can be difficult for young people to consider the possibility
of a devastating hit to their lives or their finances. Again,
the focus should be on the future—one that is too young
to withstand such an impact without protection. Can you
help your millennial clients carve out funds to pay for
these various coverage needs?
•
Liability coverage.
Surprisingly, umbrella coverage
isn’t often part of a young person’s insurance portfolio.
An inexpensive umbrella policy can go a long way
toward protecting the client and his or her car, home,
and other assets against liability claims. Remember,
younger clients may not have accumulated significant
wealth, but they do have a future to protect. If a claim
is raised, they’ll need assets for legal fees. And, if
compensation is awarded, a lack of assets doesn’t
mean the client won’t be obligated to satisfy the
judgment. Is the client willing to risk his or her
future income potential?
•
Disability coverage.
Younger professionals frequently
think of insuring possessions, but they may not realize
that their health and ability to work could be their greatest
assets. For young professionals with sizable incomes,
disability coverage can provide income replacement
for their families. If they’re single, it may help them
avoid having to return home to live with their parents
in the event they become disabled. For entrepreneurial
types, it may help keep a new business afloat during
tough times.
•
Life insurance.
Millennials may need your help
understanding their employer-provided benefits and
determining whether the level of coverage is sufficient.
If employer-provided insurance isn’t available, can
they tolerate the costs of a term policy? Explain the
benefits such a policy offers in the event of an unexpected
death. Do they realize that, while federal student loans
are forgiven, private loans will become debts of their
estate? Would they want family members who cosigned
a mortgage to be left with the bill? Is college funding
for a child a concern?
•
Health insurance.
Last but not least, young clients
should evaluate their health coverage. It may surprise
them to learn that medical expenses are a major cause
of bankruptcy cases.
For insurance resources you can share with your clients,
visit the Insurance Planning and Risk Management section
of the Financial Planning Playbook.
Tax Tips for Millennials
In addition to the new rules for high-income earners,
younger taxpayers should be aware of these three provisions,
which may help them reduce their tax liability:
•
Student loan interest deduction.
The
Wells Fargo
Millennial Survey
finds that student loan debt is a major
worry for younger people, with 36 percent citing it as
their biggest financial concern. A student loan interest
deduction is available, whether or not the taxpayer
itemizes, allowing him or her to deduct up to $2,500 for
2014, subject to phaseout limitations.
•
Qualified retirement plan contributions.
In addition
to helping younger clients save for retirement, these
plans offer valuable tax incentives. Pretax contributions
to employer-sponsored retirement plans can reduce
taxable income, while contributions to an IRA may
result in a tax deduction.
•
Health savings accounts (HSAs).
Individuals covered
by high-deductible health plans can receive a 100-percent
deduction for contributions to an HSA that do not
exceed the annual contribution limit. The client doesn’t
need to itemize deductions to take advantage of this
benefit. HSA distributions used for qualified medical
expenses are not taxed.
Be the One Who’s Willing to Be in the Picture Now
Millennials may be tough clients to fold into your practice.
They’re seeking knowledgeable advisors who offer financial
planning advice that fits their needs and lifestyle. They
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