Understanding when someone needs to consider purchasing insurance products is easiest when we look at an example.
Bob is a 23-year-old single man, and a recent college graduate, who just started working as an engineer. Things are going well for Bob – in addition to landing a good job, he also just bought his first home.
Insurance and Financial Needs in the Early Years
Bob is taking advantage of his employer-sponsored qualified retirement plan – a 401(k) plan – to save for his retirement, but he hasn’t taken any other steps or explored other financial tools to help him with retirement planning.
At the suggestion of a friend, Bob meets with an insurance and financial professional who helps him understand how life insurance could help provide funds for things like paying final expenses and paying off debts in the event Bob died prematurely. After their discussion, Bob decided to take out a term life insurance policy, naming his parents as his policy beneficiaries.
Financial planning at this stage also helps Bob make smart decisions about paying down debt and saving for retirement and other future financial goals. Bob’s financial professional explains how Bob can supplement his retirement savings by contributing to traditional and/or Roth IRAs.
Fast forward five years, and we see that things are continuing to go well for Bob. He’s advancing in his career and earning more money after he changed jobs, taking a higher-profile job with better compensation and benefits. On the advice of his financial professional, Bob decided to roll over his old employer’s 401(k) account to an IRA while he begins contributing to his new employer’s plan.
While his old employer-sponsored life insurance was not “portable,” fortunately Bob has kept his term life insurance policy in force, so he still has coverage.
Love Is In the Air
Bob also met the love of his life, Beth, at his new job, and the two lovebirds just got married. Beth has done a good job of saving in her 401(k) account and an IRA account, and she has some term insurance of her own.
Recognizing that their needs changed when “me” became “we,” Bob and Beth meet with their insurance professional again to review their coverages and financial plans. Beth wants to be a stay-at-home-mom, so the planning process involves helping to provide insurance and financial benefits that will be there no matter what surprises life has in store.
With a spouse and potential future children to consider, Bob and Beth both decide to buy additional permanent life insurance to protect each other and their future family. In addition to providing insurance protection, their insurance policies include a cash value component that may help them save for their retirement years.
Bob and Beth also change their policy beneficiaries to name each other, so that in the event one of them died, the other would receive the policy’s death benefits.
Planning for Future Needs
Bob and Beth have two children over the years, so part of their ongoing dialogue with their financial and insurance professional involves how to save for their children’s college educations.
One of the tools they decided on was 529 plans for the kids to create dedicated college savings using tax-advantaged vehicles. While their contributions to their children’s 529 plan accounts were not tax-deductible, Bob and Beth knew that earnings would not be subject to taxes when used for qualifying expenses.
Their insurance agent also helps them understand how buying insurance policies on their children can protect their children’s future insurability and help them save for their own retirement years.
Bob and Beth’s agent also helps them understand the need to consider purchasing disability income insurance and other products that can help protect what’s most important to them.
Finally, Bob and Beth sit down with an estate planning attorney who helps them plan for the future by preparing wills and advance directives for health care and finances. Knowing their affairs are in order no matter what the future holds brings peace of mind to the family.
The College Years
When it comes time for their children to go to college, Bob and Beth aren’t worried about how to pay for it. They started early, and their savings have had time to grow, so they didn’t need to dip into their own retirement savings like some of their friends and neighbors.
They are a little bit concerned when one of their children decides not to go to college; after all, they have saved money for him in a 529 savings plan account. Fortunately, their financial and insurance professional is able to reassure them that they will not forfeit those dollars. There are no tax consequences to change the beneficiary of a 529 savings plan to another family member, so they are able to simply redirect those dollars to their second child’s educational expenses.
When Bob and Beth are in their late 40s to early 50s, their children have moved out of the house. Bob and Beth decide to look into, and ultimately purchase, long-term care insurance to protect the assets they’ve accumulated over decades of hard work in the event they need skilled nursing care later. They evaluate their options and end up choosing an annuity product with a long-term care insurance rider.
Retirement: Enjoying the Fruits of Their Labors
As they near and enter their retirement years, reviewing their financial plan and insurance coverage takes on a new importance. Bob and Beth make adjustments as necessary to help keep their plan on track.
Bob and Beth enjoy years of retirement together, grateful for the sound financial and insurance decisions they made over the years.
With an experienced insurance and financial professional helping him, Bob has the insurance protection he needs through all the stages of his life, and he’s positioned to meet his financial goals.