Rich in America Secrets to Creating and Preserving Wealth PHẦN 7 pot

which you, the insured, provided them during your life). Bear in mind

that you may not be able to purchase all of the insurance you might

want and can afford, because ultimately the life insurance carrier (or,

rather, its underwriting department) will determine the amount of

coverage you will be permitted to obtain. In other words, a childless

60-year-old married male making $50,000 per year and renting a

small apartment will probably be turned down for a $10 million, 10-

year level-term policy (assuming he could afford the premiums) since

clearly he has no need for this amount of life insurance.

Of course, life insurance planning is different for high-net-worth

individuals. A needs analysis may not be an appropriate method for

determining the amounts and types of coverage needed, since there

may be no actual need at all, but rather a desire. For instance, let’s say

you are 35 years old, married with two children, each under 5 years

old. You live in a $1 million home with a $500,000 mortgage, earn $1

million a year, and have saved $3 million. Clearly, you are very suc￾cessful. How much life insurance do you need? How much life insur￾ance do you want? This scenario is very different from the situation

faced by an older middle-class couple who does not earn a million dol￾lars per year and who has not accumulated as much in savings. The

planning and analysis that go into determining the type and amount

of coverage that would be appropriate for these people would be quite

different from those to determine a millionaire’s coverage needs.

Here are some situations in which you, as a high-net-worth indi￾vidual, might require life insurance planning:

• If you are the income beneficiary of a large trust that does not

continue for your spouse or other dependents after your death.

• If you have an annuity or pension payment that does not con￾tinue for your spouse or other dependents after your death.

• If you have an illiquid estate, and your heirs therefore have

insufficient liquidity to live and to pay estate taxes.

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• If you have created a charitable trust and want to make up to

your heirs the assets that would otherwise pass to the charity

upon your death.

If you elect to purchase such insurance, it is essential to coordinate it with

your financial, retirement, and estate planning and gift-giving needs. You

must also coordinate the investment attributes of your life insurance with

your other investment activities. If these considerations sound compli￾cated, they are.You will need to consult with your financial planner and/or

a licensed life insurance agent. In particular, seek out someone with an

industry designation, such as a certified life underwriter (CLU). To sim￾plify the issue, it helps to understand the two broad categories of life

insurance: less permanent, non–cash value life insurance, and more per￾manent, cash value life insurance.

Less permanent, non–cash value life insurance comes in several

forms. One is known as term life insurance. This policy type provides

coverage, is generally thought of as temporary, and does not accumu￾late a cash value. Term coverage is generally priced according to the

cost per $1,000 of coverage (i.e., the cost of insurance, or COI) and

increases annually as the insured ages. Term life insurance policies may

be used to insure against the loss of life of a wage earner for a specific

time period connected with a specific financial obligation, such as the

30-year term of a home mortgage or a child’s four-year education.

Some variations on term coverage are:

Annual renewable term: This is a term policy type in which the con￾tract is renewable annually to some stated age, usually 75. Premiums

increase annually (as the insured ages). Once the insured reaches age

75, the policy is no longer in force and the coverage ends.

Level term: This is a term policy type in which premiums stay the

same for a specified period of time (e.g., 10, 20, or 30 years). The term

or duration for which a level premium policy may be contracted is a

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