Life insurance is a crucial estate planning tool, but there’s no easy way to determine how much coverage you need. Since life insurance can serve many different purposes, you need to consider your current financial situation and your future goals before deciding what level of coverage to purchase.
Factors That Influence Your Life Insurance Coverage Needs
The most common formula shared online is to purchase life insurance that represents 10 to 15 years of your current income. While this suggestion is a good starting point, it doesn’t take into account factors such as:
- Plans to pay the education expenses of children or grandchildren
- Plans to help your children or grandchildren with obligations such as buying a first home or starting a new business
- If any of your loved ones have special medical needs or if you have higher than average healthcare costs
- Costs associated with maintaining your household staff or a Single Family Office
- Your desire to continue charitable giving
- What insurance is needed to protect your business interests
- If you need to plan for estate taxes on your U.S. real estate investments
When in doubt, it’s best to err on the side of purchasing more coverage than you think you need. You may have sizable assets currently, but there’s no way to predict if your final medical expenses will eat into this nest egg. If your children are young, their expenses are likely to increase as they become teens and young adults. Changes in tax laws or general market fluctuations may also play a role, so it’s smart to give your loved ones coverage that ensures they won’t experience a decrease in their standard of living after your passing.
For high-net-worth individuals, especially those who own their own businesses, permanent life insurance is preferable to term life insurance. These policies are more costly, but they have a portion of the premium deposited into a cash-value account that can be used as collateral after a certain time period has passed.
Why Purchasing a U.S. Policy Can Be a Smart Move
Life insurance policies purchased in the United States tend to be cheaper and provide more generous coverage than those available in the Mexican financial system. The balance sheets of insurance carriers in the U.S. allow for attractive pricing because the U.S. market is viewed as less risky than what is found in other counties. Antonio Gastélum explains in an article featured on WealthManagement.com.
How Premium Financing Can Help
For wealthy Mexican investors with high coverage needs, premium financing is an attractive option. This approach lets you obtain the maximum coverage using a third-party loan, so you’re not liquidating assets to pay for upfront premiums. If your coverage needs are in excess of $25 to $30 million, we can assist you in determining if premium financing is the best course of action.
Let Us Help You Plan for the Future
MEG International Counsel is standing by to advise you on the best way to incorporate life insurance into your estate plan. To schedule a consultation, contact us today. We also encourage you to request a copy of our whitepaper, How Should Mexican Residents Hold Life Insurance Policies in the United States?