For many people around this time of year, financial planning may take a back seat to make room for the busy holiday season. Of the countless to-dos, the top one for many is finding that perfect holiday gift for your loved ones that needs to somehow be more meaningful and unique than last year’s was. Well, perhaps your financial planning is exactly where you can find this year’s perfect gift idea that is sure to make a lasting impact.
According to the 2024 Insurance Barometer Study, 42% of Americans say they need life insurance or more of it. Furthermore, the study also cites that 52% of those respondents claimed that the number one reason for not having life insurance is that it was too expensive.[1] Given this data, there is a strong likelihood that one of your loved ones could be deficient in life insurance coverage. Although potentially uncomfortable, this is a perfect time of year to get the conversation started to make sure your loved ones have sufficient life insurance coverage, if needed. Taking it one step further, you could even offer to pay the premiums of their policy.
What are some of the rules around whom you can pay life insurance premiums for? For starters, ownership must remain the same. This strategy does not mean you are assuming control of the policy but rather that you are covering the cost for the owner of the policy. Next, an insurable interest must always remain present. This means you can only pay those premiums if the individual is a child, grandchild, business partner, or anyone who is financially dependent on you. Lastly, it’s important to remember that paying the life insurance premiums for another individual will count as a gift. You will need to be mindful of the annual exclusion and always remember to keep track and document your payments to be safe.
Where could your generational planning objectives play a role in this gift giving idea? You may have conducted your own financial planning and determined that life insurance is not necessary to cover the needs in your direct household. However, have you identified lifestyle changes if you are the godparent and need to financially support surviving dependents? Covering the cost to add a dependent to your household can be very expensive, especially if there are education goals in mind. You may also feel strongly about wanting to step in to financially support a surviving spouse. Taxes and gifting above the exclusion may complicate this. Life insurance offers tax free liquidity at death that can help meet this planning objective, even when you are not the beneficiary.
Many readers of this article have a strong plan in place and know where they stand with the need for life insurance. At a time of year that is known for thinking of others, turn to your generational planning and consider the life insurance needs of your loved ones. If you feel like their plan may be at risk to a premature death, consider bringing them in for a conversation with your advisor to get the planning discussion started.
Resources
2024-insurance-barometer---securing-the-future-infographic.pdf
Disclosures:
Apella Capital, LLC (“Apella”), DBA Apella Wealth, is an investment advisory firm registered with the Securities and Exchange Commission. The firm only transacts business in states where it is properly registered or excluded or exempt from registration requirements. Registration of an investment adviser does not imply any specific level of skill or training and does not constitute an endorsement of the firm by the Commission. Apella Wealth provides this communication as a matter of general information. Any data or statistics quoted are from sources believed to be reliable but cannot be guaranteed or warranted.
Apella Wealth does not sell commission-based insurance products. The firm does work with clients through the financial planning process to identify potential gaps in insurance coverage and may facilitate placement of insurance at client direction.