March 13, 2004--The thought that you may not need life insurance is anathema to most life insurance agents. But as a Certified Financial Planner who is also a life insurance agent, I have a different point of view. There are times when you may not need life insurance.

To me, there are three reasons to have life insurance. You should use it to provide a way to replace the breadwinners’ income in the event of a premature death, as a means to pay future estate taxes for pennies on the dollar or to employ some exciting special-situation strategies. Otherwise, you may not need life insurance and could better use that money to fund higher priority items like Long Term Care Insurance.

(Mr. Voudrie responds to questions from readers on an almost daily basis. If you would like clear straightforward unbiased answers to your financial questions, contact Jeff@guardingyourwealth.com)

The use of life insurance to replace the income of the breadwinner during the earning years prior to retirement is a practical necessity, especially when you have children. Unfortunately, there are still many people who fail to protect their loved ones in this way. My wife and I take great comfort knowing that our family would be well cared for in the event either of us should pass away because of our life insurance policies.

If you don’t have enough life insurance to replace your income should you die, you could be placing a tremendous burden on your family. For single parents it is even more important! A simple rule of thumb to determine if you have enough life insurance is to divide your salary by .05. For example, if you earn $50,000 per year you should have approximately $1,000,000 in life insurance. In most situations, I recommend 10, 20, or 30-year term insurance as opposed to permanent insurance. Get the length of term that will take you to your retirement age.

Once you retire you may no longer need life insurance. If you’ve accumulated enough assets to provide comfortably for your lifetime, then life insurance is no longer needed for income replacement. Don’t cancel that policy yet, though, because you may need it for other reasons.

If you’ve successfully accumulated over $1.5 million in assets then you may need life insurance to pay for future estate taxes. Even with the recent changes in estate tax laws, many still find themselves facing hundreds or thousands of dollars in estate taxes at their death. With proper planning, married couples are able to pass $3 million to their heirs in 2004 without incurring any Federal estate tax. Unfortunately, few married couples have the proper plans in place and end up forfeiting one exemption which results in reducing that amount to $1.5 million—the same amount as an individual.

Life insurance is a wonderful way to pay death taxes without eating into the estate itself.
This is particularly true when a large percentage of an estate is tied up in non-liquid assets, such as real estate. In those cases, those assets would have to be sold in order to pay the taxes. Proper use of life insurance can avoid these situations entirely, and do it in such a way that you pay your taxes for pennies on the dollar. If you estate is smaller, you may not need life insurance to help cover future estate taxes.

The third use of life insurance is for special-situation strategies. There are unique strategies that will dramatically increase the amount of support you can provide your favorite charitable causes or provide a financial safety-net for your loved ones for generations. Even those of modest means can provide literally millions of dollars to worthy causes, while passing on a legacy of giving to future generations. Very few are aware of these strategies, but if you’d like to find out how you can take advantage of them, please give me a call. As a former missionary and head of a non-profit organization, I understand the impact such giving can have on deserving charities.

Life insurance should evolve with your life goals and financial situation. Proper use of it can provide peace of mind, financial security for your heirs and support for worthy causes. But make sure you use a professional who gets the details right, or you could end up losing much of the benefit to taxes!

If you have a specific question or would like more information give me a call toll-free at 1-877-827-1463 or go to www.guardingyourwealth.com. You can also reach me by email at jeff@guardingyourwealth.com. I will be happy to help you in any way I can.

Mr. Voudrie is a Certified Financial Planner, nationally syndicated columnist, and the President of Legacy Planning Group, Inc., a Private Wealth Management firm in Johnson City, TN.

Mr. Voudrie is available for speaking engagements, television appearances and radio talk shows. If you are looking for an expert in the field of wealth management that is energetic, an excellent speaker, and who can provide a message that will excite and inspire an audience, contact Jeff Voudrie today!







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