The Importance of Life Insurance in Financial Planning

Many components go into financial planning, from budgeting to savings accounts. However, one factor some overlook is life insurance.

Life insurance for married couples can provide a safety net to loved ones, whether through replacing your income or leaving a larger legacy. Meanwhile, some policies can supplement retirement funds and help business owners protect their companies when they pass away.

This article will explore ways you can use life insurance to enhance your financial planning.

Four Uses for Life Insurance in Financial Planning

Life insurance can play several roles in your financial plan:

1. Income Protection

Life insurance for parents can be a valuable income protection tool, as it can provide your spouse with substantial funds to provide for themselves and your children if you pass away.

For instance, if you earn $50,000 a year, a $500,000 life insurance death benefit can help provide for 10 years. That ensures your loved ones can have help covering regular expenses for a long time.

2. Retirement Income

Permanent life insurance policies, such as whole and universal life insurance, typically build cash value with each payment. The cash value can earn tax-deferred interest at a policy-specified rate, which can become a powerful retirement asset.

As the cash value grows, you can typically withdraw or borrow from it at low rates and favorable terms with no credit check. You can use this cash value to supplement retirement income or even to help pay off debts to create a more secure financial situation.

3. Estate Planning

Life insurance can help you pass down more assets to your heirs, possibly tax-free, when structured correctly.

Death benefits, the money your beneficiaries receive when you pass way, are not generally taxed as income. However, the death benefit may count toward your federal and state estate tax thresholds. Any amounts over the estate tax threshold are usually taxed at estate tax rates.

Policyholders may avoid the death benefit counting toward the estate’s taxable value by placing it in an irrevocable life insurance trust (ILIT). If you pass away at least three years after creating the ILIT, the death benefit may not be counted in your estate for tax purposes.

As a result, your heirs can potentially receive more of your assets without paying estate taxes.

4. Business Succession Planning

A business owner may be able to use life insurance to assist with succession planning. For example, a part-owner in a partnership could name business partners as beneficiaries.

The business partners can then use the death benefit they receive to purchase the deceased policyholder’s business interest without debt, maintaining a healthy financial situation for the business.

Businesses can also get “key person insurance.” This type of life insurance policy insures an employee whose death could have a substantial negative impact on the company. If the employee passes away, the business has a safety net to help protect against losses and have resources available to help recruit and train a replacement employee.

Consider Life Insurance for Your Financial Planning

Regardless of your financial goals, life insurance may be able to help you get there.

Whether you need to protect income, supplement your retirement assets, pass more wealth to your heirs, or craft a business succession plan, life insurance can be crucial in helping to protect your loved ones and creating added financial security.

The key is knowing what policy type best suits your situation and shopping for multiple quotes. This will help you find the best rates on the coverage type and amount you need.

Content within this article is provided for general informational purposes and is not provided as tax, legal, health, or financial advice for any person or for any specific situation. Employers, employees, and other individuals should contact their own advisers about their situations. For complete details, including availability and costs of Aflac insurance, please contact your local Aflac agent.

Aflac coverage is underwritten by American Family Life Assurance Company of Columbus. In New York, Aflac coverage is underwritten by American Family Life Assurance Company of New York.

Aflac life plans – 68000 series: In Arkansas, Idaho, Oklahoma & Virginia, Policies: ICC1368100, ICC1368200, ICC1368300, ICC1368400. In Delaware, Policies A68100-A68400. 65000 series: In Virginia, Policies ICC0965JTO & ICC0965JWO. B61000 series: In Arkansas, Idaho, Oklahoma & Virginia, Policies: ICC18B61JWO & ICC18B61JTO. In Delaware, Policies B61JWO, B61JTO. B60000 series: In Arkansas, Idaho, Oklahoma & Virginia, Policies: ICC18B60C10, ICC18B60100, ICC18B60200, ICC18B60300, & ICC18B60400. Q60000 series/Whole: In Arkansas & Delaware, Policy Q60100M. In Idaho, Policy Q60100MID. In Oklahoma, Policy Q60100MOK. Not available in Virginia. Q60000 series/Term: In Delaware, Policies Q60200CM. In Arkansas, Idaho, Oklahoma, Policies ICC18Q60200C, ICC18Q60300C, ICC18Q60400C. Not available in Virginia.

Coverage may not be available in all states, including but not limited to DE, ID, NJ, NM, NY or VA. Benefits/premium rates may vary based on state and plan levels. Optional riders may be available at an additional cost. Policies and riders may also contain a waiting period. Refer to the exact policy and rider forms for benefit details, definitions, limitations, and exclusions.

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Aflac New York | 22 Corporate Woods Boulevard, Suite 2 | Albany, NY 12211

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