Wednesday, Mar. 03, 2010

Load Up on Life Insurance

Life insurance does more than protect your spouse and children; it can take care of your legacy concerns and free you to spend more of your disposable income in retirement. Perhaps the biggest advantage of life insurance is that it pays out to your beneficiaries tax-free. That means they get every penny of, say, a $1 million policy. You don't have to wonder what will be left in a constantly shifting tax environment. "Before you buy a policy, be careful that you have enough assets to live your life first," says Dan Deighan of Deighan Financial Advisers in Melbourne, Fla. For legacy purposes, consider a second-to-die universal life policy, which will pay to heirs after both you and your spouse have passed away. This is relatively cheap coverage — the cost of $1 million of insurance for a healthy 60-year-old couple runs less than $10,000 a year for 25 years. To shave the cost, you can pay for the coverage up front with a single-premium policy that you might fund with a onetime distribution from your Roth IRA. If your main concern is protecting your spouse, it's generally best to stick with a level-premium term policy, which costs less than $5,000 a year for 20 years for $1 million of coverage.