27:["$","$L28",null,{"category":"$29","relatedArticles":[{"id":"cG9zdDoxNDc2MzI=","databaseId":147632,"postId":147632,"author":{"node":{"id":"dXNlcjoxMjc=","databaseId":127,"userId":127,"avatar":{"url":"https://secure.gravatar.com/avatar/ea54cd873f62ccbfe81eaf373a832521?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":null,"additionalMeta":{"expertise":null,"__typename":"User_Additionalmeta"},"email":null,"firstName":"Stephanie","fullName":"Stephanie Colestock","lastName":"Colestock","name":"Stephanie Colestock","postCount":{"pageInfo":{"offsetPagination":{"total":44,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"scolestock","__typename":"User"},"__typename":"NodeWithAuthorToUserConnectionEdge"},"categories":{"nodes":[{"id":"dGVybTo0NzIy","children":{"nodes":[],"__typename":"CategoryToCategoryConnection"},"databaseId":4722,"categoryId":4722,"link":"https://smartasset.com/life-insurance/articles","name":"Life Insurance","postCount":{"pageInfo":{"offsetPagination":{"total":76,"__typename":"OffsetPaginationPageInfo"},"__typename":"CategoryToPostConnectionPageInfo"},"__typename":"CategoryToPostConnection"},"slug":"life-insurance","ancestors":null,"parent":null,"__typename":"Category"}],"__typename":"PostToCategoryConnection"},"content":"$2a","date":"2021-11-17T11:42:16","excerpt":"

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","

An important part of estate planning is deciding who will get your assets when you pass away. This means naming primary and contingent beneficiaries on important accounts such as your life insurance policy and retirement account. But what do these terms even mean, and what’s the difference between a primary and contingent beneficiary? Consider working with a financial advisor to ensure that your estate planning is coordinated with your investment plans.

","

What Is a Primary Beneficiary?

","

Put simply, a primary beneficiary is a person you want named as first in line when it comes to receiving certain assets and benefits upon your death. You will typically be asked to name a primary beneficiary on accounts such as:

","

Life insurance policies
Retirement accounts (401(k)s, IRAs and 403(b)s)
Bank accounts
Annuities
Other Payable on Death (POD) or Transfer on Death (TOD) accounts

","

When you pass away, your primary beneficiary will receive the applicable assets for which they are named. For example, if you have a life insurance policy, your beneficiary will be sent your policy’s benefit after your death.

","

A primary beneficiary can be one person or multiple people, such as all of your adult children. Primary beneficiaries can even be an account such as a revocable trust, living trust, charity or another legal entity. Just note that if you name more than one person as the primary beneficiary for a particular asset, the asset will be split equally between them, unless you designate a specific percentage split when establishing the account.

","

What Is a Contingent Beneficiary?

","

A contingent beneficiary is your backup beneficiary, or the second in line. If your primary beneficiary passes away before you, cannot be located, or refuses to accept the asset in question, it will generally pass to the contingent beneficiary.

","

It’s important to note that the only way a contingent beneficiary inherits anything is if the primary beneficiary is unavailable or unwilling to inherit the account. If you want to ensure that someone inherits a portion of your assets, naming them as a contingent or secondary beneficiary is not sufficient.

","

Primary vs. Contingent Beneficiaries

","

It’s always wise to name both a primary beneficiary and a contingent beneficiary on any important account you have, such as a life insurance policy. Doing so can help your assets bypass the probate system, which can be time-consuming and costly for your loved ones. Instead, with primary and contingent beneficiaries, you’re able to name specific heirs for certain accounts. A portion of your estate may still go before the probate courts, depending on your asset structure. However, named beneficiaries can help to simplify your estate plan for specific assets.

","

Naming a primary beneficiary isn’t enough, though. If your primary beneficiary were to pass away before you — or even at the same time as you, such as in a car accident — the assets in question would go back to your estate and be subject to probate.

","

This court system will then determine which of your heirs get what. Their decision may or may not be in line with your personal wishes.

","

If your primary beneficiary cannot be located, or refuses to accept the asset that you left to them, you’ll need a contingent beneficiary in place as a backup.

","

Rights of the Primary and Contingent Beneficiary

","

Neither your primary beneficiary nor your contingent beneficiary have any claim to your property while you are still living. Their assumption of the asset only comes into play after you have passed away.

","

A contingent beneficiary has even fewer rights, and does not inherit anything upon your death. The exception is if any and all named primary beneficiaries have passed away, are missing or refuse to accept the asset. Then and only then does the contingent beneficiary factor in.

","

Bottom Line

","

A key part of any financial plan is determining who will get your assets when you die. Whether you have a life insurance policy, certain retirement accounts or even bank accounts, you’ll want to name primary and contingent beneficiaries as the inheritors when possible. Your primary beneficiary is the first in line, with the contingent beneficiary only coming into play if the primary beneficiary is unavailable.

","

Tips on Estate Planning

","$32","

Photo credit: ©iStock.com/shapecharge , ©iStock.com/Piotrekswat, ©iStock.com/Jirsak

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Some staff members also hold the Certified Educator in Personal Finance (CEPF®) designation from the Institute for Financial Literacy.","additionalMeta":{"expertise":null,"__typename":"User_Additionalmeta"},"email":null,"firstName":"Michael","fullName":"SmartAsset Team","lastName":"Carvin","name":"SmartAsset Team","postCount":{"pageInfo":{"offsetPagination":{"total":1313,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"mcarvin","__typename":"User"},"factCheckedBy":null,"secondEditor":{"id":"dXNlcjoxMTc=","databaseId":117,"userId":117,"avatar":{"url":"https://secure.gravatar.com/avatar/9fffe2eb35204e151b68731435d247c5?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"Arturo Conde is a senior editor at SmartAsset. He has a master’s from the Graduate School of Journalism at Columbia University and a bachelor’s from the College of Arts and Science at New York University. 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Indexed universal life (IUL) insurance combines life insurance coverage with the opportunity to accumulate cash value linked to the performance of a stock market index, such as the S&P 500. Investors looking for protection and investment growth may be considering an IUL policy. This type of policy also provides flexibility in premium payments, adjustable coverage options and a tax-advantaged way to grow savings. IUL insurance may be something to include as part of your financial strategy whether you are planning for retirement, protecting your family or seeking ways to diversify your investment portfolio

","

A financial advisor can help you determine what role life insurance could play in your financial or retirement plans.

","

What Is Indexed Universal Life Insurance (IUL)?

","

IUL insurance is a type of permanent life insurance that offers both a death benefit and a cash value component that grows based on the performance of a selected stock market index. Compared to traditional whole life insurance, IUL policies provide more flexibility and the potential for higher returns due to being linked to market indexes.

","

IUL policyholders can allocate part of their premiums to a cash value account that earns interest based on the performance of a stock market index. The policyholder can choose from various indexes to determine how the cash value will grow, providing an opportunity for potentially higher returns compared to traditional fixed-interest life insurance policies.

","

While the cash value is linked to the performance of an index, the funds are not directly invested in the stock market. Instead, the insurance company credits interest to the cash value account based on index performance. The policies also offer a degree of protection against market downturns by including a guaranteed minimum interest rate.

","

One of the biggest pluses of IUL is the tax treatment. The cash value grows tax-deferred, meaning that policyholders do not pay taxes on the gains as long as they remain within the policy. In addition, the cash value can also be tapped via loans or withdrawals tax-free, as long as the withdrawals are done correctly.

","

Key Features of Universal Life Insurance

","

Features of IUL policies make them useful for protecting your family while also diversifying your investment portfolio:

","

Adjustable premiums and death benefit: Policyholders can adjust their premiums, within certain limits. This flexibility can be attractive to those with fluctuating incomes or who are looking to adjust their coverage over time.

","

The death benefit is also adjustable. Policyholders can increase or decrease the coverage amount as needed. This can be helpful for those who may need more coverage at certain life stages, such as when raising a family, and less coverage as financial responsibilities decrease in retirement.

","

Cash value: The cash value grows tax-deferred and can be used for various financial needs, such as supplementing retirement income, funding education expenses or providing emergency funds. Policyholders can tap the cash value via or withdrawals, typically without incurring taxes as long as the policy remains active and withdrawals are done according to the rules.

","

How Does an IUL Policy Work?

","

","

An IUL policy combines the death benefit of life insurance with investment opportunities. Policyholders pay premiums that more than cover the cost of the insurance. The excess contributes to the policy’s cash value.

","

In addition to increasing as premiums are paid, the cash value can grow based on the performance of a chosen stock market index. There is also usually a minimum return, allowing policyholders to potentially earn higher returns while maintaining a level of protection against market downturns.

","

Benefits of an IUL Policy

","

Flexibility: IUL policies offer flexible premiums and death benefits, so policyholders can adjust their coverage as needed. This flexibility makes it easier to adapt the policy to changing financial situations and life stages, ensuring that it continues to meet the policyholder’s needs over time.
Tax advantages: The cash value in an IUL policy grows tax-deferred, and loans or withdrawals can be taken tax-free under the right circumstances. This tax treatment can provides a significant advantage for IUL policies compared to other investments.
Potential for higher returns: Because the cash value is linked to the performance of a stock market index that can vary, IUL policies offer potential for higher returns than fixed-interest life insurance policies.

","

Drawbacks of an IUL Policy

","$40","

What Should I Consider When Choosing an IUL Policy?

","

When choosing an IUL policy, consider factors such as the policy’s fees and charges, the index options available for cash value growth and the flexibility of premium payments and death benefits. It’s also important to evaluate the insurance company’s reputation and financial stability, as this can impact the policy’s long-term performance. Consulting with a financial advisor can provide valuable insights and help you select an IUL policy that aligns with your financial goals and risk tolerance.

","

Bottom Line

","

","

IUL insurance offers a combination of life insurance protection and investment opportunities. Compared to other cash-value policies, IUL can provide added flexibility and potential for higher returns along with tax advantages. However, IUL policies are also complex, which can make it challenging for investors to choose wisely. And they commonly come with sizable fees and other costs, which can limit their usefulness for investors working with shorter time horizons.

","

Financial Planning Tips

","$41","

Photo credit: ©iStock.com/lucigerma, ©iStock.com/Helene Pechard, ©iStock.com/BakiBG

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Purchasing life insurance is a big decision and is not to be taken lightly. If you’re considering life insurance to protect your family if you die or as a savings vehicle for retirement, it’s essential to compare your options. As you do your research, you should consider the benefits of life insurance and investigate any disadvantages of each life insurance policy you explore. In this article, we’ve broken down some of the best things about life insurance, as well as what you should look out for when deciding which policy is best for you.

","

Benefits of Life Insurance

","

Life insurance is often the foundation of a financial plan. Depending on the type of policy, the benefits of life insurance can last long after someone dies. Here are a few of the many benefits of having life insurance.

","

Family Protection

","

The most popular benefit of having life insurance is the death benefit. If someone dies while they have a life insurance policy in effect, the insurance company will pay a death benefit to the insured’s beneficiary. A policyholder typically decides how much insurance they need when applying for a policy. This amount of coverage can differ from person to person. However, individuals usually select amounts based on what they want to leave behind and cover a set amount of income to support their dependents.

","

Budget Friendly (Usually)

","

There are many life insurance types, and each type is designed to fit a different set of needs. Term life insurance only covers a person for a set amount of time, typically five years or more. Due to the lack of permanence, term life insurance policies tend to be the least expensive option on the market. If you want your life insurance to last your whole life or want to have flexibility in your premium payment cost, the cost of a policy will increase.

","

Additionally, some companies will charge more for similar policies, so you might want to shop around to see if you can get the best price.

","

But overall, no matter what your budget is, there is generally a policy to fit your needs.

","

Peace of Mind

","

It can be challenging to accrue wealth, especially when you’re young. You may want to protect your family financially in case you die unexpectedly, and your income disappears. Life insurance offers people peace of mind that their families will be financially stable, even if they’re no longer around to support their financial needs.

","

Tax Benefits

","

$\"Tax$ Usually, death benefits from employer-sponsored life insurance plans or private life insurance policies are tax-free. Additionally, the cash value in a whole life insurance accumulates tax-deferred growth. This means that a person can reinvest the money in the cash value of a life insurance policy without facing tax implications. The policyholder will not pay capital gains on any dividends or growth on the cash value.

","

But there are a few situations where life insurance may have some tax implications. You may want to speak to a financial advisor to understand the tax implication of your policy.

","

Financial Planning

","

As part of a robust financial plan, some use life insurance to cover financial expenses such as medical bills, debt or funeral costs. By using life insurance in this way, your family can avoid spending your savings that were intended for other uses.

","

Additionally, the cash value component of permanent life can help you save for retirement. Depending on the type of policy you have, the cash value can grow tax-deferred and be reinvested. Some policies also prevent the cash value from declining with the market if there is a downturn. Additionally, people can choose to use the cash value during their lifetimes, making it a crucial part of some people’s retirement plans.

","

Disadvantages of Life Insurance

","

While life insurance is generally an investment worth considering, you should consider the drawbacks before choosing to purchase a policy.

","

Sales Commissions

","

It is not advised to purchase a life insurance policy on your own. However, this leaves consumers open to insurance agents that might not have your best interests in mind. They may lead you toward a more comprehensive policy that you do not need or make recommendations that ensure they receive a larger commission. Therefore, be sure to do plenty of research before applying for a life insurance policy and not sign anything that you are not comfortable with.

","

Expense (Depending on Your Health, Age)

","

The cost of life insurance increases as people age, and people in poor health often find it challenging to get a reasonable rate or qualify at all. Therefore, it is good to purchase life insurance when you’re young and healthy, since these factors determine the cost of your policy.

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If you are trying to get the best rates on a life insurance policy, you may want to improve your health. The life insurance medical exam will evaluate a person’s smoking status, blood pressure and more. People trying to get a favorable rate on their life insurance may want to quit smoking and improve their fitness before applying for life insurance.

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Weak Investment Returns

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The cash value portion of a life insurance policy is generally a safe investment vehicle. However, it may not see the same rate of return that an IRA or other investment might provide. Compared to stocks, for example, the investment portion of cash value life insurance makes pretty paltry returns. Could you make more if you invested the money elsewhere? Likely yes — unless you are an extremely conservative investor. Therefore, most people choose to fully fund their 401(k), Roth IRA and other assets before funding the cash value in their life insurance policies.

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Permanent Life Insurance Costly

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As mentioned before, there is a life insurance option for almost any budget. Term life insurance is typically the least expensive, but permanent insurance, or whole life insurance, is costly no matter a person’s age or health. It is pricier because it lasts a person’s entire life. Therefore, there is a payout guarantee no matter when you pass away, unlike term insurance. Term insurance is less expensive because the goal is not to die while covered by the policy.

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The Takeaway

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In general, the benefits of buying life insurance outweigh the disadvantages. Life insurance can help protect your family in case of an early demise and is a steady savings vehicle for retirement. However, there are various policies available, and not every policy fits everyone’s unique financial situation. That is why it is essential to understand your options and work with a financial advisor that you trust to find a suitable policy.

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Insurance Planning Tips

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When people buy life insurance, they generally focus on the death benefits that go to their loved ones. But did you know that some life insurance policies offer “living benefits” that you can tap into while you are alive? These …

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What Is Life Insurance With Living Benefits?

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Life insurance is intended to provide financial support for the beneficiaries of someone who passes away. Most people assume that this financial support only happens after death, but some policies provide living benefits.

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Living benefits are also known as accelerated death benefits. They are riders attached to a life insurance policy that allows the insured to access a portion of the death benefit while they’re still alive. In most cases, the money withdrawn through living benefits reduces the death benefit available to your beneficiaries upon your death.

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Depending upon the insurer and the structure of your life insurance policy, the cost for the living benefits varies. They may be included at no extra charge or you may have to pay an additional fee on top of your monthly or annual premium in order to receive those benefits.

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How Can You Use Living Benefits From Life Insurance?

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Life insurance with living benefits can provide support to policyholders in many ways. These are a few of the most common living benefit options available from insurance companies:

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Limitations of Life Insurance With Living Benefits

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In order to receive money from your life insurance with living benefits, your claim must be approved by your life insurance company. Each company approaches claims differently and has different qualifications as to who is eligible to receive benefits. In general, here are some of the limitations that you may face when submitting a claim:

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Eligibility. In order to receive living benefits, your insurance company must approve your claim according to eligibility requirements based on the type of disease that you have and your projected life expectancy.
Claim limits. Insurance companies may limit the amount you can withdraw from your policy as a percentage of your death benefit or a set dollar amount.
Reduction in death benefit. Any amount that you receive from your living benefits may reduce the amount that your beneficiaries will receive.
Fees for the claim. Some insurance companies will charge a fee on top of your withdrawal amount. This will further reduce the amount leftover from your death benefit for your beneficiaries.

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Is a Life Insurance Policy With Living Benefits a Good Idea?

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There’s no right or wrong answer to this question. Accessing your living benefits can help to ease the financial strain when you are sick or disabled. This money may even pay for experimental treatment or other care that could prolong or enhance your life. Many people would agree that this is money well spent.

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However, when you submit a claim, the payouts may reduce the amount of money that you had intended for your beneficiaries. Depending on your personal financial situation, this could lead to tough financial choices for your loved ones after you pass away.

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The Bottom Line

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Life insurance with living benefits gives you the option to access your death benefit while you’re still alive. There are rules to determine your eligibility and limits on how much you may receive. Each insurance company has its own coverage options, rules and limits, so it pays to review policies carefully before buying life insurance. Having a life insurance professional by your side can help you review how much you need and select the policy that addresses your major concerns.

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Life Insurance Tips

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