Is your family using life insurance in the right ways as part of your comprehensive financial plan? Here are five reasons you should consider life insurance.
- You Have a Young Family
Even though the pandemic showed us all the need for financial protection for the family from sudden death or disability, there are roughly 106 million uninsured and underinsured Americans according to the 2022 Insurance Barometer Study by LIMRA, available by subscription to financial industry members. One of the reasons cited was a lack of basic information about life insurance; less than a third of consumers said they were “very” or “extremely” knowledgeable about it.
Life insurance policies have completely changed in the last two decades. According to LIMRA research, simplified underwriting means that many term life policies don’t even require a medical exam anymore, depending on your age and general health. Term life insurance can be much less expensive than you think; the research showed that healthy millennials overestimated the cost of term life insurance by more than 6x in 2021.
Another reason people say they don’t pursue life insurance is that they have a policy through work. But even though you may have a small policy at your workplace, usually $20,000 or so according to the U.S. Bureau of Labor Statistics, these policies are often in place to help with burial costs and final expenses. In order to cover your family’s finances adequately, consider mortgage costs, existing debt, health care, living expenses for your spouse and children, and future college expenses for your children in order to get an idea of how much protection you should have.
- You Need More Tax-Advantaged Wealth Transfer
Depending on your situation, if you are a business owner or a person of high net worth, you may want to consider life insurance as an option as part of your succession and/or estate plan. Most of the time, life insurance passes to beneficiaries and heirs tax-free, and there are many different strategies to help mitigate taxes and provide other benefits by using life insurance policies. Here are some ideas.
- You Are Looking for Tax-Advantaged Retirement Income
A permanent life insurance policy with cash value can provide a stream of income if necessary, depending on how the policy is structured. The cash value in the policy can build up and be borrowed against to pay for college expenses, retirement or other costs during your lifetime, usually without any taxes owed if all IRS rules are followed.
- You Want to Protect Your Spouse
Many people don’t realize that when one spouse dies, the surviving spouse only gets one Social Security check (the larger one) from that point forward. Permanent life insurance can protect your spouse’s lifestyle in the event of your passing.
- You Want Long-Term Care Insurance
Some of today’s life insurance policies are called “hybrid” policies because they cover additional potential adverse events in addition to death, such as disability or the need for long-term care. These extra coverages may be part of the policy itself, or be available as optional insurance policy “riders” depending on the way an insurance company structures their contracts.
According to the 2020 Insurance Barometer study conducted by Life Happens and LIMRA, hybrid policies have become more popular than traditional long-term care (LTC) insurance policies because they offer a long-term care benefit that kicks in if you need it, or a death benefit that remains if you don’t. (One of the drawbacks of traditional LTC insurance is that you may end up paying a lot for something you may never need.)
If you do end up needing long-term care at home or in a nursing facility, it’s expensive. The average cost of a semi-private room in a nursing facility is $7,908 per month according to Genworth.
Remember, Medicare pays for short stays in nursing care facilities, but it does not pay for long-term care. Medicaid pays for long-term care, but qualifying for Medicaid requires a complete spend-down of assets, leaving your spouse and heirs with virtually nothing.
Do you have questions about life insurance? Contact me!