25:["$","$L26",null,{"category":"$27","relatedArticles":[{"id":"cG9zdDoyMDk3Ng==","databaseId":20976,"postId":20976,"author":{"node":{"id":"dXNlcjoyOA==","databaseId":28,"userId":28,"avatar":{"url":"https://secure.gravatar.com/avatar/c2129e3c852ac8063af4562fe9605e22?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She's worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, CreditCards.com and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children. Rebecca also holds the Certified Educator in Personal Finance (CEPF®) designation.","additionalMeta":{"expertise":null,"__typename":"User_Additionalmeta"},"email":null,"firstName":"Rebecca","fullName":"Rebecca Lake, CEPF®","lastName":"Lake, CEPF®","name":"Rebecca Lake, CEPF®","postCount":{"pageInfo":{"offsetPagination":{"total":1224,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"rlake","__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":"$28","date":"2014-09-05T12:30:48","excerpt":"

\n","featuredImage":{"id":"cG9zdDoyMDAwMjM=","databaseId":200023,"altText":"Top 7 Reasons Why Millennials Need Life Insurance","date":"2023-05-16T22:07:49","fileSize":53998,"mimeType":"image/jpeg","modified":"2023-05-16T22:07:49","sourceUrl":"https://smartasset.com/wp-content/uploads/sites/2/2014/09/rsz_istock-157740336-1.jpg","__typename":"MediaItem"},"modified":{"datetime":"2023-5-16","readable":"May 16, 2023"},"multipleBylinesByRole":{"editedBy":null,"reviewedBy":null,"writtenBy":null,"factCheckedBy":null,"secondEditor":null,"hideAuthor":null,"__typename":"Post_Multiplebylinesbyrole"},"adTargetingOverrides":{"fieldGroupName":"adTargetingOverrides","pageGroupNewKey":null,"__typename":"Post_Adtargetingoverrides"},"seo":{"canonical":"https://smartasset.com/life-insurance/top-7-reasons-why-millennials-need-life-insurance","metaDesc":"For millennials and young adults, buying Life Insurance can be a smart, responsible financial move.","metaKeywords":"","metaRobotsNofollow":"follow","metaRobotsNoindex":"index","readingTime":5,"title":"Top 7 Reasons Why Millennials Need Life Insurance | SmartAsset","__typename":"PostTypeSEO"},"slug":"top-7-reasons-why-millennials-need-life-insurance","status":"publish","title":"Top 7 Reasons Why Millennials Need Life Insurance","uri":"/life-insurance/top-7-reasons-why-millennials-need-life-insurance","tags":{"nodes":[],"__typename":"PostToTagConnection"},"__typename":"Post","adPageGroupOverride":null,"bylines":{"writtenBy":{"id":"dXNlcjoyOA==","databaseId":28,"userId":28,"avatar":"$29","description":"Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She's worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, CreditCards.com and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children. Rebecca also holds the Certified Educator in Personal Finance (CEPF®) designation.","additionalMeta":"$2a","email":null,"firstName":"Rebecca","fullName":"Rebecca Lake, CEPF®","lastName":"Lake, CEPF®","name":"Rebecca Lake, CEPF®","postCount":"$2b","slug":"rebecca-lake-cepf","__typename":"User"},"editedBy":null,"reviewedBy":null,"factCheckedBy":null,"secondEditor":null},"category":{"id":"dGVybTo0NzIy","children":"$2e","databaseId":4722,"categoryId":4722,"link":"https://smartasset.com/life-insurance/articles","name":"Life Insurance","postCount":76,"slug":"life-insurance","ancestors":null,"parent":null,"__typename":"Category"},"isModifiedBeforePublished":false,"contentBlocks":["

Young adults face unique financial challenges these days, from figuring out how to save for retirement to tackling crushing student loan debt. One of the things that millennials tend to put on the back-burner is having adequate insurance. In fact, the under 30 crowd is more likely to lack things like health and life insurance than older consumers. It’s easy to think you don’t need life insurance when you’re starting your career and you’re relatively healthy. However, you may want to check out these good reasons to buy it sooner rather than later.

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1. It’s Cheaper

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Life insurance premiums are based on several factors, including your age and overall health. It stands to reason that the younger you are, the less you’ll pay for coverage. This is especially true if you don’t smoke or have any preexisting health conditions. As a young and healthy person you pose less of a liability to the insurance company. If you wait until your thirties or forties to buy life insurance, you’ll see the monthly cost jump significantly. Looking at rates now can lock in a good rate for the rest of the policy, saving you money along the way.

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2. Funerals are Costly

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The average funeral costs between $6,000 and $10,000. Even if you plan for a more non-traditional funeral like an end-of-life party, someone will have to foot the bill. A relatively small life insurance policy can help do that.

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3. You Don’t Want to Stick Your Family With Debt

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It’s no secret that today’s grads are burdened with record-breaking levels of student loan debt. If something were to happen to you, it could fall entirely on your parents to pay off those debts. For example, if Mom and Dad took out a PLUS loan that you’re making payments on, the balance lands on their plate if you suddenly pass away.

","

For another example, let’s say you just got married and you’ve racked up credit card debt on a joint account. Or maybe you just bought a home for which you and your spouse co-signed a lease. You have to consider whether your spouse would be able to handle the load alone. Buying enough life insurance can take care of all these financial issues. That way your loved ones can have less stress to deal with in the event you pass away.

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4. Some Policies Offer Built-In Savings

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While many financial experts would likely recommend a term life policy for millennials, it’s worth taking a look at whole life insurance. This type of permanent insurance covers you until your death. It’s a bit pricier than term life when it comes to the premiums, but the policy grows tax-free and accumulates cash value over time. You can then borrow against that cash value down the road. The life insurance policy can act as a savings vehicle with relatively low risk. As a millennial, you likely have many years to accumulate savings and this kind of cash value policy can be a nice supplement to your nest egg.

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5. You Have Kids

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Most millennials are waiting longer to get married and have children. But if you’ve gotten an early start, you have to make sure your little ones will be taken care of in the worst-case scenario. This is particularly important if your spouse is a stay-at-home parent since they’d need the money to replace your income stream at least temporarily. Even if both of you work, life insurance could still come in handy when it’s time to pay for higher education costs down the road.

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6. Your Employer’s Insurance May Not Be Enough

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If you’re fortunate enough to land a job that offers an excellent benefits package, you may already have some life insurance through your employer’s plan. For millennials who don’t have a family, workplace coverage might seem like enough. Even so, buying a separate policy can still be a smart move.

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If you were to develop a serious illness and couldn’t work, it can cover you if your employer’s policy lapses. Depending on the type of insurance you have, you may be able to borrow against it to cover your medical costs if you also lose your health insurance. Another insurance policy would also cover you in the event you’re laid off, you change jobs or your employer goes out of business.

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7. Your Employer’s Insurance May Not Be the Best One for You

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Even if you are offered life insurance through your employer, it might be more expensive to add coverage than to buy a separate policy. The rates may actually be higher through the group life insurance offered by your employer. It also might not offer the features that you care most about. Plus, most employer-sponsored policy premiums increase sharply after age 35.

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Bottom Line

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Managing your money in your 20’s usually involves a lot of trial and error. But learning as much as you can about the basics gives you an advantage. Life insurance especially may be the last thing on your mind. However, it’s definitely something that all millennials should consider as part of their larger financial plan.

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Tips for Managing Money in Your 20s

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Sourecnoes: http://www.insurancequotes.com/health/millennials-and-insurance; http://www.pewsocialtrends.org/2014/03/07/millennials-in-adulthood/

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Photo credit: ©iStock.com/Arand, ©iStock.com/danchooalex, ©iStock.com/gradyreese

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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.

","

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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Photo credit: ©iStock.com/Ridofranz, ©iStock.com/courtneyk, ©iStock.com/scyther5

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Life insurance can be a valuable addition to your estate plan if you’re interested in leaving a death benefit behind for your loved ones. Some life insurance policies also offer the opportunity to accumulate cash value through an investment component. When purchasing life insurance, you may be wondering whether cash value or death benefits are taxable. Section 7702 of the Internal Revenue Code (IRC) determines when life insurance proceeds can and cannot be taxed. Before purchasing a policy, it’s important to understand how the 7702 rules work.

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Life insurance isn’t the only way to benefit your loved ones after you die. A financial advisor can help you sort through your alternatives for leaving a legacy.

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What Is IRS Section 7702?

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Section 7702 of the IRC defines life insurance contracts for taxation purposes. Specifically, this part of the code is used to distinguish genuine insurance contracts from investment products that are marketed as being similar to insurance.

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Ordinarily, life insurance contracts offer tax-free death benefits to beneficiaries. Cash value policies can also offer tax-free growth. Section 7702 is designed to prevent abuses of the tax-advantaged nature of life insurance. It does so by imposing a two-pronged test on life insurance contracts.

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How the Section 7702 Test Works

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The IRC outlines two tests that life insurance contracts must pass in order to retain their tax-advantaged status. Policies can either use the cash value accumulation test (CVAT) or the guideline premium and corridor test (GPCT).

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Cash Value Accumulation Test

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The cash value accumulation test says that the cash surrender value of a life insurance contract can’t be more than the sum total of all future premium payments due. What this means in simple terms is that if you could pay a lump-sum premium to fully fund the policy, the cash value at surrender would have to be less than that amount. If the cash value is more than any future payments you’d need to make to satisfy the premiums, then the contract fails the cash value accumulation test.

","

In that case, the IRS says that you have an investment product, not a life insurance contract. This means any proceeds from the product would be considered taxable, either as ordinary income or capital gains. This could put you or your beneficiaries into a higher tax bracket when surrendering the policy or receiving a death benefit.

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Guideline Premium and Corridor Test

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The guideline premium and corridor test has a different set of requirements. Instead of looking at cash value, this test focuses on premiums paid. Specifically, the GPCT standard says that an insured person can’t pay more into the policy than is necessary to fully fund the death benefit. Again, if a life insurance contract fails this test then cash value or death benefits would lose their tax-advantaged status.

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IRS Rules for Applying CVAT and GPCT

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Section 7702 specifies that insurance companies must only use one or the other test for determining whether a life insurance contract can avoid taxation. Once the insurance company selects either the cash value accumulation test or the guideline premium and corridor test for a particular policy, they can’t flip-flop later and use the other test.

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As an insurance purchaser, it’s also important to understand how the choice of test might affect you. Generally, whether an insurance company uses CVAT or GPCT guidelines can influence what you’ll pay for premiums. It can also impact cash value accumulation as well as other policy features and benefits.

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7702 Plans vs. Retirement Plans

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If you work for an employer rather than being self-employed, it’s possible that you may be offered access to a 7702 plan as part of your benefits package. While 7702 plans may be marketed as a type of retirement plan they’re actually quite different from a standard 401(k) or similar workplace retirement savings option. A 7702 plan is essentially a life insurance policy that accumulates cash value. Depending on which company is issuing the plan this could be a variable life insurance policy or a universal life insurance policy. Cash value grows inside the policy on a tax-deferred basis, assuming the contract meets the CVAT or GPCT guidelines. That’s similar to a traditional 401(k) or traditional IRA.

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But there are some key differences. First, there’s no tax deduction for 7702 plans. Contributions to a 401(k) or traditional IRA, on the other hand, can be tax-deductible. You will, however, pay income tax on qualified withdrawals in retirement.

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With cash value life insurance, the cash value can be withdrawn tax-free as long as the amount doesn’t exceed what you’ve paid in. You may also be able to borrow against the policy through a loan, without incurring a tax penalty the way you might with a 401(k) loan or early IRA withdrawal. But taking out a loan or withdrawing cash value can reduce the policy’s death benefit.

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You can pass on a cash value policy to your beneficiaries with a tax-free death benefit, again, assuming that the policy passes a Section 7702 test. Leaving a 401(k) or IRA to a spouse or other beneficiary, however, can trigger tax implications for the person inheriting those funds.

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Bottom line, a 7702 plan isn’t the same as a retirement plan, even if it’s presented to you that way. While cash value life insurance may be a good fit for your financial strategy, it’s not an exact substitute for other types of qualified retirement plans when investing for the long-term.

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Tips for Purchasing Cash Value Life Insurance

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If you’re interested in buying cash value life insurance, take time to compare life insurance companies first. Consider their overall reputation first, then explore policy options. Specifically, consider coverage minimum and maximum limits, types of cash value policies available and what you might pay in premiums. It’s relatively easy to get life insurance quotes online.

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Once you’ve applied for a policy, be sure to understand what you’re getting before signing off on the contract. While it’s rare to come across a cash value policy that doesn’t meet the 7702 guidelines, it’s still a possibility. So be sure to ask the insurance company which test they used to ensure that the contract they want to issue to you meets the IRS standards. If an insurance company seems unwilling to disclose that information that may be a sign that you should look elsewhere for coverage.

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The Bottom Line

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Tips for Financial Planning

","$45","

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The ins and outs of life insurance can be complex. That can be especially true if you want to sell your life insurance policy. There are two types of settlements: life settlements and viatical settlements. But when talking about viatical settlement vs. life settlement, which one do you choose? Let’s break down what each does and their main differences and go over additional options you may have. If this is a consideration for you then you may want to talk it over with a financial advisor before moving forward.

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What Is a Life Settlement?

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A life settlement is the sale of a life insurance policy, usually made to an investor in exchange for cash. The buyer of the policy becomes the policyholder and beneficiary, continuing to make payments until the original owner (the seller) dies. Then the buyer collects the full death benefit.

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To be eligible for a life settlement, most people must be 65 or older, have a policy of $100,000+ and have universal or whole life insurance. In general, life settlements are designed for healthy seniors.

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Why Would You Choose a Life Settlement?

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There are upsides and downsides to selling your life insurance policy in a life settlement. The downside is obvious: your beneficiaries — whether they be your children, spouse or someone else — won’t receive the death benefit. Plus, life settlements only payout 10% – 25% of the death benefit. So, if you had a policy worth $100,000, you could receive as little as $1o,000. That’s before taxes, because yes, the government will take its cut in the form of income tax.

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The upside is that you immediately have cash. You could use this to pay off debts or live out the remainder of your life more comfortably.

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What Is a Viatical Settlement?

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A viatical settlement is the sale of a life insurance policy, in whole or in part, in exchange for cash. While it’s not technically required, most viatical settlements require the seller to be terminally ill, with a life expectancy of 2 years or less.

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The payout of a viatical settlement is better than the cash surrender value of the policy, but not as good as the death benefit. In general, the more serious the health condition and the lower the life expectancy, the better the payout of a viatical settlement.

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Why Would You Choose a Viatical Settlement?

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If you have mounting debt, it might make sense to choose a viatical settlement. Chances are that your life may not be in the same place it was when you took out the life insurance initially. Your children, who you wanted to protect with a life insurance policy, may now be grown, financially stable adults. It may not be necessary to keep the insurance policy and if it alleviates your finances in your final years, a viatical settlement may be worth it to you.

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Viatical Settlement Vs. Life Settlement: What’s the Difference?

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There are a few key differences when talking about viatical settlement vs. life settlement. They are:

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Medical requirements: To receive a viatical settlement, you will likely need to be diagnosed with a condition that comes with a short life expectancy. You will need to prove this with documentation. Life settlements aren’t as stringent and healthy seniors are often eligible.
Settlement amount: Life settlements typically pay 10% – 25% of the total death benefit. Viatical settlements are often much larger, paying 50% – 85%, depending on your life expectancy.
How they’re taxed: Life settlements are often taxed as taxable income. On the other hand, viatical settlements are usually not taxed.

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Additional Options

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Before considering a life insurance settlement, there are other options you should look into.

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Accelerated death benefit: An accelerated death benefit is an additional life insurance rider that will let you tap into a portion of your death benefit while you’re still alive.
Borrow against your insurance policy: If you have permanent life insurance, you can borrow against your life insurance policy. This can be useful to pay down debt with a higher interest rate.
1035 exchange: If you want to change or upgrade your life insurance policy, a 1035 exchange will allow you to swap a like-kind policy tax-free.

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The Bottom Line

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If you need a lump sum of cash, you may consider a life insurance settlement. When it comes to viatical settlement vs. life settlement, life settlements are easier to get but come with a lower payout. Viatical settlements often require that you have a terminal illness, but will pay considerably more. But with both, your beneficiaries will no longer receive a death benefit, so weigh your options carefully.

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Life Insurance Tips

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