Many people treat life insurance as completely separate from financial planning and budgeting.
As Rosalyn Glenn, a financial advisor with Prudential, told Insider, “Life insurance is for the living, not the deceased.” In addition to providing a death benefit for your beneficiaries, a life insurance policy can grow wealth over time, and it has tax-deferred benefits.
Purchasing life insurance without talking to a financial advisor, accountant, and estates lawyer is like Michael Jordan before the triangle defense — you’ll do okay, but you aren’t maximizing performance.
In order to leverage life insurance for your financial goals and build wealth, you should talk to three people to make sure you’re choosing the best policy for you. To continue the basketball analogy, you need the Michael Jordan, Scottie Pippen, Dennis Rodman triangle defense that made the Bulls a basketball legacy.
Your life insurance needs change as you age, and you’ll need to consider children, marriage, divorce, retirement, and caring for aging parents. By consulting the following three experts, you can ensure you have the proper coverage you need for your goals and for life changes down the road.
1. A financial advisor or financial planner
You can use online calculators to get an estimate of how much life insurance you will need, but an online calculator doesn’t replace the comprehensive advice you’d receive from a financial advisor who looks at your financial situation, goals, and estate planning.
A comprehensive assessment with a financial planner will include whether you need long-term care insurance, disability insurance, and a combination of permanent and term life insurance.
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“No matter your level of income or socioeconomic status, you will need a financial advisor or planner at some point in your life as you are accumulating savings into an income stream,” said Glenn. (Financial advisor is a broad term that applies to most experts who advise on personal finance, while a financial planner is usually a CFP, which requires specific certification.)
Glenn said the benefit of working with a planner is to “think strategically about what you’re trying to accomplish and plan for possible market downturns to help you ride through the storms.”
Think of a financial advisor as your primary care physician who has you check in with specialists (like an accountant and estates attorney) to make sure you are getting comprehensive and individualized care based on your finances, budget, goals, and risk tolerance.
2. An accountant or tax professional
One unsung advantage of life insurance is the tax-deferred benefits. You do not have to pay taxes on proceeds from a life insurance payout. This is why permanent life insurance is popular among the wealthy. High-net-worth wealth individuals — those with at least $1 million in liquid assets — typically have permanent life policies for tax benefits.
“Permanent life insurance is the only product that combines every tax favor benefit in the tax code,” said Mike James, head of individual solutions and president of NFP Life Solutions. “You can put your money in and take your basis out without paying taxes. No other financial instrument does that.”
Although permanent life is popular with high-net worth individuals, its tax benefits work for everyone regardless of income. You might not be able to afford a million dollar permanent life insurance policy, but a small permanent life insurance policy may be affordable and you can increase your death benefit over time.
There are several types of permanent life insurance products that invest in the stock market and other sophisticated investment vehicles. An accountant can tell you which permanent life insurance product can best maximize your tax benefits, while a good financial advisor can help you pick the one best for your financial risk tolerance.
3. An estates attorney
Most people have a term life policy to provide for their family in the event of their death. But according to a study, 78% of millennials and 64% of Generation X don’t have a will, living trust, or any estate-planning documents.
Having life insurance without a will can cost your family time and money. If your family home is your main asset and you have no will, that could mean years in probate court to determine ownership. Additionally, if you have a family-owned business but no succession plan in place, the business could be ruined if there’s no business-owned life insurance in place.
An estates attorney will make sure you have a will, power of attorney for healthcare, and a
fiduciary to handle your financial affairs in case you are incapacitated — along with other legal considerations like a life insurance trust and guardianship for minor children.
An estates attorney will make sure your financial investments (such as banking, 401(k), and other investments) have a POD (payable on death) or TOD (transfer on death) beneficiary so that an unscrupulous family member can’t raid your accounts and the accounts avoid probate. A good estates attorney will also help you plan your estate to avoid probate court and fees.
Your estates attorney will want to make sure that you detail your wishes for temporary incapacitation or if your condition is terminal. They will make sure you have ICE (in case of emergency) contacts and forms to provide your doctors so there is no confusion about your care.
The bottom line
To maximize the benefits of life insurance, it’s wise to include a financial advisor, accountant, and estates attorney in your decision-making process to ensure you have proper coverage that adapts as your life changes.
Originally published on Business Insider
Ronda is an attorney, writer, and entrepreneur. She is a contributing writer for the Huffington Post. Originally from Chicago, she has lived in Los Angeles and New York. She loves to travel and is passionate about education equity, especially for first generation college students.