Essential Financial Planning: Life Insurance

Kathleen Kenealy, Director of Financial Planning, invites Tim Gibson, Managing Partner at McWalter Volunteer Insurance Agency, to answer some of the most frequently asked questions about life insurance. Listen now as they explain why you should consider getting life insurance, how much cover you might need and how you can work with advisors to get a policy.


Kathleen: Hello and welcome to Boston Private Perspective. I’m Kathleen Kenealy, director of financial planning at Boston Private. Today we’re going to dig into a key part of your financial plan, life insurance. Although September is Life Insurance Awareness Month, it’s always a good idea to review your insurance coverage every year, reviewing some insurance coverage basics, such as why do i need insurance, how much do i need and how can i get it?

I have invited an expert to join me today. Tim Gibson is Managing Partner at McWalter Volunteer Insurance Agency. He has 28 years of experience working with clients to obtain appropriate life insurance coverage based on aligning their needs while striving to minimize their exposure to risk. Hello, Tim. Welcome and thank you for joining me today.

Tim: Hi, Kathleen. Thank you for.

Kathleen: Yeah, with pleasure. So I’d like to start by asking you what seems like a simple question, but can actually be a bit difficult to understand. And that’s how much life insurance do individuals and families need? There are many different ways to calculate it, so could you tell us a bit about how you usually determine the amount of appropriate life insurance coverage? How do you help your customers understand this?

Tim: Of course. Determining the amount of coverage your family needs is the first step in the process, and perhaps the most important. There are formulas that some financial advisers use based on a multiple of income, but I don’t really think any of them make sense because every family’s situation is different. A family with 7 children on a $3 million mortgage does not have the same needs as a family with 1 child and no mortgage. Thus, life insurance should be viewed as a tax-free asset that will replace lost income so that there is no financial loss for dependents upon the death of an income earner. We really need to determine the present value of that after-tax income to determine the right amount of coverage. Other factors that need to be considered are future education costs, as well as the amount of debt and assets. A level term insurance policy is almost always the best solution for a family that needs to replace a breadwinner’s income. And I also think it’s important to work with an insurance broker who has the ability to represent most companies, as opposed to just one or two companies.

Kathleen: Yeah, that makes perfect sense and that’s really important and incredibly useful information to think about. You know, I think people are definitely thinking about their own mortality a little more than we usually do given the global health crisis we’re all going through right now. And the work that you do, do you see any changes in the life insurance industry as a result of COVID-19, like changes in pricing, or underwriting process, or approval rates, or something else ?

Tim: You’re right. More people than ever are thinking about their death and life insurance. Insurance companies haven’t necessarily increased their rates, but many companies are reducing the age at which these products are available. Many companies do not offer products for people over 70. The good news is that insurance companies have new accelerated underwriting programs in the wake of COVID. Many companies allow policyholders under age 50 to apply for no-exam insurance coverage, in some cases up to $3 million in no-exam coverage.

Kathleen: Wow. It’s interesting to hear how COVID is definitely impacting many different industries, including the insurance industry these days. You mentioned a few minutes ago how when you look at life insurance needs and make sure you have enough coverage to replace, you know, the primary breadwinner’s after-tax salary, and the financing of the university, and the repayment of mortgages, etc. You know, we work with a lot of high net worth and very high net worth clients who, you know, really don’t necessarily need life insurance for those purposes because, maybe they, you know, have acquired enough assets where they can self-insure. You know, are there other reasons why life insurance is appropriate for people?

Tim: Yes, absolutely. And you’re right, families can get to a point where their assets are enough to cover their needs after expenses. And term insurance and other traditional types of insurance don’t make sense. But when families reach a point where they have enough assets to provide the income they need to cover living expenses, they can really think about their assets or separate their assets into two portfolios. The capital base is the portfolio they will need to provide the income over their lifetime, and the rest of their assets can be considered their inherited capital that they plan to pass on to their children and grandchildren. In many cases, adding second-to-die insurance as an asset class in an inherited portfolio can significantly increase the amount passed on to heirs. Second-to-die insurance is a type of policy that only provides a benefit after the death of the surviving spouse. The tax-free death benefit is an uncorrelated asset that can offer very competitive returns with far less risk than most other assets in the portfolio. I should also point out that for families who have established a revocable trust, investments in those trusts will not be gross. So, if investments in the trust have performed well over time, capital gains can create a significant tax burden for future generations, making it harder for them to collect income. Life insurance will provide tax-free liquidity in the trust, providing investment flexibility and tax-free income.

Kathleen: That’s an interesting point. I think life insurance can certainly be used creatively when it comes to estate planning and estate planning, especially given that, you know, the high federal tax exemption rates of the estates we have now, just over $11 million per person, will disappear by the end of 2025, if not sooner, if we see a change in the White House and Congress with the next election. But clearly there are many different reasons why individuals and families should not consider life insurance. And of all the things that we’ve already talked about, you know, it can get pretty complicated pretty quickly. We have many customers who have acquired life insurance policies over the years. Would you say it is important for people to review the policy periodically, and if so, why?

Tim: Yeah. The life insurance policy must be reviewed regularly, like any other investment. I see a lot of policies that have incorrect ownership/beneficiary agreements and also the amount or type of policy no longer makes sense in a lot of situations because the family’s financial situation and needs have changed. Policy reviews are therefore even more important for anyone who wants a permanent policy. And that could be a whole life variable or a universal life policy, whether it’s single life or second death. These policies are designed to be applied for future generations. And if the policy doesn’t have a guaranteed death benefit, chances are the policy won’t perform as well as originally pictured. And this is usually due to changing unsecured assumptions. And that could be the fees and expenses, the cost of insurance and anything, all policies related to interest rates or market risk assumptions have generally changed. We therefore help our clients obtain an in-force illustration that will clearly show the current and future values ​​of the policies, as well as the level of premium funding needed to keep the policy in force. Many customers have learned that their policies should expire before their life expectancy. Unfortunately, this may mean that all bonuses will be lost and beneficiaries will receive nothing. Our job is to help them make policy changes or research alternatives to ensure they avoid a bad outcome.

Kathleen: That’s great. You know, you’ve been through a lot of different things that need to be looked at, considered, and considered when people review their life insurance coverage every year. And there’s a lot going on, and it can get very complicated very quickly. And, even from my point of view, you know, I’ve been doing this for a long time, but I’m not a life insurance expert, so I’m glad to have professionals like you, Tim, to contact when I have issues. But I think that’s one of the good things about Boston Private. You know, as a trustee, you know, we don’t sell insurance and so we’re able to make objective opinions and recommendations to our clients when we think their insurance needs to be increased, decreased, changed or reviewed. . But it’s great to have professionals to contact and work with on behalf of our client.

I want to thank you, Tim, for sharing your perspective that our clients can use when considering their life insurance needs. And I want to encourage all of our clients to contact your Boston Private Wealth Advisor to discuss your life insurance needs for any part of today’s conversation. Providing guidance and support as a trusted advisor is our mission. You can also read our latest perspective on wealth planning by visiting And while you’re at it, you can subscribe to our newsletters if you want all that information delivered straight to your inbox. Also, be sure to subscribe to Boston Private Perspective on Apple Podcasts or wherever you prefer to listen. Thanks for tuning in, and we’ll see you in our next perspective podcast.