Key Takeaways
- Life insurance can be used for income replacement, business continuity, long-term care (LTC) coverage, and estate liquidity
- Three main types serve different needs: Term for cost-effective family protection, whole for liquidity, universal for maximum flexibility
- Long-term care planning is essential; 56% of Americans turning 65 will need LTC services
- Coverage depends on individual factors like debt, future obligations, family health history, and care preferences
- Cary Street Partners integrates insurance planning with overall wealth planning to provide tailored solutions
Using Life Insurance as a Financial Tool
While many view life insurance in terms of protection from unexpected events, life insurance plans serve multiple strategic purposes. Life insurance plans can be used to replace lost income, provide liquidity for estate taxes, keep your business running if a partner passes away, and provide coverage in the event of disability or long-term care needs.
At Cary Street Partners, we believe that understanding and developing an insurance strategy is as important as setting up an emergency fund. However, to effectively use life insurance, you must understand the benefits and risks of policy types. Only then can you determine the right policy and appropriate amount of coverage for your unique situation.
This article covers common life insurance and long-term care plans, identifies which options suit your financial goals, and outlines coverage considerations to meet your financial goals at every stage of life.
Types of Life Insurance Plans
There are three main types of life insurance plans: term, whole, and universal.
- Term: This is the most straightforward and cost-effective to implement. As the name suggests, term insurance is temporary coverage that has an expiration date. Premiums are generally fixed.
- Permanent: Permanent life insurance plans offer more flexibility, lifetime coverage, and cash value accumulation. The two most common types of permanent life insurance are whole and universal.
- Whole: Similar to term, whole life insurance has fixed premiums offering predictability. As long as the premiums are paid, the cash value of the policy is expected to grow every year, based on historical performance and policy structure.
- Universal: Unlike other policies, universal policies have flexible premiums. They also have an investment component: any premiums paid beyond the minimum required to cover insurance costs are added to a cash value account where they earn interest.
An adjacent but equally important consideration in life insurance planning is long-term care (LTC). LTC insurance can be purchased independently of life insurance, or it can be added to life insurance plans via an LTC rider. Both standalone and rider policies can help pay for assisted living expenses, nursing homes, and more. Adding an LTC rider to your life insurance plan has additional benefits: these hybrid plans give you potential access to your death benefit in the event you need long-term care and these types of policies are often structured to be less subject to premium increases compared to traditional LTC policies. Another benefit to an LTC rider is that, unlike a standalone LTC policy, you will not lose unused benefits with a rider.
Beyond the Basics: Life Insurance Planning
Whether you are aiming for financial freedom or simply want to ensure your loved ones are provided for in the event of your death, choosing the right policy can be complex. It depends on many factors, like your current life stage and financial planning goals.
Some general guidance when reviewing plans is to first consider your budget, age, time horizon, financial goals, and propensity to save. Below, we break down each policy type and which lifestyles they are best suited for.
- Term: This is typically best suited for younger families with limited budgets. Term premiums are fixed. That predictability works well if you are juggling numerous financial commitments. Term policies are best for those who need pure income replacement in the event of death or disability for a set period of time.
- Permanent: These policies are better for people who need permanent life insurance, who have a longer time horizon, and who tend to be big savers.
- Whole: Accumulates cash value and pays out to your beneficiaries upon your death. Premiums remain level, providing predictability as well.
- Universal: Universal plans are known for offering significant flexibility around the type of death benefit, premium payment amount, and the savings and investment options. With universal policies, you may have the option to access some of the cash value in a time of need, too, though this will trigger a tax liability.
- LTC: This is most popular with people ages 50-65, but important to think of as part of any holistic financial plan. Life expectancy is on the rise, and long-term care can be a major financial risk for those who are not adequately prepared for the costs. In fact, the U.S. Department of Health and Human Services (HHS) has shared estimates that “over half (56%) of Americans turning 65 today will develop a disability serious enough to require long-term service and support.” <sup>1</sup>
Determining Your Coverage Needs
To determine the right level of life insurance coverage, we recommend that you start with a list of your financial obligations, including:
- Existing debt, such as outstanding student loans, car payments, and mortgages
- Potential future financial obligations, such as your children’s educational expenses and your spouse’s retirement
- Amount of existing assets that could cover expenses without insurance and for how long
- Estate planning goals like tax payments
LTC has additional considerations, including:
- Average LTC costs in your city, or where you plan to retire
- Family health history
- Preferences in care environments (nursing homes vs assisted living, as well as luxury options)
Regardless of which plan you choose, the younger and healthier you are, the cheaper your policy will be. As such, it is best to start insurance planning as early as possible.
Professional Guidance for Insurance Planning
Are you ready to develop a holistic insurance planning strategy? At Cary Street Partners, we evaluate your complete financial picture before recommending appropriate insurance planning solutions. We can help with a range of insurance planning needs: from income replacement calculations to evaluating and adjusting your coverage plans as your needs evolve over time.
Visit our Insurance Planning page or contact us directly to get started.
1 https://www.consumeraffairs.com/health/long-term-care-statistics.html
Paige W. Garrigan
Chief Marketing & Transitions Officer, Managing Director
The Wealth Wisdom Series is curated by Paige W. Garrigan, drawing from the experience and input from Cary Street Partners’ Financial Advisors. Collaborating internally with the team she gathers pertinent and timely topics for readers. With over 30 years of experience in the financial services industry, she has acquired a wealth of knowledge across various facets of the industry ensuring comprehensive insights for readers.
Cary Street Partners is the trade name used by Cary Street Partners LLC, Member FINRA/SIPC; Cary Street Partners Investment Advisory LLC and Cary Street Partners Asset Management LLC, registered investment advisers. Registration does not imply a certain level of skill or training.
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