Life insurance is a critical piece in one’s financial portfolio, yet at the same time, tends to be the piece that's frequently neglected. Aside from the obvious benefit of replacing your income and covering your major debts such as a mortgage, certain types of life insurance if utilized properly can be used as an alternative savings vehicle to enable you to make tax free withdrawals at a future date. In addition, certain life insurance companies provide the policy holder with “living benefits”, which allow you to access a portion of your death benefit tax free if you suffer from a terminal illness (ie where you are expected to pass away within a time period as long as two years), a chronic illness (ie where you are unable to do two of the following six activities: bathing continence, dressing, eating, toileting, and transferring), or a critical illness (ie heart attack, stroke, or cancer). It should always be noted that accessing any living benefits that may be available will reduce your policy’s death benefit dollar for dollar
How can such life insurance protect your financial portfolio? Consider this: without such “living benefits”, you may have to save the money needed to cope with illnesses and situations noted previously in a taxable account, pay taxes on that account each year, and hope those savings and investments are enough to cover any associated expenses. If you are fortunate enough to where the illness occurs at a time when you have enough money to cover the large expense, imagine what your new financial landscape would look like – at a best case scenario, it may look as if you didn’t start saving until later in life, and you would now need to save that much more money to make up for the time you hadn’t been saving. However, what if you aren’t able to work as many hours as before the illness occurred? Can you see how your ability to reach your financial goals be hindered given that you wouldn’t be able to work as many hours, yet need to save even more money than before?
The way I’ve always explained insurance to clients is this: just as you want to diversify your investments in your 401(k), often the same holds true when allocating your disposable income among your retirement accounts, non-retirement accounts, and insurance. In order to create and help protect a sound financial portfolio, you should consider a broad diversification strategy. This will spread your risk to help you reach your goals because as a result of incomplete planning, the financial portfolio which you’ve been working so hard to build may collapse in a matter of days. For more information on if life insurance is suitable for you, contact me for help.
About Mike Loo
Mike Loo is an independent financial advisor with more than 20 years of experience in the financial services industry. His mission is to provide a meaningful impact on the lives of clients and the people they care most about, help them make educated decisions with their money, and build a strong financial foundation for both themselves and their next generation. Mike is committed to meeting a high standard of excellence, taking the time to listen to clients’ needs, and designing strategies that aim to help clients save money and reduce debt. He seeks to fit a client’s investments into their life and educate them so they’ll understand their investments. To learn more about how Mike may be able to help, connect with him on LinkedIn, call his office at (949) 221-8105 x 2128, or email him at [email protected].
Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Trilogy Capital, a registered investment advisor. Trilogy Capital and Trilogy Financial are separate entities from LPL Financial.
* Guarantees are based on the claims-paying ability of the issuer. Diversification helps you spread risk throughout your portfolio, so investments that do poorly may be balanced by others that do relatively better. Neither diversification nor rebalancing can ensure a profit or protect against a loss.