Financial Fitness

Insurance Strategies for Protecting Assets and Preserving Legacies

Adjusting your insurance coverage at different life stages should be a critical part of your wealth-building plan.

by Suzanne Bopp - July 24, 2017

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 cornerstones of an effective financial strategy,” says Peter Landry, Director of Wells Fargo Advisors Life Insurance. “You can have the best investment strategy, and you can have the best rate on your 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.”

Landry outlines four basic life stages that should trigger a reassessment of your insurance strategies.

Life stage: Starting out

When you’re 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,” says Landry. You might use a level premium term policy that’s maybe 20 or 30 years.”

“Insurance can act as a safety net for any good financial strategy.”

— Peter Landry, Director of Wells Fargo Advisors Life Insurance

Life stage: Preretirement

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,” Landry says. “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.

Landry says this approach is not necessarily 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 maximize things like Social Security and IRA withdrawals — and use that life insurance cash value as a bridge strategy.”

Note: Investments in variable universal life are subject to market risk, including loss of principal. “High early cash value” will fluctuate in value based on market performance. Cash value is accessed through policy loans and withdrawals, which reduce death benefit.

Life stage: Extended care planning

The third life stage involves insurance strategies based around extended care needs, an area where carriers have gotten creative with solutions, says Landry. Options include traditional long-term care, a hybrid policy that combines life insurance and long-term care insurance, and a life insurance product with a long-term care rider.

Landry says that while some people are hesitant to use long-term care insurance strategies, if positioned properly they can be an effective estate-planning tool.

“The knock on long-term care coverage is, ‘If I never need it then I 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,” Landry says. “It reduces the face amount of the policy, but you are able to cover your costs related to long-term care services, and if you never need long-term care, well, you have a life insurance policy that you can leverage for your estate planning purposes.”

Life stage: 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 a family member or charitable organization. These solutions tend to be individually tailored.

“We have insurance specialists who work hand-in-glove with estate planning attorneys to put together life insurance solutions that can help meet legacy planning needs,” Landry says.

At every stage, Landry says, he and his team focus not on products, but on solutions and insurance strategies. “It’s not about, ‘You have to get an insurance product,’ ” Landry says. “It’s, ‘Let’s talk about the insurance that you have. Is it still meeting your needs as you move through life’s stages?’”

Suzanne Bopp has written for Salon.com and Utne Reader.

Additional Resources

Wells Fargo Life Insurance offers a variety of goal-focused insurance strategies and options designed to strengthen portfolios and protect assets at every stage of life.

Insurance products are offered through non-bank insurance agency affiliates of Wells Fargo & Company and are underwritten by unaffiliated insurance companies.

Variable insurance products are sold by prospectus. Please consider the investment objectives, risks, charges and expenses carefully before investing. The prospectus, which contains this and other information, can be obtained by calling your financial advisor. Read it carefully before you invest.

Unlike variable life insurance, indexed universal life (IUL) policies are typically structured so that they are not securities registered with the SEC. Nor are the sales in IULs regulated by the SEC or FINRA Regulation, Inc.