Why Insurance Planning Should be a Part of Your Long-Term Financial Plan

When many of us think about financial planning, our thoughts likely go to investing or retirement planning. Investing is important in that it is a vehicle to build wealth and grow your assets in order to achieve goals like a comfortable retirement, or perhaps to fund your children’s education.

However, there is one key element that is often looked over. According to Jazmin Carpenter, Vice President, Investments of the Los Angeles office of Wedbush Securities, “Insurance is an essential component of your long-term financial plan as it equips you with a decisive option as opposed to a reactive forced decision.”

As important as building wealth is, protecting your wealth can be equally important. This is where insurance comes in. Here are some reasons why insurance should be included as part of your financial planning.

As a Risk Mitigation Tool

Insurance is a risk mitigation tool. Insurance products provide a financial benefit to help minimize financial hardship in the case of an unexpected life event. Some examples include:

  • Disability insurance provides income in case you become disabled. Suffering a disability is more likely than dying during your working years and a solid disability policy can provide an income bridge should you become disabled.
  • Long-term care insurance helps provide for long-term care during your retirement years should you develop a condition that requires it. This insurance not only helps cover the cost of this care but protects the assets of a caregiver spouse.
  • Life insurance provides a death benefit for your dependents. This could be a spouse, children or other beneficiaries. This death benefit can help offset the financial loss of your income for these beneficiaries.

To provide an alternative source of income for retirement

While annuities are not an insurance policy per say, they are a contract between the annuity holder and the insurance company issuing the annuity. Annuities are guaranteed by the insurance company. Be sure to perform your due diligence into the financial strength of the insurer before committing to an annuity through the company.

Annuities can offer guaranteed lifetime income as well as tax-deferred growth during the accumulation phase leading up to retirement. Annuities come in a number of varieties, including immediate annuities, which are converted to a stream of payments within a year, or deferred annuities, in which payments begin at a date into the future.

In this age of employers terminating their pension plans, an annuity can provide a similar level of ongoing, secure income during retirement.

To ease the financial burden of dependents & caregivers

Should the need for long-term care assistance arise in retirement, a long-term care insurance policy can help provide the money needed to cover most of these costs. This is not only good for the policy holder, but can also help to ease the burden of caregivers who are assisting with your care. Long-term care policies cover care in a facility as well as in your home.

Life insurance is an essential planning tool at various stages of your life. During your working years, life insurance can provide a backstop for your family and dependents should you die prematurely. The death benefit can allow your family to pay the mortgage, fund college for your children among other things.

Life insurance can also be an essential estate planning tool. Life insurance can be owned in a trust which can have certain income and estate tax benefits. It can also provide a means for your beneficiaries to cover any estate taxes if applicable to your situation.

Accompanying Tax Benefits

Annuities offer a means to contribute premium dollars and allow that money to grow on a tax-deferred basis until the account is annuitized, or until lump-sum distributions are taken. For those who have maxed out contributions to a 401(k), an IRA or other retirement account, an annuity offers another vehicle for tax-deferred growth.

Certain cash value life insurance policies offer another means for tax-advantaged growth. Money grows inside the policy that can be tapped later if needed. Depending on the type of policy, there may be various options for investing the cash value. This cash value can be tapped if needed at various points in your life.

The death benefit on a life insurance policy passes to the policy beneficiaries tax-free as well.

To learn more about how insurance coverage fits into your overall financial plan, contact your Wedbush financial advisor.



These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information presented is not intended to constitute an investment recommendation for, or advice to, any specific person. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. The information in these materials may change at any time and without notice.