Most people don’t want to talk about life insurance — even people who recognize life insurance as something they really need to talk about. Many are fine with chatting about themselves and their loved ones — their achievements, their goals, their obstacles — but life insurance? Rather not, thanks. Maybe some other time.
Yet here’s the thing: A conversation about life insurance actually is about you and the people you care about most. It’s about where you are in your lives, and what you hope for your loved ones in the future. It’s about how it would be possible for them to realize those goals if you’re no longer around to help.
September is national Life Insurance Awareness Month, but in these pandemic times, who isn’t aware of life’s uncertainties and of the availability of insurance that would protect your loved ones if you were to die?
Here’s what Forbes had to say in a September 9, 2021 report: “The global pandemic has Americans thinking about life insurance. Total U.S. life insurance policies sold increased 8% in the first six months of 2021, marking the largest year-over-year increase since 1983, according to LIMRA, an industry-funded research group.”
Moreover, according to LIMRA, 36% of American say they plan to buy life insurance in the near future.
“COVID-19 has raised consumers’ awareness about the importance of having life insurance,” LIMRA’s CEO, David Levenson, told Forbes. “Nearly a third of consumers said they were more likely to purchase coverage due to the pandemic. This is so important because many Americans live with a life insurance coverage gap, leaving their loved ones’ financial security at risk.”
Clearly, increasing awareness of life insurance is no longer a formidable challenge. Getting people to have a conversation about what kind of life insurance is best and how much they should spend — that’s the challenge.
So let’s put insurance and type and cost aside for a moment. Let’s talk about you.
Estate Planning and Legacy Needs
What do you do for a living, and what is your financial situation? How is your health? Does your spouse or partner work? How many children do you have, and what are their ages? What are your hopes and plans for your family’s future?
These are some of the questions your agent should ask before you discuss what solutions are available.
A common assumption agents make about life insurance is that clients are interested in purchasing the cheapest available policy. Agents who engage their clients in conversation about estate planning and how life insurance fits into the plan don’t make that assumption. When, for example, clients understand the very real possibility of their heirs losing money if they have to pay large estate taxes on their inheritance, and when they learn how the tax advantages of life insurance can help them provide a legacy for virtually pennies on the dollar, they typically make clear that they want their agent’s guidance on choosing the best solution, not the cheapest.
Of course, life insurance does much more than provide protection against estate taxes. At its most basic, life insurance serves as income replacement and protection against debt. Life insurance proceeds help survivors:
- Meet ongoing living expenses;
- Pay off debts, such as mortgages, car payments and student loans;
- Keep a family business running;
- Protect a spouse’s retirement savings;
- Finance future obligations, such as your children’s college tuition or assisted living arrangements.
Life insurance is also an excellent tool for passing assets to kids and grandchildren, or to create a legacy through an endowment to a charity, religious organization or educational institution. How your assets will be distributed is up to you.
Existing Policies and Insurance Audits
Thousands of people have old life insurance policies tucked away in a filing cabinet or closeted in a cardboard box. Let’s talk about that, too.
Mortality rates have changed over the years, and insurance carriers have improved product design or adjusted premiums. There’s a good chance a review of your existing life insurance may enable you to improve your coverage, either by saving you money on premiums or by putting in place terms that offer better cash-value accumulation or death benefits.
Do you have life insurance through your employer? That’s a valuable benefit — especially if existing medical conditions make you ineligible for private coverage — though the value has its limits. The advantages of employer-sponsored life insurance are:
- Cost effectiveness — Many employers provide life insurance as a core component of their Total Rewards package; others offer it as a voluntary benefit at a very reasonable rate.
- Automatic qualification — Employer-sponsored life insurance plans typically don’t require a medical exam for coverage, eliminating an obstacle for those with pre-existing conditions.
- Portability — Employees often can take their group coverage with them if they leave their job but pay the insurer directly.
Not all employers provide life insurance, however, and many employer-sponsored group plans don’t make coverage transferable, as Employee Benefit News recently dramatized in the story of a college student who lost her mom to ovarian cancer and discovered the mother’s group life insurance policy had been voided. And even if your employer-sponsored life insurance is transferable, it may not be sufficient to meet all the needs your survivors would face if you were to die.
With the fall open enrollment season upon us, the time to talk with your agent about your existing coverage and insurance options is now.
Selecting the Policy That’s Right for You
Your two basic life insurance options are:
- Term life insurance — Coverage provides a predetermined death benefit for a predetermined number of years, typically ranging from 10 to 30. Annual premiums are fixed, based on your health and life expectancy at the time you apply for the policy.
- Permanent life insurance — This coverage is permanent throughout the policy holder’s life. Because permanent life insurance includes a savings component and lifetime coverage, regardless of how long you live, premiums are more expensive than for term life. Permanent life insurance offers multiple advantages, including deferred taxes on accumulated cash value. And withdrawal of funds is tax-free for as long as the policy remains in force.
Permanent life insurance policies are classified as:
- Whole life insurance, which caters to long-term goals by offering consistent premiums and guaranteed cash-value accumulation;
- Universal life insurance, which provides flexibility in premium payments, death benefits and the savings element of the policy.
Which is best for you? Talk about it with your broker. It may turn out that your best option is a hybrid product, such as one that provides long-term care insurance (LTCi) through a rider added to the life insurance policy.
As the personal finance website NerdWallet recently reported: “Nearly 70% of 65-year-old people will need long-term care services or support, according to 2020 data from the Administration for Community Living, part of the U.S. Department of Health and Human Services. Women typically need care for an average of 3.7 years, while men require it for 2.2 years.”
Medicare does not cover the costs for these services — whether through a nursing home, assisted living or home healthcare services – and stand-alone LTCi policies are out of the price range for many.
Hybrid Options and Affordable LTCi
By working with your agent to take an inventory of your assets, you may discover that you can reposition some of these assets into one financial product to meet your long-term care coverage need. If, for example, you have $50,000 in a CD at a local bank to cover health-related emergencies, you might use it to buy a life insurance policy with a long-term care rider. The benefits would include:
- Higher returns than the CD, based on the insurer’s interest credited rate;
- No taxes on the interest earned within the policy;
- A larger value of a specified dollar benefit amount to cover qualified LTCi costs (also tax-free);
- Ability to get premiums back with no penalty, depending on the contract provisions;
- Death benefit payment (again, tax-free) to the beneficiary when the owner passes.
What makes these vehicles so attractive is the flexibility. There is no “use it or lose it” philosophy.
Where to Turn
With more than 100 offices located throughout the United States, Alera Group provides the type of local service you love with the national resources clients may need to design highly customized solutions. We operate in a culture of collaboration, working closely with our clients, with insurance underwriters and with each other. So, in addition to the dedicated services of your Alera Group agent, you get the support of an entire time of experts in insurance, employee benefits, wealth management and retirement plan services.
It's time to have the conversation – time to talk about you, your family and the future. We look forward to hearing from you.
About the Author
Drew L. Malkin, CFP, LUTCF
Wealth Management Advisor
C.M. Smith Financial, an Alera Group Company
Drew Malkin is a Certified Financial Planner; licensed insurance producer for Accident, Health, Life, Variable life and Variable Annuities; and Fellow with the Life Underwriting Training Council (LUTCF).