets such as the one you're dealing with at the start of this year are rough on retirement planning. They also complicate the issue of how much life insurance is right for you.

Standard general rules — such as buying coverage equal to eight times your annual income — aren’t always appropriate, and while they can be helpful, online calculators will sometimes tell you to raise your coverage by $1 million even if you already have insurance.

The truth is, many factors influence how much life insurance you need. From how much your family depends on your income to whether or not you need life insurance to cover other expenses such as your kids' college education or your final expenses, different factors can dramatically impact how much life insurance you need.

Instead of aiming for a higher number than you think you need, take the time to do some math and figure out how much coverage is enough to secure your family's financial future.

Here's how to figure out how much is right for you so you don't overpay for too much coverage or undercalculating how much your life insurance beneficiary needs.

How much life insurance do you need?

Overall, how much life insurance you need is a personal affair. That means there's no one-size-fits-all answer to the question of how much you need.

Two couples might earn equal salaries, but it’s silly to say that someone with four young children should have the same coverage as empty nesters with no mortgage and a substantial retirement fund.

Additionally, you’ll likely experience life events that call for changes in your insurance. Such things as marriage, parenthood, homeownership, college expenses and retirement can all dramatically change the amount of coverage you need.

Instead of relying on general rules, you’re better off taking a systematic approach to figuring out your life insurance needs. To do that, use these tips to calculate exactly how much coverage is right for your situation.

How to calculate how much life insurance you actually need

The purpose of life insurance is to financially protect your loved ones after you pass away. For instance, life insurance can guarantee your family can live normally in your absence, paying bills as before.

For this reason, some experts and most online calculators sponsored by the insurance industry seek to figure out the chunk of investment capital it would take to replace all your income for 20 years or longer, held securely in Treasuries or municipal bonds and certificates of deposit.

However, this approach can aim higher than necessary, especially if you assume raises and promotions.

Instead of basing it on your projected income over the next two decades, it's more useful to come up with a number for how much your family would actually need. To start, sum up the estimated costs to your family in the following four categories.

1. Final expenses

A funeral and related expenses average $6,280 for cremation or $8,300 for burial, according to the National Funeral Directors Association. But the actual cost can vary widely, as items such as the type of grave marker or the casket chosen can dramatically influence the final price.

Additional expenses such as meal catering or travel and accommodations for loved ones attending the funeral from out of state can also bring that cost up further.

Your beneficiaries might be able to get the tax-free proceeds from life insurance faster than if they waited for money from your estate, so it's a good idea to include this in your calculations.

You can use $15,000 as a ballpark number, but you can also preplan your funeral to get a more precise estimate of how much coverage you'd need here. Funeral planning can also prevent further grief by taking the burden of those logistical decisions off your family.

2. Mortgages and other debts

Total your mortgage balance, car loans, student loans and any other debts that would be a heavy burden on your survivors. Making sure your life insurance benefit is enough to make your family debt-free can go a long way toward ensuring a healthy financial future.

They might choose not to pay off the mortgage in one lump sum, especially if the interest rate is low, but the money should be available so they won’t face the prospect of being forced to sell.

3. Education expenses

This calculation can be tricky because you need to consider the cost of college at the time your kids enroll. For instance, the average cost of tuition at public four-year institutions increased 20.8% from 2012 to 2023. For private institutions or out-of-state students, tuition rates are rising even faster.

While it can be hard to forecast where tuition rates will be by the time your kids apply to college, you can use today's numbers to calculate your policy coverage. Even after inflation, that number will at least be high enough to cover most of the tab.

4. Income replacement

Once you cover funeral expenses, debts and education, your family may not need to replace 100% of your income — and that’s where the hard part of the calculation comes in.

Even if you're the sole earner in your household, remember that you've already provided for debts and education. Your income replacement would just need to be enough to cover the remaining monthly expenses. If you're not the sole earner, you might not need to replace your income at all once debt and education costs are covered.

As a starting point, you can plan to replace half your salary, then translate this into a target lump-sum benefit by dividing it by 0.05.

For example, if you earn $100,000, divide $50,000 (half your salary) by 0.05, which works out to $1 million. That assumes the insurance benefits will earn 5% a year over the long haul, a conservative back-of-the-envelope figure.

Calculating your total coverage needs

Add all four categories to estimate how much life insurance is appropriate, then tweak the number to reflect personal circumstances. You might increase it if you don’t have a pension, but you could decrease your coverage if your spouse earns a substantial salary.

If you or a family member has a troublesome medical history, add $100,000 or even $250,000. If you’re the one with the medical condition, you’ll find it tough to buy additional coverage later at a price you can afford.

For most families, this exercise will work out to an amount in the high six figures, possibly even $1 million or more. But don’t be frightened. With term life insurance, boosting your death benefit by hundreds of thousands of dollars should only cost just a few hundred dollars a year.

Other factors to consider when calculating life insurance

While these factors give you a raw number to start with, your actual coverage needs might be higher or lower depending on a few other factors. Here are some other key things to consider when calculating (or re-evaluating) your coverage needs.

Time

How many years will you need life insurance? If you’re in fine physical shape, you can buy a new policy and lock in the price for 20 years.

Some term policies come with the right to convert to a permanent life insurance policy, such as whole life insurance. You can keep this type of life insurance for the rest of your life, regardless of health. Premiums will be higher than for term life insurance at the beginning, but they usually remain level indefinitely.

The best reason to consider whole life or universal life insurance isn’t the accumulating cash value, although that’s part of the deal. The real issue is whether you’ll need coverage beyond 20 or 30 years — or after age 65 when term gets expensive.

You might want permanent life insurance, for example, if you need to protect kids with special needs who will always rely on you (or your estate) for support, or if you want to leave money to a school, charity or your children and you don’t expect to afford it any other way.

Major life events

Instances when you should seek additional life insurance coverage:

• Getting married: Your new spouse might depend on your income even if he or she earns as much or more than you do.
• Having a child: It takes a lot of money to raise a child — and it doesn't get any cheaper if you're not around.
• Buying your dream home: When you settle into your family's forever home, guard against its loss in case tragedy strikes.
• Nearing retirement This means no more life insurance from work. If you die, your spouse could lose out on pension and some Social Security income.

Type of life insurance

Term insurance is popular because many people can afford plenty of it, but it can make sense to combine term and permanent insurance with multiple policies or buy a convertible-term policy and make a series of conversions over the years.

One advantage of a convertible-term policy is that insurers don’t require a new medical exam when you make the conversions. That essentially gives you a pass if you gain weight, develop high blood pressure or even survive a bout with cancer.

Northwestern Mutual provided this example for a 27-year-old man who starts by paying $317 for $500,000 of term insurance, then gradually converts it to whole life $100,000 at a time. If you shift $100,000 to whole-life at age 28, your annual premium would jump to $1,300.

If you shift another $100,000 at age 31, your premium would rise to $2,600. Your premium would gradually increase whenever you shift money to the whole-life policy, topping out at $7,200 at age 40, for the entire $500,000 of whole-life insurance.

As long as the insurer remains strong and solvent, the cash value of your life insurance will rise every year, as will the death benefit. By age 65, in this example, the benefit is projected to be $990,000 and the cash value $475,000, which can be borrowed, withdrawn or tapped to keep the policy in force without paying additional premiums.

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