Life insurance is no longer constrained to the inflexible policies our parents held. Here are some of the latest additions and innovations to give you more options than ever.
Today’s life insurance policies are not the policies our parents and grandparents grew up with and purchased. They offer more features and more customization, at a price lower than many consumers expect to pay.
A recent study showed that more than 50% of people assume that the cost of life insurance is three times higher than it actually is [1]. Furthermore, 44% of millennials, a group whose net worth continues to rise more rapidly than any other generation [2], overestimate the cost of term life insurance by more than six times. Lack of information, explanation and time to research options, combined with the fact that no one enjoys thinking about and planning ahead for their own death, can also make life insurance a tough subject.
New life insurance policy features are designed to quell those worries, as insurance companies look for more ways to build client-oriented policies. Here are some of the latest innovations in the life insurance industry:
- Cash Value Component and Living Benefits
Now, life insurance carriers offer whole and universal life insurance, which are permanent policies with a tax-deferred cash value component that allows retirement planners to create another avenue to build a nest egg, or savers to save for other things, like college or self-funding a business startup venture. The cash value component often increases the monthly premium costs, understandably giving some investors cause for pause. With these types of policies, however, the cash value can grow at a rate guaranteed by the claims-paying ability of the insurance company, potentially making them advantageous for those who are able to afford the premiums and are looking primarily for principal protection.
Whole life premiums are inflexible, locking participants into contracts that only provide coverage if they continue to pay the premiums. This is where universal life can offer more options, allowing you to increase or decrease your premium and the amount that goes toward your cash value. Indexed universal life, a type of universal life insurance, can offer principal protection with market upside potential in correlation with a market index or indexes. (It’s important to understand that indexed universal life is a contract between a consumer and an insurance company, and unlike variable life insurance, isn’t actually subject to stock market risk.)
- Long-Term Care Hybrid Policies
Though no one enjoys thinking about it, 70% of people currently age 65 or older in America will need long-term care, with 20% needing support for longer than five years [3}. Additionally, Medicare does not cover long-term care, necessitating some sort of plan to pay for long-term care to avoid the accelerated depletion of funds in retirement.
Older policies were “use-it-or-lose-it.” If you didn’t end up needing long-term care, all of those premiums you paid through the years were for nothing. Now, modern life insurance and long-term care hybrid policies provide flexibility, giving policyholders the ability to use their benefit to fund long-term care if they need it. If they don’t need it, it becomes a death benefit provided to their beneficiaries. It is still important to adequately prepare for retirement through other avenues, as even a hybrid policy may not completely cover your long-term care expenses.
- Riders
One of the biggest expansions in life insurance is in the way you can customize a policy to your needs using a wide array of options available as riders that can be added to an insurance policy. Guaranteed insurability riders, accidental death riders and accelerated death benefit riders can give policyholders more flexibility and more access to their policies that were not available under older term life plans.
- Better Support for Policyholders
Whether it be because of riders or enhanced operations, life insurance does not have to be difficult to obtain. Modern technology, increased access to better medical information and simplified underwriting have helped innovative companies that are always looking for ways to reach broader audiences with better products.
It is, however, important to know that life insurance is a contract that requires you to hold up your end of the bargain. Permanent life insurance is just that: permanent. If premiums are not paid, coverage is terminated. Additionally, a surrender charge, typically opening at 10%, may be imposed upon the investor if the policy is canceled early. To that end, certain components of life insurance can be less liquid than cash or other investments, so it’s crucial to make proper use of the resources at your disposal, such as your independent insurance agent or financial professional.
With an independent insurance agent who works with multiple insurance companies, you can find the insurance policy that suits your own unique situation and budget, with the most beneficial features and/or riders for your needs.
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This material is provided as a courtesy and for educational purposes only. Please consult your investment professional, legal or tax advisor for specific information pertaining to your situation.
Life Insurance Several factors will affect the cost and availability of life insurance, including age, health, and the type and amount of insurance purchased. Life insurance policies have expenses, including mortality and other charges. If a policy is surrendered prematurely, the policyholder also may pay surrender charges and have income tax implications. You should consider determining whether you are insurable before implementing a strategy involving life insurance. Any guarantees associated with a policy are dependent on the ability of the issuing insurance company to continue making claim payments.
