It’s Time to Review Your Life Insurance
When was the last time you looked at your life insurance coverage? Why not do it now? Life insurance can be a remarkable estate planning and tax-saving tool. If you have no life insurance, or have not reviewed your policy lately, you may want to be aware of your options and be prepared.
Around 40% of Americans have no life insurance. A 2014 LIMRA study on insurance trends in the U.S. found that ownership of life insurance policies for Americans hit its lowest level since 2004. LIMRA’s study shows 39% of men and 43% of women without so much as the least expensive type of insurance coverage, term life coverage.1
Married men aged 35-54 who had life insurance dropped more than 10% from 2004-10. Men in this age bracket are usually in or near their peak earning years, and about half of them are fathers. Even more alarming, a third of new parents admit they have insufficient life insurance coverage, yet only about 40% try to increase coverage within two years of the birth of their first child.1
One possible reason? People seem to overestimate the cost of life insurance. A 2018 survey shows consumers continue to exaggerate the expense of life insurance and tend to minimize the risk of unexpected death and value of the death benefit to survivors.2
Life insurance is not just for families. Despite what you see in commercials, families are hardly the only context in which life insurance matters. Many under or uninsured individuals do not have children and wrongly assume they have no need for life insurance, but it can be a vital financial strategy for empty-nesters who want a comfortable retirement lifestyle.
Life insurance can benefit your business. Business owners can use a buy-sell agreement funded with life insurance to allow the surviving business owners to buy out the interest of a deceased owner at a previously determined share value. Key-person insurance can also aid a business if a core employee passes away. Businesses may fund buy-sell agreements and key-person insurance with pre-tax dollars, making these moves truly tax-efficient.
Which policy is right for you? How do you choose? The differences between whole life, term, and variable policy types can be significant. Consider if any of the following potential life factors apply to you:
• You are married and your spouse depends on your income
• You have children
• You have an aging parent or disabled relative who depends on you for support
• Your retirement savings and pension will not be enough for your spouse to live on
• You have a large estate and expect your heirs will owe estate taxes
Life insurance protects your loved ones financially after you die. The proceeds from a life insurance policy can help them adjust to life without your income, meet funeral and other final expenses, which can run into thousands of dollars.
Permanent life insurance offers a death benefit plus the opportunity to build cash value over time. There are tax perks: not only are the death benefits from the policy received tax-free, but the cash value has the opportunity to grow tax-deferred during your lifetime, and loans taken against the policy’s cash value aren’t subject to federal income tax as they aren’t considered cash distributions.3
Life insurance can be part of your plan to build wealth. There are cash-rich life insurance policies with tax-advantaged savings features that offer you the potential to earn interest based on the gains of an equity index. Others permit you to direct a percentage of your premiums to investment sub-accounts which may generate tax-free earnings. These policies can be useful when it comes to business continuation and employee benefits, retirement planning, education planning and estate planning.
Are you adequately insured? Are you using life insurance smartly? Life insurance is like the Swiss Army knife of estate planning: there are so many ways you can use it as you plan to pursue your goals. Whether you simply need to insure yourself or need to protect your estate through sophisticated planning, it’s time to think about life insurance - and all the ways it can potentially help you financially. Learn More by downloading the Life Insurance Guide.
Citations.
1 - limra.com/Posts/PR/Industry_Trends_Blog/LIMRA__Life_Insurance_Findings_and_Father%E2%80%99s_Day.aspx
2 - limra.com/research/abstracts_public/2018/2018_insurance_barometer.aspx
3 - newyorklife.com/products/tax-advantages-permanent-life-insurance
