Now is the time
Insurance can be an uncomfortable topic, steeped in life’s unknowns. But now, as we face the uncertainties of the coronavirus outbreak, it’s more relevant than ever. Insurance can play an integral role in your overall financial strategy.
Helping you along your path
When planned appropriately, insurance can help cover the expected and unexpected events on life’s journey.end call out
Right now, your path to retirement may look clear, with appropriate allocations to handle living expenses, pursue your goals, and deal with life’s detours. But what happens if your path is cut short by an untimely accident or illness? Or wiped out by a death and the accompanying loss of an income stream? That’s where insurance can come in. When planned appropriately, insurance may help cover the expected and unexpected events on life’s journey – and help you stay on course financially.
Putting off life insurance decisions is more than just a coverage risk. It could also cost you considerably more in the long run. Almost without exception, insurance may be more affordable when you’re younger and healthier. As you age, premiums may rise steeply and coverage may be harder to obtain.
Life insurance comes in two forms: term and permanent. The first, as its name implies, provides coverage for a limited period of time, usually 10, 20, 30 years. Permanent life insurance, on the other hand, provides coverage throughout your lifetime as long as premiums are paid. With permanent policies, you may be able to build equity over time to help meet your long-term goals and objectives.
Depending on the type of policy, the cash value can potentially grow, tax-deferred, and may generally be accessed through tax-free withdrawals and/or loans.
Depending on your circumstances and specific policy features, permanent life insurance may offer other potential financial benefits:
- Cash values may be a funding source for major life purchases or expenses such as a home purchase or small business build-out
- Cash values may be accessed to supplement your retirement income
- Provide funds for qualified long term healthcare expenses
- Fund legacy goals - Insurance death benefits are generally income tax-free to beneficiaries
- College savings - especially since it's typically not considered an asset in federal college financial aid calculations
- Loan collateral
More than one in four of today’s 20-year-olds can expect to be out of work for at least a year because of a disabling condition before they reach the normal retirement age1.end call out
Most people don’t see a disability in their future, but, more than one in four of today’s 20-year-olds can expect to be out of work for at least a year because of a disabling condition (anything from a back injury to depression) before they reach the normal retirement age,1 according to the Council for Disability Awareness. And, the average individual disability claim lasts 34.6 months.2
Because of this, a disabling condition during your working years can seriously impede your income stream – even dry it up.
If you’re covered under a group disability policy, you’re typically eligible for up to 60% of your salary, but payouts may not start immediately. To make up for losses during a group policy waiting period as well as the remainder of your income once payouts begin, you’d need coverage under a supplemental disability insurance policy.
Keep in mind, group policies are often hampered by qualifiers. For example, “own occupation” policies pay if you’re unable to perform your current job duties. “Any occupation” policies, on the other hand, only pay out if you can’t work in any job deemed reasonably suitable for you.
If you don’t have the financial means to live comfortably without earned income until you retire, you may want to consider disability policies that last until at least age 62.
Long-term care insurance
As life expectancies continue to climb, the probability you or your spouse will require home health care or nursing-home care rises as well.
The costs for receiving this type of care can be substantial – and are not covered by Medicare. In fact, the national median cost of a nursing home stay is $105,8503 annually for a private room.
For some, long-term care coverage may be the best way to help protect against potentially devastating costs of extended care later in life. Like some other types of insurance, purchasing early may lead to savings down the road.
A critical planning component
Next time you review your retirement plan, don’t forget to consider your insurance needs. Life, disability, and long-term care insurance can help you stay on track toward your financial goals through retirement and beyond.
- Determine your insurance needs.
- Ask a financial professional for help finding the right insurance coverage for your needs.
1 The Council for Disability Awareness, Disability statistics," Sourced from Social Security Administration, Disability and Death Probability Tables for Insured Workers Born in 1999, Table A (accessed 10/1/21). https://www.ssa.gov/oact/NOTES/ran6/an2020-6.pdf (PDF)
3 Based on 365 days of care, Genworth Cost of Care Survey 2020, conducted by CareScout®, August 2020, https://www.genworth.com/aging-and-you/finances/cost-of-care.html
Insurance products are offered through non-bank insurance agency affiliates of Wells Fargo & Company and are underwritten by unaffiliated insurance companies.
Death benefits generally are not subject to income taxes but may be subject to income taxes in certain cases. Policy owners should consult with legal counsel prior to assigning the ownership rights in life insurance policies. Insurance policy values or death benefits are includable in the gross estate of the decedent if the decedent owned or was deemed to have owned certain "incidents of ownership" in the policy. Death benefit protection is based on the claims-paying ability of the issuing life insurance company.
Wells Fargo Advisors is not a legal or tax advisor. Any discussion of taxes represents general information and is not intended to be, nor should it be construed to be, legal or tax advice. Tax laws or regulations are subject to change at any time and can have a substantial impact on an actual client situation.
Distributions from life insurance policies prior to the death of the insured may be subject to income taxation depending on the type of distribution, the life insurance policy duration at the time of distribution and effective tax law at that time. These distributions may also reduce policy cash values and death benefits. Life insurance policy loans are not taxable for a non-Modified Endowment Contract (MEC) policy provided that it remains in force until the death(s) of the insured(s).
Withdrawals, policy loans and other distributions from a MEC policy are subject to other rules and are generally taxable as "income first." If prior to the death(s) of the insured(s) the policy (MEC or non-MEC) is surrendered or lapses with an outstanding policy loan balance, the policy owner will be subject to income taxes to the extent the cash surrender value plus the amount of the outstanding loans exceeds the policy cost basis. Withdrawals, policy loans, and other distributions will reduce policy values and may reduce death benefit.