While purchasing life insurance may seem pretty straightforward, it’s actually quite complex, especially with so many different types available.
In order to offer some clarity on the different types of policies out there, we’ve broken down the most popular kinds of life insurance here and discussed the pros and cons that come with each one.
Term life insurance
Term life insurance is the simplest—and typically least expensive—type of coverage. Term policies are purchased for a set period of time (the term), and if you die during that time, your beneficiary is paid the death benefit.
Terms can vary widely—10, 15, 25, 30 years or longer—and if it’s a Level Term policy, the premium and death benefit remain the same throughout the duration. If you survive the term and want to retain coverage, you must re-qualify for a policy at your new age and health status.
In addition to Level Term, other variations include “Annual Renewable Term,” in which the death benefit is unchanged throughout the term, but the insurance is renewed annually, often with an increase in premiums. With a “Decreasing Term” policy, the death benefits decrease each year until they reach zero, but the premium remains the same.
Decreasing Term life insurance is often used to cover a mortgage, student loan, or other long-term debt, so the policy expires at the time the mortgage/debt is paid off.
Whole life insurance
Whole life, or permanent, insurance pays a death benefit whenever you die, no matter how long you live. With a whole life policy, both the death benefit and premium stay the same for your entire life span.
However, depending on when you purchase coverage, the premium can vary widely depending on how much the policy’s death benefit is worth. So, for example, purchasing whole life in your senior years can be extremely expensive and possibly not even available at all.
What’s more, your whole life policy premiums will be much higher than your term life insurance premiums because the insurance company knows the policy will pay out when you die, no matter how long you live.
Indeed, the premium for whole life policies can be among the most costly of all types of life insurance coverage, including similar types of “permanent” policies discussed below. This is simply the price paid for the guaranteed death benefit and a level premium.
Universal life insurance
Universal life is a variation on whole life—it covers you for your entire lifespan, but also contains a “cash-value” component. Rather than putting 100% of your premium toward your death benefit, part of your premium is put into a separate cash-value account that earns interest and is tax-deferred.
The insurance company invests the cash-value funds in various investment vehicles of its choice, and provided the market performs well, you can access those extra funds for things like paying the policy’s premiums, paying off debt, or supplementing your later-in-life fixed income. Some insurance companies will even let you take tax-free loans against the policy’s cash value.
That said, the cash-value account is set at an interest rate that can adjust to reflect the market’s current rates, so if the interest rate of the cash value account decreases to the minimum rate, your premium would need to increase to offset the account’s reduced value.
While universal life premiums are typically more costly than term policies, universal life also allows you to adjust the death benefit within certain guidelines. This added flexibility allows you to choose how much of one’s premium funds will go toward the death benefit and how much goes into the cash value, offering you the ability to adjust the death benefit as your financial circumstances change.
Variable universal life insurance
Variable universal life insurance is quite similar to normal universal life except that variable policies allow you to choose how your cash-value funds are invested, rather than the insurance company. This offers you more control over the cash-value investment and potentially higher returns.
However, if the invested cash-value funds perform poorly or the market tanks, your policy could be at risk. Given a major drop in the cash-value account investments, you may have to pay increased premiums just to keep the policy in force. Moreover, the fees and expenses associated with the cash value investments for variable policies may be much higher than you would pay if you simply invested the funds on your own.
Because understanding life insurance can be confusing, it’s best to get the advice of a trusted advisor before you meet with an insurance agent, who might try to talk you into more coverage than you need in order to earn a larger commission. By sitting down with us as your Personal Family Lawyer®, we can work with you and your insurance advisors to offer truly unbiased advice about which policy type is best for your family and life circumstances.
Contact us today, and we’ll walk you step-by-step through the different life insurance options and help you with your other legal, financial, and tax decisions to ensure your family is planned for and protected no matter what happens.
Multi-generational households are becoming the new (or maybe it’s really old) in vogue way to handle the care of aging parents. And we’re all for it so long as you consider the implications and set your family up for success.
With Mom or Dad moving in, you can anticipate some extra expenses, not just financially, but possibly emotionally as well. But it’s hard to know what to expect, and you might face costs you didn’t see coming. Having an elderly parent move in with you is a major life event that requires financial and emotional preparation. Here are some unexpected costs of caring for elderly parents to get you thinking about what lies ahead, if you decide to move mom or dad into your home.
Many people don’t think about the modifications they might need to make to their home to welcome an elderly parent. If your parent is living with you long-term, you will want to make him or her comfortable, which might entail adding a new addition to your home, creating a private living space out of a shared area, making accommodations for single-level living if your parent cannot navigate the stairs, or adding mobility adaptations such as a walk-in bath or chair lifts.
Lost Work Productivity
Moving your elderly parent in, helping him or her get acquainted with the area, and checking out activities can all eat into your work week. Expect further loss of productivity if you have to take your parent to run errands, to medical appointments, or to therapy sessions. You can look into senior transportation services if you are unable to take time off from work, but remember to budget for the extra expense.
In-home care can be a significant expense, but unless you are able to take time away from your busy day, your elderly parent might need it. Long-term care insurance will sometimes cover some or all of the costs, and you might be able to get assistance from certain programs through the VA or other community organizations.
Miscellaneous Household Expenses
The costs of simply having another household member can be unexpectedly high, especially if that member spends most of his or her day at home. You should expect such extra expenses as increased heat and electricity bills, special foods, and personal care products. Remember that elderly parents have special needs, and those needs can be expensive.
ven with insurance, your parent might have steep out of pocket costs for co-pays, prescriptions, mobility aids, supplements, vitamins, and other uninsured medical expenses. For certain conditions, these costs can quickly add up.
As your parent ages, his or her needs will change, too. These changing needs can result in unexpected long-term costs. When your parent’s retirement funds are exhausted or when they face deteriorating health, you might have to consider the staggering costs of long-term care in an assisted living facility or nursing home.
Moving mom or dad into your home could bring up all of the unresolved emotional issues that have not yet been addressed within your family dynamic. This isn’t something to be afraid of, so long as you have the right support. On the contrary, it can be a great opportunity to heal inter-generational wounds that would otherwise get passed on to you and your children and their children.
Caring for an elderly parent can result in unexpected expenses and unexpected benefits, as well. Now that they have become dependent on you, you might also need to consider making changes to your insurance policies or revising your estate plan. If you are ready to take the step of officially becoming caregiver for mom or dad, meet with us for guidance.
Since estate planning involves thinking about death, many people put it off until their senior years or simply ignore it all together until it becomes too late. This kind of unwillingness to face reality can create major hardship, expense, and mess for the loved ones and assets you leave behind.
While not having any estate plan is the biggest blunder you can make, even those who do create a plan can run into trouble if they don’t understand exactly how estate plans function.
Here are some of the most common mistakes people make with estate planning:
Not creating a will
While wills aren’t the ultimate estate planning tool, they’re one of the bare minimum requirements. A will lets you designate who’ll receive your property upon your death, and it also allows you to name specific guardians for your minor children. Without a will, your property will be distributed based on your state’s intestate laws (which are probably not in alignment with your wishes), and a judge will choose a guardian for your children under 18. Oh, and then your kids will get whatever you own outright, with no guidance, direction, or intention, as long as they’re over 18.
Not updating beneficiary designations
Oftentimes, people forget to change their beneficiary designations to match their estate planning desires. Check with your life insurance company and retirement-account holders to find out who would receive those assets in the event of your death.
If you have a trust, you’ll likely want the trust to the beneficiary. This does not happen automatically upon creating a trust. You actually have to make the change. See the section below for more on funding your trust.
And you never want to name a minor as a beneficiary of your life insurance or retirement accounts, even as the secondary beneficiary. If they were to inherit these assets, the assets become subject to the control of the court until he or she turns 18.
Not funding your trust
Many people assume that simply listing assets in a trust is enough to ensure they’ll be distributed properly. But this isn’t true. Some assets—real estate, bank accounts, securities, brokerage accounts—must be “funded” to the trust in order for them to be actually transferred without having to go through court. Funding involves changing the name on the title of the property or account to list the trust as the owner.
Unfortunately, most lawyers have been trained to create a trust, but not make sure assets are actually transferred into the trust. Crazy, right?!? But we see it all the time. And of course, when you acquire new assets after your trust is created, you must make sure those assets are also titled into your trust. However, most lawyers are not trained to make sure this happens either.
Part of being a Personal Family Lawyer® law firm means we make sure your assets are inventoried, titled properly, and the inventory is maintained throughout your lifetime, so your assets aren’t lost and do not get stuck in court upon your incapacity or death.
Not reviewing documents
Estate plans are not a “one-and-done” deal. As time passes, your life circumstances change, the laws change, and your assets change. Given this, you must update your plan to reflect these changes—that is, if you want it to actually work for your loved ones, keeping them out of court and out of conflict.
We recommend reviewing your plan annually to make sure its terms are up to date. And be sure to immediately update your estate plan following major life events like divorce, births, deaths, and inheritances. We’ve got built-in processes to make sure this happens—ask us about them.
Moreover, an annual life review can be a beautiful ritual that puts you at ease knowing you’ve got everything handled and updated each year.
Not leaving an inventory of assets
Even if you’ve properly “funded” your assets into your trust, your estate plan won’t be worth much if heirs can’t find your assets. Indeed, there’s more than $58 billion dollars worth of lost assets in the U.S. coffers right now. Can you believe that? And it happens because someone dies or becomes incapacitated but their assets cannot be found.
That’s why we create a detailed inventory of assets, indicating exactly where to find each asset, such as your cemetery plot deed, bank and credit statements, mortgages, securities documents, and safe deposit box/keys. And don’t forget digital assets like social media accounts and cryptocurrency, along with their passwords and security keys. We cover all of this in our plans.
Beyond these common errors, there are many additional pitfalls that can impact your estate planning. As your Personal Family Lawyer®, we’ll guide you through the process, helping you to not only avoid mistakes but also implement strategies to ensure your true Family Wealth and legacy will continue to grow long after you’re gone.
One of the first questions clients often ask me is, what is the difference between a will and a trust, and why should I want one or the other? There are five key things a will can’t do – avoid the expense of probate, immediately transfer your assets to your heirs, protect you and your heir's privacy, avoid estate taxes, and provide incapacity protection. But a complete estate plan with a living trust can handle all of these things.
A Will Does Not Shield Your Heirs from the Expense of Probate
This often comes as a surprise to many people, but it’s true – wills do not avoid probate. If the gross value of your estate is over $150,000 in California, your heirs will have to go through the entire slow, expensive and public process of probate even if you have a will. And probate is expensive. Even a modest estate of $200,000 would incur $14,000 in attorney and executor fees.
A Will Won’t Immediately Transfer Your Assets to Your Heirs
While it is theoretically possible to conclude a probate matter in about 6 months, most estates take even longer. What this means is that your beneficiaries may need the money from the estate but they won’t have access to their inheritance until after the court is satisfied that all creditors have been notified, and the estate is in a position to be closed, and the assets distributed. A trust puts the successor trustee immediately in charge.
A Will Won’t Protect You or Your Heirs’ Privacy
Probate is a public court proceeding. One of the required documents for a probate case is a complete inventory detailing all of the assets, and all of the expenses and all of the income during the time of the probate case. The order for distributing all of the assets details exactly who gets what. In today’s world of identity theft, this information is a treasure trove from a scammers perspective.
A Will Can’t Protect Your Estate from Estate Taxes
Estate tax planning for high net worth individuals involves a number of different legal strategies, but none of them involve creating a simple will. The reason is that a will deals with what is in your estate, and in order to deal with estate taxes, we look at ways to move assets out of your estate.
A Will Provides No Incapacity or Disability Protection
A will only takes effect at a person’s death. But if you are unable to make medical or financial decisions, who will be able to make those decisions on your behalf? An executor under a will won’t be able to help you.
The One thing Only a Will Can Do
In California, the one thing a will can do, but a trust can’t, is nominate a guardian for your minor children. That is one reason why all of our estate plans that include a living trust also include a will. A will is always included as a backup document to a living trust.
Some of the most disturbing crimes against the elderly involve financial exploitation. While physical abuse is often easy to spot, financial abuse can be more difficult to detect, as victims often have no idea they’re being swindled until their money suddenly vanishes.
Most victims are more than 70 or 80 years old, and involve crimes like fraud, embezzlement, identity theft, along with welfare and insurance scams. If you’re caring for an elderly loved one, be on the lookout for the following red flags of financial abuse:
1. Unusual financial transactions or spending
The most obvious sign an elderly family member is being exploited is if there are sudden changes to their spending, banking, and/or financial practices. At the same time, the person may start behaving secretively, confused, or otherwise atypical about money matters. A few of the most frequent actions include:
● Someone who is normally meticulous about their finances suddenly starts seeing unpaid bills, non-sufficient funds warnings, and/or unexplained credit card charges.
● The elderly person starts opening, closing, or changing banking and investment accounts, especially without regard to penalties or fees.
● Someone with consistent spending patterns starts showing a sharp increase in spending and/or investing.
● The person’s account sees a suspicious increase in ATM use, withdrawals, and/or checks made out to unfamiliar recipients.
2. The appearance of a “new” person in their life
Because they’re often alone and isolated, seniors are particularly susceptible to being “befriended” by strangers who take advantage of their loneliness to exploit them. And it may not be a stranger—relatives who haven’t been around for years can suddenly start spending lots of time with the person.
This situation is particularly dangerous when the new acquaintance, caregiver, or relative spends time in the person’s home, where they have easy access to the person's accounts, financial statements, and personal documents.
One sign that something is amiss is if the senior acts unusual when it comes to the new caregiver or friend. They may seem nervous when that person is around, stop participating in their usual social events, or be reluctant to speak about the person with you. This is a red flag the new person may be trying to isolate or control them.
3. Unneeded goods, services, or subscriptions
Outside of loneliness, the elderly are often physically unable to handle household chores and maintenance like they used to. Given this, they’ll likely need service providers to take care of the work for them. But every new person they surround themselves with is a potential swindler.
Watch for unscrupulous door-to-door salesmen and home repair contractors, who stop by offering unsolicited products or services, especially related to home remediation issues. And they don’t have to physically present to perpetrate fraud—there are countless telemarketing and email scams that target unsuspecting seniors in order to make a quick buck or steal their identity.
One fairly common scam involves inviting the older person to a free lunch or dinner in exchange for listening to a “seminar” about a financial product or service. The elderly often feel obligated to “buy something” after getting what they thought was a free meal.
Make sure that another adult relative is present before signing any contracts, and always consult with us if you’re unfamiliar with a new investment or financial opportunity.
4. Changes to wills, trusts, titles, power of attorney, etc.
The worst cases of financial abuse of the elderly can even involve the person making changes to wills, trusts, and other estate planning documents. Other potentially harmful changes can involve deeds, refinanced mortgages, property titles, and/or adding someone to a joint account.
Pay especially close attention if the older person seeks to grant power of attorney to someone out of the ordinary, as this can open the door for massive theft of assets and potentially fatal changes in a senior’s caregiving services.
One major advantage to establishing a relationship with a lawyer during your early years is so we can get to know you while you’re young, healthy, and clear, and then monitor if anything goes awry in your later years.
One reason financial scams are so hard to detect is that the elderly—like all of us—are embarrassed to admit they’ve been swindled, or they may not want to get a new “friend” or relative in trouble by telling others about their suspicions.
However, anyone can fall prey to financial fraud, so it’s important the elderly know that you’ve hired us as your Personal Family Lawyer® to provide trusted advice and guidance for all financial and legal matters. We can help secure your family’s most valuable assets with robust legal protections to prevent fraud and scams of all kinds. Call us today to schedule a Family Wealth Planning Session to make the most empowered and informed decisions for yourself and the family members you love.