4 Life Insurance Mistakes to Avoid
Buying life insurance or adding to the amount you already have is always a sound financial decision. Regardless of your age or health, most financial advisers advocate life insurance. Many firms offer it in addition to regular medical and dental insurance. They even offer discounted rates for supplemental coverage if you decide to go that route. However, as you begin the process of purchasing life insurance, it is imperative that you avoid making the following four insurance mistakes.
1. The Beneficiaries of the Life Insurance Policy are Minor Children or Grandchildren.
Inappropriate asset distribution is a common estate planning problem. This happens when the wrong financial asset is given to the wrong person at the wrong time. Children have a wide range of demands. Relevant questions include: Should they share the proceeds of their life insurance? Are they capable and knowledgeable enough to wisely invest the proceeds of a life insurance policy? It is a mistake to name a small child or grandchild since no insurance company will pay significant sums of money to minor children or grandchildren.
If this occurs, a guardian or custodian must be appointed (at the children’s expense) to disburse their life insurance proceeds. Setting up a trust on behalf of the children or grandchildren and identifying the trust as the beneficiary of the life insurance earnings is the best and least expensive method. A life insurance policy owner can create great freedom while avoiding legal limits on outright transfers to minor children or grandkids.
2. Individuals are the Sole Owners of All Life Insurance Policies.
Suppose an individual’s gross estate is big enough. In that case, their estate may be subject to federal and state estate taxes upon death. The life insurance proceeds from a policy in which the individual is the sole policy owner are included in one’s gross estate. To avoid including life insurance proceeds in one’s estate, an individual may want to consider having a trust or an adult beneficiary acquire, hold, and thus be the recipient of the individual’s life insurance proceeds.
A life insurance policy cannot be included in a person’s gross estate under current tax law if they do not own it or have any rights. This is true even if the individual sends a monetary gift to an adult child or a trustee to pay the life insurance premiums.
3. Federal Employees Engaged in the Federal Employees Group Life Insurance (FEGLI) Program are Unaware That the Cost of FEGLI Insurance is Rising, Particularly Toward Retirement.
Many federal employees registered in the FEGLI program are unaware of the premiums they pay for their FEGLI insurance. They do not review their biweekly leave and earnings statements to determine how much they truly pay in premiums.
Suppose they are enrolled in the FEGLI optional coverages – Option A (Standard equivalent to $10,000), Option B (Multiple of Salary), and Option C (Family Coverage). They may be unaware of the rising cost of those insurance plans, particularly once they reach the age of 55.
Suppose a departing employee is qualified and elects to keep the full amount of “Basic Insurance” once they leave federal service. They may be unaware of the 700-800% premium rise in the FEGLI “Basic Insurance.”
4. Forgetting that Term Insurance, Even Group Term Insurance, Provides Limited Coverage and Becomes Prohibitively Expensive to Maintain.
Concerning life insurance, many people incorrectly equate “low dollar outlay” with being “inexpensive.” The term “low dollar outlay” refers to a measurable link between the premium dollars required to acquire one type of life insurance policy and the premium dollars needed to own another. For example, term life insurance will always cost less than whole life insurance for the same amount of death benefit. The phrase “inexpensive” necessitates that people truly evaluate what their low-cost investment has accomplished.
Individuals looking to get a life insurance policy should ask themselves, “What sort of life insurance policy (term or permanent) and for how many years (10, 20, 30, or a lifetime) will I need to have to achieve my financial goals and objectives?” Suppose the policy never achieves the policy owner’s financial goals and objectives. In that case, the policy is the most “expensive” – regardless of how small the money expenditure is.
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Bio:
After entering the financial services industry in 1994, it was a desire to guide people towards their financial independence that drove Aaron to start Steele Capital Management in 2013. Armed with an extensive background in financial planning and commercial banking coupled with a sincere passion for helping people, Aaron has the expertise and affinity for serving the unique needs of those in transition. Clients benefit from his objective financial solutions and education aligned solely with
helping them pursue the most comfortable financial life possible.
Born in Olympia, Washington, Aaron spent much of his childhood in Denver, Colorado. An area outside of Phoenix, Arizona, known as the East Valley, occupies a special place in Aaron’s heart. It is where he graduated from Arizona State University with a Bachelor of Science degree in Business Administration, started a family, and advanced his professional career.
Having now returned to his hometown of Olympia, and with the days of coaching his sons football and baseball teams behind him, he now has time to pursue his civic passions. Aaron is proud to serve on the Board of Regents Leadership for Thurston County as the Secretary and Treasurer for the Morningside area. His past affiliations include the West Olympia Rotary and has served on various committees for organizations throughout his community.
Aaron and his beautiful wife, Holly, a Registered Nurse, consider their greatest accomplishment having raised Thomas and Tate, their two intelligent and motivated sons. Their oldest son Tate is following in his father’s entrepreneurial footsteps and currently attends the Carson College of Business at Washington State University. Their beloved youngest son, Thomas, is a student at Olympia High School.
Focused on helping veterans and their families navigate the maze of long-term care solutions, Aaron specializes in customized strategies to avoid the financial crisis that care related expenses can create. Experience has shown him that many seniors are not prepared for the economic transition that takes place as they reach an advanced age.
With support from the American Academy of Benefit Planners – an organization with expertise and resources on the intricacies of government benefits – he helps clients close the gap between the cost of care and their income while protecting their assets from depletion.
Aaron can help you and your family to create, preserve and protect your legacy.
That’s making a difference.
Disclosure:
Investment advisory services are offered through BWM Advisory, LLC (BWM). BWM is registered as an Investment Advisor located in Scottsdale, Arizona, and only conducts business in states where it is properly licensed, notice has been filed, or is excluded from notice filing requirements. This information is not a complete analysis of the topic(s) discussed, is general in nature, and is not personalized investment advice. Nothing in this article is intended to be investment advice. There are risks involved with investing which may include (but are not limited to) market fluctuations and possible loss of principal value. Carefully consider the risks and possible consequences involved prior to making any investment decision. You should consult a professional tax or investment advisor regarding tax and investment implications before taking any investment actions or implementing any investment strategies.
