A sound financial plan for your family can help ensure the proper protection of your assets, efficient growth, and the distribution of your wealth. The financial planning process can be divided into three phases: foundation, accumulation, and retirement.
Whole life insurance is a financial instrument that can address the needs and concerns in each of these three planning phases. A permanent whole life policy may provide you and your family with substantial benefits at each stage of the process.
The Foundation Phase
The foundation phase provides a secure base upon which to build assets. This starting point in the financial planning process is meant to protect the assets you currently have, and the assets you may accumulate in the future. Foundation planning should begin with insurance protection, including:
- Life insurance
- Disability and health insurance
- Long-term care insurance
- Homeowner and auto insurance
A basket of insurance products is necessary to protect you and your family against a loss of assets, as well as the loss of your ability to gather assets.
Whole Life Insurance and the Foundation Phase
Your annual premium for a whole life policy should be secured while you are young and healthy. Typically, whole life insurance premiums remain unchanged throughout the life of the policy. Obtaining the policy when you are young is a wise decision because the older you are when purchasing life insurance, the more expensive the premiums.
The Accumulation Phase
The accumulation period starts today, and lasts until you begin retirement. Make sure you know how much you should save to allow for a comfortable lifestyle during your retirement. Consider the following questions:
- At what age do you want to retire?
- How much income do you expect to generate annually from your investments during your retirement years?
- What is your investment profile?
- What rate of return do you expect on your investments?
- How long do you expect to live?
Whole life insurance can play an important role in the accumulation phase of your financial plan, as the cash value feature can help meet significant accumulation needs.
In a whole life policy, your premiums have a dual purpose. They pay for the cost of life insurance coverage, and then the excess premium amount (beyond the cost of insurance coverage) is established as savings and placed into a cash value account. The cash value grows at a conservative, guaranteed rate, offering an alternative or diversification option to an overall stock-based investment approach.
If you intend to supplement retirement with the cash value accumulated in your whole life policy, then an earlier start gives you more time for the money to grow.
The Retirement Phase
The retirement phase is intended to manage and protect your assets in life and in death. Give thought to the following questions as you consider your retirement needs:
- What standard of living do you want to maintain in retirement?
- What assets do you want to pass on to your heirs or charity?
- What is your investment profile during retirement?
During retirement, the cash value can be converted into a retirement income producing annuitythat guarantees regular payments for life, or for a specified period of time.
Whole life insurance also offers tax advantages that make passing wealth on to future generations more efficient, especially in comparison to other retirement accounts, such as a traditional IRA.
If you are interested in using a whole life insurance policy as part of your financial plan, take some time to compare life insurance quotes.