Goal-Based Insurance Strategies Can Help Strengthen Your Portfolio
By Saghir Ahmed Aslam
Rawalpindi, Pakistan
(The following information is provided solely to educate the Muslim community about investing and financial planning. It is hoped that the Ummah will benefit from this effort through greater financial empowerment, enabling the community to live in security and dignity and fulfill their religious and moral obligations towards charitable activities)
Adjusting your insurance coverage at different life stages should be a critical part of your wealth-building plan. Similar to your investments, your insurance needs and related strategies change over time. As part of a smart financial strategy, it’s critical to review and adjust coverage at different life stages to make sure that you’re protected.
“I refer to insurance as one of the cornerstone of an effective financial strategy.” “You can have the best investment strategy, and you can have the best rate on your on you loans, but nothing is going to carry that forward without the right type of protection in place. Insurance can act as a safety net for any good financial strategy.”
Four basic life stages that should trigger a reassessment of your insurance strategies.
1. Life stage: Starting out
When you are launching a career, your insurance needs to fall primarily into the category of income replacement: ensuring that critical expenses like the mortgage and college tuition are paid if you pass away.
During this stage in life, as you’re dealing with multiple expenses and trying to build wealth, it’s important that your insurance strategies are properly aligned with your budget and timeline.
“You may want to consider term life insurance – a good, relatively affordable solution that covers you until your peak earning period and your reduction in expenses can come through.” “You might use a level premium term policy that’s maybe 20 or 30 years.”
2. Life stage: Pre-retirement
At around 45 to 60 years old, it may be appropriate to think about leveraging life insurance to help with retirement planning. Folks in that age range may have maxed out what they can contribute to a 401(k) on an annual basis. They may not have options from an income perspective to contribute to an IRA either.
Individuals in this situation who have a need for life insurance may want to consider insurance strategies such as an indexed universal life product or a variable universal life product, designed to accumulate what is called high early cash value.
This approach is nearly geared toward funding a particular death benefit, but rather toward accumulating cash inside of the policy.
“The life insurance provides for your protection needs, but then the supplemental income and that high early cash value component deliver a lot of value so as you get into retirement, you can seek to a maximize things like Social Security and IRA with drawls- and use that life insurance cash value as a bridge strategy.”
3. Extended care planning
The third life stage involves insurance strategies based around extended care needs, an area where carriers have gotten creative with solutions. Options include traditional long-term care, a hybrid policy that combines life insurance product with a long-term car rider.
While some people are hesitant to use long-term care insurance strategies, if positioned properly they can be an effective estate-planning tool.
They knock on long-term care coverage is, if never need it then don’t really get any value from it. But in many cases, you can marry it with a life insurance product solution. You have a life insurance product, and if you need long-term care, you can draw upon that policy.
It reduces the face amount of the policy, but you are able to cover your cost related to long term care, well you have a life insurance policy that you can leverage for your estate planning purposes.
4. Legacy planning
The last life stage is legacy planning: using life insurance strategies to create leverage- in a tax-efficient manner – so you can leave a gift to your recipient of choice, such as family member or charitable organization. The solutions tends to be individually tailored.
(Saghir A. Aslam only explains strategies and formulas that he has been using. He is merely providing information, and NO ADVICE is given. Mr Aslam does not endorse or recommend any broker, brokerage firm, or any investment at all, nor does he suggest that anyone will earn a profit when or if they purchase stocks, bonds or any other investments. All stocks or investment vehicles mentioned are for illustrative purposes only. Mr Aslam is not an attorney, accountant, real estate broker, stockbroker, investment advisor, or certified financial planner. Mr Aslam does not have anything for sale.)
