Welcome to another episode of "Ask April" on The Secure Retirement podcast. Today's episode is essential for anyone with questions about life insurance, its benefits beyond death benefits, and its role in ensuring financial security for you and your family. We'll be discussing real-life applications of life insurance at different stages of life, demystifying term and permanent life insurance, and exploring how to tailor life insurance to fit your current life stage.
We’ll cover:
Understanding the crucial role of life insurance in financial planning and how it fits into your overall strategy.
How real clients have used life insurance to secure their financial future, protect their families, and plan for retirement.
The difference between term and permanent life insurance.
Strategies for tailoring life insurance to meet your unique needs and circumstances throughout different phases of life.
Insights on using life insurance to enhance retirement planning, spend down assets wisely, and ensure a lasting legacy.
And more
Mentioned in this episode:
Transcript:
April Schoen: Hello, and welcome to The Secure Retirement podcast, where we unravel the complexities of financial planning and getting ready to retire. Hello, I am April Schoen and today is going to be another episode of Ask April, where we dive deep into some of the most common questions we get from clients. And today, we're gonna be diving deep into the subject of life insurance.
Now, I know I know, it's not the most fun subject to talk about. But it is essential that we do discuss this. And I did a webinar a few weeks ago on life insurance, the essential tool that everyone loves to hate. And I thought it'd be good to take some of the key items I discussed in the webinar that was almost an hour long, and condense it down for the podcast.
So this talk is going to be really for you. If you've got some questions about life insurance, how it works, where does it fit in with your overall plan? Maybe you've heard, there's some ways that can help you, not just your beneficiaries, and you're curious about that. And maybe you just want to make sure that you've got a secure financial future, that your family is secure financially, and that you're really on the right track.
So if that's you, then you're in the right place, because we're going to be kind of covering all of those questions today. And I'm gonna go through and talk about some case studies. Some real life applications. I'm going to talk about how life insurance fits in as a financial tool. And then how do you also tailor life insurance to fit you where you are at your current life stage.
So as we get into this, I want to first just give you some examples of some clients that I've worked with over the years, and show you how they've used life insurance as part of their overall plan. So the first thing I want to talk about is someone who was a young professional, who used life insurance for debt protection.
So one of my clients, I'm going to call her Emma, is 30 years old, and she's married and they have one child on the way. And she was pregnant when I first met them. She's a nurse practitioner, she's got a great career ahead of her, but she's really focused on paying off her student loans, because she does have quite a bit of student loans from college.
So she wants to make sure those get paid off. She also wants to make sure that she's saving for her own kids' college fund, because she doesn't want them to go through the same things that she went through. And she wants to be able to save for retirement. So Emma chose a term life insurance policy with a death benefit that covers her debts, but also provides a financial safety net for her husband, so that if something happened to her tomorrow, her income would be replaced.
Now, Emma likes the affordability that the term life insurance provides her, knowing that her debts won't be a burden to her family, and that her family is taken care of if anything should happen to her. Now, what about a couple in their mid career and how they use both term and permanent life insurance.
So Julie and David are married with two kids who are going to be heading off to college in the next 10 years. And they opt for both a term policy and a whole life policy. The term policy gives them protection that they need now, while their kids are still young, and they're not out of college. They still have some debt they need to manage like a mortgage and car loans.
But they also choose to have a whole life policy because of the stability and the growing cash value. And this cash value becomes a cornerstone of David's financial plan. It offers them a tax advantaged way to save for future college expenses, and potentially supplement their retirement down the road. Now, what about someone who may be single, right? I get this question a lot. Hey, I'm not married. I don't have any children. And so therefore, there's no reason for me to have life insurance.
Well, one of my clients Sophia has really used life insurance to provide her independence in her later years. Sophia is a graphic designer. She's got a wonderful career. She's very active socially. But you know, as someone who's single, no children, she's always been proactive about her financial security. She knows as she gets older, she may need some additional personal and health related assistance and she wants to make sure that she can afford quality support without compromising her savings.
And she doesn't want to have to rely on relatives or friends for support. So recognizing some of these risks, she decides to look into a permanent life insurance policy with some additional benefits that provide her extended personal care services should she ever need them. And here's how she's benefited from this decision. First, she's got the cash value. So Sofia's policy builds cash value over time, which she can tap into if she needs it for emergencies, significant expenses, maybe even to just enjoy some in retirement.
And she likes the tax advantage growth of the cash value, because she sees it as a resource she can utilize without depleting her other investments and retirement accounts. She has an additional rider in her policy that allows her to access part of the death benefit for covered care services, which could be you know, including home health care.
So this gives her confidence that she's got a plan that she knows she's going to be taken care of in the future. And while she doesn't have any direct heirs, Sophia is passionate about several causes. So she wanted to make sure that her life insurance, this death benefit that comes in tax free to whoever she's named as a beneficiary, she wants to make sure that her legacy continues through the work she values.
And Sophia values her independence almost more than anything. So this really gives her control over her future health care needs. She rests easier knowing she won't be a financial burden to her loved ones, and can maintain her dignity and choices later in life. Now what about someone who is really close to retirement or already in retirement?
Well, one of my clients, Linda, she's 67. And she's a retired teacher. And she's been enjoying retirement for the last several years with her husband. They've got a comfortable nest egg. But they are concerned about what if they outlive their savings. So Linda has a permanent life insurance policy. And she used this cash value as a backstop, in case she needs to access it for income or liquidity.
The death benefit allows her to spend more of her assets and investments in her retirement accounts than she would if she didn't have the policy. This is because she knows the day she dies, this death benefit is going to come in tax free to the family to replace that asset. So her and her husband can enjoy their current lifestyle without as much as a worry about expenses.
She takes comfort in knowing that her life insurance will help her leave a legacy and provide for final expenses. So this takes the burden off of her family and supporting her wish to leave money behind to her kids and even her favorite charity as well. So thinking about this life insurance, I wanted to give you just several different cases of clients and where they've seen life insurance fit in with their overall plan at different stages of their life.
As we get into this today, there's really two types of insurance that we need to discuss. And that's term and permanent. And I really think about these as being two ends of a spectrum. Term is really designed for temporary coverage. And permanent offers more lifetime coverage with additional benefits. So term insurance provides coverage for a specific time period. That could be 10 years, 20 years, 30 years. It's a really cost effective solution for temporary deeds like think income replacement, debt coverage. The premiums are typically lower, they increase at age or at renewal, and there's no cash value, so there's no equity inside this policy.
On the other hand, when we think about permanent insurance, this provides coverage for life, as long as premiums are paid. It includes a savings component called cash value that grows tax deferred. You can borrow or withdraw the cash value. And while initially the premiums are higher than term life insurance, it can be more cost effective to you in the long run due to the cash value build up.
So as I said, as this cash value grows inside their permanent policy, you can have access to it during your lifetime. So let's say you need to pay for a medical procedure. Maybe you want to renovate a home. Maybe you're a business owner and you need to float payroll. Buy a car, buy a house. It can also help with liquidity in a down market.
So, one of my clients several years ago was getting some major dental work done. And when I say major, it was like a little over $10,000, in dental work done. And when we got together to discuss where he was going to tap into to cover these expenses, we actually looked at his life insurance. And he took a withdrawal from his life insurance policy to cover the expenses.
Another one of my clients, they were doing a renovation on their home, they were remodeling their kitchen. The husband and wife, they both have permanent life insurance policies. And they both decided to do a loan. So what they did is they took a loan from each of their policies. So when they did the loan, there's no tax impact to them for doing that. They took care of the renovations, and then they paid themselves back over time. It's a great use of this asset. It's really flexible.
So you could use it to pay for college expenses, business opportunities, major purchases. And also it can provide liquidity in a down market. So what do I mean by that? Well, let's think back to 2022, when the S&P 500 is down 20%, and bonds are down 10. Where everyone was saying there's no place to hide in the market. That wasn't necessarily true, there were avenues. And so we had clients who were planning to take money out of the market at that time.
And instead what they did is they took either a loan or withdrawal from their life insurance policy, and used that for whatever was they needed it for to allow their investments to come back up. And then we put the money back in the policy. Very, very common strategy for us to look at. So you can really use that cash value as a financial tool. Because that cash value grows tax deferred, it's not subject to market fluctuations.
It's protected from lawsuits and creditors in Florida. Now, this is state specific, so you want to make sure you pay attention to what state you're in. Again, you can withdraw or borrow against it. And you have the potential to use the cash value or dividends to pay policy premiums later in life. Now, dividends are not guaranteed. Some whole life policies can earn dividends. Again, they're not guaranteed, but they're used to increase cash value and the death benefit.
You can reinvest these dividends, and that grows tax deferred. And it really helps offer some additional financial flexibility. Now what about using life insurance to enhance retirement planning? Because I get this question a lot. Maybe you've heard, hey, once you get to retirement, you're not going to need life insurance anymore. Well, you might not need it, but you may want it. Let's talk about how it can help your retirement.
Having life insurance can help you maximize retirement benefits like pension options. It allows you to take the higher pension option, if you have enough life insurance to help replace it. It can also allow you to spend other assets you know will be replaced. So you can spend down investment accounts, you can spend down retirement accounts because you know that bucket is going to be refilled tax free upon your passing.
You can use the cash value to supplement retirement income. And it can provide a buffer to retirement savings, allowing you to be more efficient in your investments and can also provide that liquidity in a down market. Now if we compare the difference between term and permanent insurance, think about it this way. Term is temporary, has lower costs and no cash value. While permanent life insurance offers lifetime coverage, has an initial higher cost but also has cash value benefits.
And really when you're deciding between these two types of insurance, think of term for more short term goals and then permanent for more long term planning. So personally, I have both. I have term insurance to protect my family. Because if something happens to me tomorrow, I want to make sure there's enough insurance to help my family stay financially the same .I don't want anything financially to change for them.
So that's why I have the term insurance that I do. But guess what? I don't plan on dying tomorrow. I plan on living a very, very long time and that's why I have the permanent policies I do more for wealth building and cash value. And so thinking about this as like the long term planning, again, you really want to tailor the life insurance to what stage of life that you're in.
Because life insurance needs do change and they evolve. Again, if we're thinking about someone who's younger, we may want to focus on those affordable coverage to cover debts and income replacement. And then we want to consider family protection, children's education and wealth building as we're in that midpoint in our career. And as we approach retirement, we really want to focus on legacy liquidity and maximizing retirement income.
There's a lot of things that you can utilize this one tool for. It just depends on what you're trying to accomplish, and what your goals are, and also the other aspects of your financial world. Because if you don't have insurance, your assets become your insurance. Let me say that, again, if you don't have insurance, your assets become your insurance.
So life insurance is not a one size fits all. You really want to tailor it to your individual goals and circumstances. And you really want to review this regularly to make sure your coverage aligns with your current life situation. It's not something that you want to just set and never think about again. And that's where a financial advisor can come in to help you navigate these options and create that comprehensive plan that really thinks about all aspects of life.
So when we think about tailoring this life insurance into every stage of life, I want to give you a few more examples. So I want to think about one of our clients, his name's Alex, and he's 25. And early on in his career, he's got student loans, he's renting an apartment. And so he really wanted to start with an affordable plan that would cover his debts, so they didn't fall on his family.
And that's really where that term life insurance policy came into place for him. And then as we maybe get a little older, we get married, we have some kids, then we want to really start to think about, hey, if something happened to one of us, can the other manage the mortgage and the living expenses on their own? Again, this is where term insurance comes in. But you may also decide to add a permanent policy.
That way, you can start on building wealth outside the market, and have some tax advantaged growth and lower expenses. And then as we're kind of approaching that midpoint in our lives and in our careers, people are starting to really see how that cash value is growing. And we realize, yes, this is a protection vehicle. But it's also a savings tool for us, and a future financial resource for our children.
And then as we're kind of getting closer to that retirement age, maybe our kids are in college, and we're really focused on retirement savings. And at this point, for most of my clients, maybe their term insurance has expired at this point. And so they're really looking for that permanent policy to be that cornerstone for them. It offers them that stable asset that complements their retirement funds, plus their death benefit.
And then as we're into retirement, having a policy allows them to spend more of their other assets like retirement accounts and investments. It allows them to maximize pension options, because they know that there's an asset that will refill those buckets when they have passed. They protect both of them in this case, as husband and wife, if we think about it that way. And we know that their legacy wishes are covered.
And of course earlier I told you about my client, Sophia, who's not married, doesn't have any children and to where she saw this like really fitting in with her overall plan. But really, understanding life insurance is just the beginning. The real value comes from applying these insights to your unique situation. Because every individual, every family has different goals, needs and dreams. And this is really where that personalized advice makes all the difference.
So if you're wondering how you integrate this into your financial plan, or maybe you even have specific questions about your existing policy, I want you to know that we're here to help. So today in this podcast, we talked about some specific strategies. Maybe you're thinking well, I already have some life insurance, and that's great and wonderful. And I would also encourage you to really make sure that we review exactly what you have, because there's a bunch of different types of insurance. And some of them all don't work the same way.
So it's important for us to really understand what you got, how it's working, and to know if any tweaks are needed. So if you've got some questions, again, maybe about something you already have, or are wondering how this fits in, I'd encourage you to schedule a time to book a call. That way we can discuss what are your goals? What are your concerns? What opportunities are available to you? What roadblocks are in the way? And that way we can figure out if one of these strategies is appropriate for you.
So the best way to schedule a call would be to go to our website, and we're going to link it in the show notes. But it's curryscheonfinancial.com. And then right there at the top right hand side, you're gonna see a button that's gonna say schedule a call. So you click on that. And that's going to give you a link to our calendar, so that you can book a 30 minute phone call with me.
So again, that website is curryschoenfinancial.com. That's our website where you can see all of our podcasts. And you'll see at the top right hand side, there's a button for schedule a call. Just click on that, and then you'll be able to select a 30 minute phone call with me right on my calendar.
I hope you guys found today's episode useful, impactful. If you guys have a question that you're like, oh, I really hope April, you know covers a podcast episode about this, well send me a message. Send me an email or drop us a note through the website. And we'd be happy to cover that in a future podcast. Thanks again and talk to you guys soon.
Voiceover: Whole life insurance is intended to provide death benefit protection for an individual's entire life. With payment of the required guaranteed premiums, you will receive a guaranteed death benefit and guaranteed cash values inside the policy. Guarantees are based on the claims hangability of the issuing insurance company. Dividends are not guaranteed and are declared annually by the issuing insurance company's board of directors. Any loans or withdrawals reduce the policy's death benefits and cash values and affect the policy's dividends and guarantees. Whole life insurance should be considered for its long term value. Early cash value accumulation and early payment of dividends depend upon policy type and or policy design, and cash value accumulation is offset by insurance and company expenses. Consult with your guardian representative and refer to your whole life insurance illustration for more information about your particular whole life insurance policy.
This material is intended for general public use. By providing this content, Park Avenue Securities, LLC and your financial representative are not undertaking to provide investment advice or make a recommendation for a specific individual or situation or to otherwise act in a fiduciary capacity. If you'd like additional information about our services, you can visit our website at curryschoenfinancial.com, or you can call our office at 850-562-3000. Again, that number is 850-562-3000. This podcast is for informational purposes only. Guest speakers and their firms are not affiliated with, or endorsed by Park Avenue Securities, Guardian or North Florida Financial, and opinions stated are their own. April and John are registered representatives and financial advisors of Park Avenue Securities, LLC. Address 3664 Coolidge Court, Tallahassee, Florida, zip code 32311. Phone number 850-562-9075. Securities, products, and advisory services offered through Park Avenue Securities, member of FINRA and SIPC. April is a financial representative of the Guardian Life Insurance Company of America, New York, New York. Park Avenue Securities is a wholly owned subsidiary of Guardian. North Florida Financial is not an affiliate or subsidiary of Park Avenue Securities or Guardian.
2024-171647. Expires May 2026.