How to Safeguard Estate Plans
In the most fundamental teachings of insurance, we are taught that life insurance creates an immediate estate. We also learn that annuities can be employed to liquidate an estate. But how do you financially safeguard an estate, especially during those integral income accumulation years when an individual’s economic attributes take shape, build, ride the inherent market ebbs and flows, rebound and grow into a wealth foundation that can eventually be left to future generations? The answer is disability insurance.
Widely accessible and sometimes sophisticated savings vehicles like 401(k)’s, Roth IRA’s, Keogh plans, annuities and cash value life insurance programs have allowed Americans to plan for secured financial futures for decades. These plans permit reliable income streams beyond volatile high-yield market investments, inflexible certificates of deposit, sedentary and sluggish savings and money market accounts as well as social security benefits, a program whose future and longevity are highly suspect.
However, despite the abundance of investment and savings options available through employers and personally, many Americans still lack adequate savings. Making matters worse, few pursue financial planning beyond their working years. This predicament can lead to severe financial stress if an individual experiences temporary or permanent disability during their earning years.
Back-up for the paycheck-dependent
Most Americans and their dependent families depend on a consistent income flow to cover the necessities of everyday life. If all goes according to plan, after the bills and taxes are paid, some portion of income remains for discretionary spending or to be added to savings and contributed to overall wealth.
However, it takes consistent and an excess inflow of cash to build wealth and sufficient savings to protect future spending. When anticipated earnings are interrupted or cease, as with a disability, financial distress is likely to follow.
Becoming disabled is more likely than most people think. Working Americans are three times more likely to suffer a long-term disability than die before the normal retirement age. Without proper disability insurance and income protection, there is insufficient planning for a survivable estate. Essentially, we can’t plan for the future without safeguarding the present.
What’s in your toolbox?
The greatest fiduciary defense against incapacitation of any sort or length is having a sufficient amount of comprehensive disability income insurance (DI). Personal DI programs come in many shapes and sizes. Still, most industry experts agree that layering defined income protection insurance to at least 65% of personal adjusted gross income is adequate, allowing the general maintenance of a household and providing a sufficient income to come closer to continuing one’s pre-disability lifestyle.
Typically, this “layered” approach to income protection is created using tiers of coverage consisting of employer-sponsored group disability programs, individual disability plans, specialty-market excess, high-limit DI platforms or some reasonable combination thereof.
Insurance company disability benefit calculations typically include 401(k) employee contributions, keeping much of an earned salary intact, including retirement allocations when an employee becomes disabled.
Layers of protection
Personal DI insurance is the foundation of sound financial planning, retirement planning and estate planning as it provides the first line of defense for income, and financially safeguards a client’s efforts to save for future life stages and beyond.
Bespoke specialty-market programs like retirement funding completion insurance and stock option protection coverage offer additional assistance in financially protecting an estate. Both ancillary products safeguard earnings to mitigate retirement-benefit collapse in case of an unforeseen disablement.
Retirement funding or pension completion insurances are standalone defined-contribution protection plans that provide an insured person with a lump sum of cash for the anticipated balance of aggregate retirement plan contributions at the time of permanent disablement. These resources are unique in that both employee and employer contributions may be included in the benefit calculations.
A stock option protection plan is a standalone disability program than insures anticipated stock option awards for those working for publicly traded corporations whose future stock option compensation could be lost if disabled. These plans pay a permanent disability lump sum benefit equivalent to a multiple of anticipated annual stock option awards.
Safeguarding the plan
The purpose of financial planning is to provide clients with a solid foundation of a diversified savings, asset management and growth and insurance services to maintain a comfortable level of financial freedom into retirement and protect accumulated assets that will eventually be passed on after death. DI programs are a big part of that foundation; safeguarding those assets and savings against economic damage due to the loss of a regular paycheck resulting from an inability to work.
–Published with permission from Aspire Magazine.