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As the years go by, there comes a time when perhaps your sources of income begin to decline or simply no longer rise as before and you may even be close to retirement, with which you will no longer have income from your work. It is precisely there, when people begin to analyze what expenses they can reduce and perhaps within your budget you realize that the payments you make for your life insurance now are really important and are gaining weight.
And you ask yourself: Will I have to continue paying this policy?
This question can have many answers and of course each case is unique, so it is essential to always consult with your Financial Planner, here we will share with you some points that you should review before making a decision about your life insurance:
1.- Do you remember what was the main reason why you bought this life insurance policy?
If the answer was that you bought it to protect your children, but as the years have passed you see that they are already grown up and can be protected financially, or that those people who depended on you financially no longer need your protection, we could go on to the next Question.
2.- Do you feel that you are already financially independent?
Of course, the theory tells us that as the years go by, people manage to accumulate more assets and money, and precisely their debts go down, so if something were to happen to you, your children or spouse would receive a legacy sufficient large to live comfortably. So we would say better not to continue paying that policy and thus avoid making withdrawals from your investment portfolio and let that money continue to grow over time.
Note: It is important to comment that various studies show that life policies that combine savings plans with the policy do not generate a higher return over time than an investment portfolio with stocks and bonds.
Now, if the years have passed and your wealth still does not allow you to be financially independent and rather you have multiple debts, and you know that your family will incur a series of expenses in the coming years, such as university education or mortgage payments, and time that the money you have saved or invested is not going to reach you, in this case if there is, it could indicate that it is better to maintain the life policy.
3.- But the analysis can get a bit more complicated.
It turns out that not all life insurance policies are the same, and to see it very simply there are two types of life policies:
a.-) Some that last a number of years and then simply expire (term policy) and the amount you pay for them is much cheaper and,
b.-) Those that we do not like that last for your whole life (permanent policies) and can be between 5 or 15 times more expensive than term policies.
So there you question, will it be that I must maintain this policy to protect my loved ones from paying taxes called inheritance at the time of death, for which you must review the following:
If you live in the United States, you should currently (2021) have assets above $11.7 Million if you file your taxes as an individual or $23.4 Million if you file as a couple or marriage, in which case you would have to pay taxes estates for the amount in excess of this amount. With which the argument to maintain the policy for this concept is limited only to those who have the “problem” of having such a large estate.
Now, if you are an international investor who has properties in the USA or a portfolio of shares with an amount greater than $60,000, it is worth doing a more detailed analysis, since if you die, the amount that exceeds this amount will pay a 40%, for example if you have a house worth $360,000, the first $60,000 would be exempt from taxes but on the remainder your beneficiaries would have to pay about $120,000 in taxes. Being precisely there where it is convenient to consult with specialists to understand what your options are or if it is better to keep the policy.
On the other hand, for those people who say, my plan is not really to leave those assets to anyone in particular, the solution would be very simple since it is very likely that you never needed to have a life insurance policy and you are making an unnecessary expense and I should rather invest that money.
In conclusion, the most appropriate path will always be to try to maximize your financial independence, saving and investing your money over the years so that you can reach that moment where you do not need a life insurance policy to protect your loved ones and really that you have to implement are estate planning strategies to leave your family and loved ones covered.
Founder & CEO Advise Financial
Alonso is a “CERTIFIED FINANCIAL PLANNER™” who is dedicated to increasing the Financial Well-being of nurses, physicians and successful immigrants in Florida and Texas. With more than 20 years of experience in the world of finance, always working for the best interest of his clients, under fiduciary criteria.
