A Second Scoop of Life Insurance Information
Last week, I covered the need for life insurance as part of everyone’s portfolio. This week, I want to discuss how that investment fits into your portfolio. The heat wave in New England these past few weeks has been a great “summer extension” for ice cream sales. I’ll use an ice cream cone as an analogy for the different types of life insurance.
First, everyone should have some basic level of life insurance. Think of it as the waffle, sugar or cake cone you need before adding any ice cream. It’s your base to use for final expenses, if single, and for income replacement, if married. Final expenses can range from $10,000-$25,000. Income replacement should be about 20 times your annual income.
Term Insurance is the obvious first choice for most people/couples; basic coverage for a set amount of insurance. You pay a level premium for a certain term (years). Do this and the basics are covered.
Although term is cheaper, there is a strong case to be made for permanent life insurance, which comes in a variety of flavors: Universal Life, Variable Universal Life, and Whole Life.
Universal Life payments can vary over the life of the policy depending on the premium payments and the company’s cost of insurance. Variable Universal Life adds a market dimension to the premiums. Your initial and subsequent premium payments are also dependent on how well your “investment” in a series of subaccounts performs. Good performers will keep premium costs low. Poor performers may cause your premium to increase to the point where you can no longer afford the payments.
Did you hear about the Barbecue flavored ice cream introduced in 2018? It was created for the adventurous palate only…much like Variable Universal Life. Bet on the markets and you could get burned!
Whole Life is vanilla…perhaps a bit dull but predictable. Pay a steady premium for a certain number of years (20 years to lifetime) and you will have insurance coverage. These policies can offer a good alternative investment. Payments grow tax free, you can borrow “excess premiums” tax free, and at death, the proceeds are tax free.
Life insurance can thus be considered an alternative investment class as part of your portfolio and an opportunity to scoop some variety in your plans for the future.
Securities offered through LPL Financial. Member FINRA/SIPC. Investment advice offered through US Financial Advisors, a registered investment advisor. US Wealth Management and US financial Advisors are separate entities from LPL Financial.