creativa images/stock.adobe.comDo you have an idea of what your financial future looks like? Does your financial planning include a concrete formula to secure yourself a comfortable retirement?
Unfortunately, that financial plan does not guarantee that your golden years will be comfortable. However, it can help you to make that future happen. So what is the secret ingredient of the ultimate financial recipe?
The ideal financial plan should be a detailed assessment of your current state of finances, an overview of the short, mid, and long-term financial goals, and a strategy to help you attain them.
How to Build a Financial Plan
Your financial plan is as unique as your circumstances and goals. However, there are goals that are common to everyone such as buying a home and having a family of their own. While some will plan to buy a dream car or a vacation home, others will lean towards starting a business. Similarly, while some of your friends indulge in everyday luxuries, other are into saving for annual trips abroad.
Since it is impossible to map out the rest of your life, your financial plan should be divided into stages made up of a number of years. However, your financial recipe is not complete without the following crucial ingredients:
- Life Insurance
- Estate planning
Life Insurance
Despite being important, insurance is one of the most forgotten ingredients of a financial plan. Insurance is as important as your mortgage or investment. You probably on a health insurance and car insurance, but do you have a policy that covers family in the event of your demise?
That is where life insurance comes in!
Life insurance is a simple product. For your financial plan, consider the term life insurance if the alternative, permanent life insurance- can be too much for your wallet.
Whole life insurance policy, which is the most common type of permanent life insurance acts as both savings/investments and an insurance product. Although this option appeals more to individuals with high income and complex financial plans, it may not be the best option for your financial plan if you simply need affordable life insurance. Make sure to talk to your advisor about the best insurance for your needs.
Term life insurance serves a single purpose: protecting against a high-impact risk!
Unlike permanent life insurance, term life insurance has a timeline usually ten, twenty, or thirty years. For example, you pay a premium of a set amount for coverage for a set predetermined term. In return, your beneficiaries enjoy a tax-free lump sum of cash should you die during the term.
Estate Planning
According to a Time.com article, people are fearful about their own mortality and they usually make a lot of excuses to put off planning for the inevitable.
Unlike what most people think, there is more to estate planning than mere strategies to reduce estate taxes. A great estate plan will guarantee that every financial asset in your name goes to your loved ones.
With legal help, estate planning will ensure that you leave a legacy for your family and generations to come.
Unfortunately, not many are willing to consider estate planning in the financial plan. Some can’t even bring themselves to think about it leave alone talk about estate planning. However, you should consider what would happen once you die.
Your financial recipe is not complete without estate planning. Create a plan that will ensure that your loved ones and financial goals are taken care of after your death. Let the people you hold dear know your wishes before your day comes.
How to use life insurance in Estate Planning
How can life insurance provide funds for your estate taxes and protect your wealth?
Estate planning is a comprehensive process designed to help you manage and protect your assets in your lifetime and conserve and control distribution upon your death as per your objectives. However, this process is unique for everyone depending on a wide range of factors such as lifestyle, wealth, health, and age among others.
While a simple estate will require a simple will, a large estate prone to hefty tax burdens will demand a sophisticated strategy such as a trust.
Regardless of your needs, life insurance can be an integral ingredient in your estate planning when used alongside the protection of a trust or will to guarantee the benefits discussed below.
Funding Estate Tax Through Life Insurance
Federal estate tax rates tend to be a sizeable percentage of the gross estate and required by law to be paid within 9 months after your death. In most cases, the estate tax is covered using the estate’s personal assets.
Assets that include personal resident or IRA are not easy to liquidate especially on short notice without drawing hefty tax penalties. Funds from a life policy are tax-free and can, therefore, be used to pay estate taxes ensuring the assets are preserved.
Preserving Your Family Assets
It takes an unrelenting hard word to build a family business from a dream. If your intentions are to keep the business in the family upon your death, you must decide the heirs to manage the business.
For most families, the life insurance benefits come in handy in “cashing out” other heirs are need be, and at the same time preserving peace in the family while continuing the business.
Estate Equalization
Even with an estate plan in place, it may take time before money can get to your loved ones. After your demise, your family could find it handle to keep up with numerous financial obligations including estate taxes. Should the situation get out of hand, the only way out for them could be liquidating your assets.
Benefits from your life insurance could be a major relief catering for other expenses while passing along tax-free death benefit.
Inheritance taxes are so high that the happiest mourner at a rich man’s funeral is usually Uncle Sam.
– Olin Miller
Estate Plan Creation
Your life insurance benefits can create an instant estate for your loved ones upon your death. The funds are passed directly to your beneficiaries, thus bypassing the complications brought about by probate. As indicated earlier, these funds are tax-free and untouched by existing debts.
Everyone is now talking about the importance of a life insurance in estate planning. As noted above, having life insurance coupled with the protection offered by a will/trust guarantees your beneficiaries a lump sum of tax-free funds upon your death. This is an effective way for your wealth to be transferred to your beneficiaries.
Once you decide that you’re ready to talk about your own death and venture into estate planning, depending on the complexity of the estate, consider the services of an attorney. This ensures that you make the right decision. A complete financial recipe should have your family in mind after your death. It is clear that estate planning and life insurance are one way to do just that.
Are you missing these two important ingredients in your financial recipe?
