Life insurance
Let’s face it, no one likes to think about, let alone, discuss dying. The unfortunate reality is that accidents, sudden illness, or terminal illness happen every day. Life insurance ensures that your family or business can continue financially without you. Are you protected?
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6 in 10 people own life insurance
30% of households know they need more life insurance
40% of all households would feel the financial burden within 6 months if the primary wage earner passed away, including households making more than $100,000
Individuals should own their own life insurance policy—not just through an employee benefit
Non-wage earners need life insurance also
60% of life insurance purchases are done through a local agent
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Create an estate
Pay estate (death) taxes
Pay off a home mortgage
Provide an education fund
Create or supplement a retirement fund
Replace lost income
Comply with a court order
Make a gift
Fund a business transfer, business continuation, or buy-sell agreement
Reward and retain valuable employees
Protect a business from the loss of a key person
Final expenses such as funeral expenses
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Death benefit amount or type of policy contract (term, whole, or universal)
Age at issuance
Male or female
Height and weight
Tobacco use
Medications and medical history
Family history
Types of life insurance
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Temporary insurance purchased for a specified period of time—usually 10, 20, 25, and 30 year term contracts. They are usually purchased when the need is the greatest and premium is small. They can be used to pay off a mortgage or loan payoff, income replacement, provide an education fund, or used in a business situation like key man insurance. It usually has an initial low cost and the premium remains the same through the term contract. Many term policies can be renewed or converted to a permanent product. It does not build any cash value.
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Permanent policy form where the face value amount is paid upon the death of the insured whenever the death occurs. It can be used for permanent protection, college planning, estate protection, and retirement planning. It does build cash value, and you can even borrow against the cash value in the policy. The premium remains the same throughout the life of the contract.
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Do You Have a Lot of Policies?
You have a policy for your home and the cars driven by your family. You have just the right policy for the apartment you rent out to others as well as special coverage for your boating excursions. Your homeowner's policy even has a special, added coverage to handle the business that your spouse runs out of your home. Yes, it looks like you can breathe a sigh of relief and be confident that you have all the coverage you need.
Or should you have an umbrella?
An umbrella is the term for a liability policy that covers your primary policies (and sometimes provides protection that is not available under your primary coverage).
Is There Such a Thing as Too Much Coverage?
Not in the case of carrying umbrella coverage. Umbrellas are designed to supplement a person's primary coverage. A person's primary coverage is typically part of his or her personal automobile and homeowner's coverage. Primary refers to the fact that, in the event of injury of damage (known as a loss), the liability portion of your auto or homeowner coverage is the first to respond. Umbrella policies respond to an eligible loss only after the primary insurance has paid its limit.
It's quite possible that your primary insurance limits provide more coverage than you'll ever need. However, circumstances could involve a type of loss that is not completely covered by a primary policy. If you don't have enough primary coverage, any shortage may have to come out of your personal assets.
Umbrellas generally provide additional coverage for the following policies:
Personal Automobile
Homeowners
Farm owners
Recreational Vehicles
Watercraft
Personal Liability
Taxation of life insurance
- Generally, death proceeds are not subject to federal income tax when received by the beneficiary. There are minor exceptions to this rule so talk to your life insurance agent or tax advisor.
- Life insurance premiums are not tax deductible. The only exception to this is when the premium is paid by an employer for the benefit of the employees in a group life policy.
- Cash values grow tax deferred until received FIFO. When cash values are withdrawn, those that exceed the premium outlay are subject to ordinary income tax. Cash values are paid in addition to a death benefit—such as Option B in a universal life contract—are considered death benefits, and are not normally subject to income tax.
Life insurance serves as a foundation for any quality financial plan. Life insurance policies can be used for something as simple as a grandmother purchasing a whole life policy when a grandchild is born to use the cash value to fund college expenses or as complex as offsetting estate taxes. We always suggest that you speak with your attorney and accountant for legal and financial advice. Life insurance can be used as another tool in managing personal or business risk portfolios.
Disability insurance
Disability insurance is the broadest type of coverage to replace a worker’s income if they are not able to work due to an illness, injury, sickness, or accident. This provides 24 hour coverage.
If your employee offers disability coverage-there is unlikely a reason to not sign up or you may be automatically enrolled. If you don’t have coverage at work or you are self employed, you may want to purchase an individual disability policy. They are usually more expensive and will be subject to individual underwriting. If your employer pays the premium, it is important to note that your benefits, should you become disabled, will be subject to income tax. If you pay the premiums yourself, generally the benefits would be tax free.
For more information on disability insurance, please visit http://www.disabilitycanhappen.org
Contact Northern Insurance to discuss options for Group and Individual Disability Insurance.
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Employer paid
Short-term disability
Long-term disability
Employer-sponsored coverage paid by the employee-sometimes known as worksite or voluntary plans
Individual Disability Coverage- purchased and paid for outside the workplace
If your employee offers disability coverage-there is unlikely a reason to not sign up or you may be automatically enrolled. If you don’t have coverage at work or you are self employed, you may want to purchase an individual disability policy. They are usually more expensive and will be subject to individual underwriting. If your employer pays the premium, it is important to note that your benefits, should you become disabled, will be subject to income tax. If you pay the premiums yourself, generally the benefits would be tax free.
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Age
Health history
Occupation
Current income
Key plan options selected
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Elimination period – the time you must wait for benefits to begin, usually 30, 90, or even 180 days is common
Benefit period – how long the benefits will last. Two, five, ten, or until age 65 are common options.
How much of your income will be replaced- usually 40-65% of your pre-disability earnings at the time of purchase. Consider if the plan has options to include inflation factors.
What disabilities are covered:
Own occupation – A policy with an own occupation definition will pay benefits if your disability stops you from doing the job you had at the time of disability
Any occupation– A policy with any occupation definition will pay if your disability prevents you from doing any work for which your educaiton and experience are appropriate.
Long term care policies reimburse policyholders a pre-selected daily amount for services to assist them with activities of daily living such as bathing, dressing, or eating. It can be purchased as a standalone policy or as a rider on many life insurance policies.
Long term care insurance
Why should you purchase long term care insurance?
Protects your assets and standard of living
Avoid being a burden on your family and preserve your independence
Guarantee choice of care and caregivers (allows you to stay at home as long as possible)
Leave more assets to family, church, or other worthy causes
Peace of mind
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In home
Assisted living facility
Adult day care
Hospice care
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The average nursing home costs $6235 per month for a semi private room
$3293 per month for care in assisted living facility
$21 per hour for home health aid
$67 per day at an adult day health care center
Medigap coverage does not extend to long term care coverage
Health insurance will follow the same rules as Medicare coverage—the skilled nursing stay must follow recent hospitalization for the same related condition and is limited to 100 days
Coverage of home care is limited to medically necessary skilled care
Most forms of private insurance do not cover custodial or personal care services
Disability insurance does not cover medical care or long term care services
Medicaid pays for LTC at or below poverty level. You will be required to divest your assets before being eligible for Medicaid.
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Discuss with your attorney and accountant the best plan of action. A buy/sell agreement should address the following: death, disability, retirement, termination of employment, valuation method, first right of refusal to purchase the business, and possible terms of finance. Life insurance can be used to fund the plan. You can also purchase key person life insurance. You can also have buy/sell disability and key person disability coverage.
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Provides reimbursement of eligible expenses in the event of disability of the person specified in the policy, the owner, and the primary revenue earner in the business. The policy will reimburse for wages paid to support staff unless they are in the same profession as the insured person. It can also be endorsed to provide funds to hire a replacement for the insured person.
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Used to protect the business from the adverse economic effect if their key person dies or becomes disabled. The business applies for the insurance on the key person, pays the premium, owns the policy, and is the beneficiary upon the death of the key person. The business can use the proceeds to hire a replacement, sell the business, or use for business continuation. Life insurance can help bolster credit for the business, cash accumulation can be used to borrow against, and it can improve morale.
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Life insurance can be used to keep key executive employees. The employer pays the life insurance premium either directly or indirectly to the insurance company by means of a bonus paid to the executive. The additional income used to pay the premiums are deductible by the employer and reported to the executive as compensation. Oftentimes, the employer will gross up the income (called double bonus) to cover the extra taxes associated with the increased income. The employee is the actual owner of the life insurance policy.
You’ve worked long and hard to accomplish one of the American dreams: owning your own business. Have you thought about what would happen if you became disabled and couldn’t work? Have you planned on who will carry on the business after you die or if you want to sell it to a partner or a competitor? It’s important to have a plan in place.