September is Life Insurance Awareness month. Unfortunately, as a financial planner, I experience untimely deaths of clients and client’s family members all too often. According to LIMRA’s 2024 “Life Insurance Fact Sheet,” only 51% of Americans have life insurance. That number is consistently trending down over the last decade and is far too low. One thing is certain, if you have a spouse, children, or anyone in your life that you care about and want to protect, life insurance is not optional, it’s mandatory. Whether it’s with me, through work or a simple online policy that you take out, please, make sure that coverage is in place so that your loved ones don’t have to worry about paying the bills in addition to dealing with the grief of losing a loved one. That grief is exponentially worse when you also must turn your life upside down because there now isn’t enough to cover your daily expenses. In this blog I’m going to give you a brief overview of the different types of insurance available as well as some facts you should know about.
Term Life – Term Insurance is the simplest form of insurance. It will provide the most amount of coverage for the least amount of premium, however, it’s a rental. For example, if you purchase a 20-year term policy and you live a long, happy and healthy life for the next 40 years, your coverage would have expired. While some offer a return of premium feature, I typically find the extra money you pay for the feature can be better invested or saved elsewhere. Term insurance is perfect when the budget may be tight but you still need to provide the proper coverage for a spouse, ensuring you children’s education is still covered and that the mortgage can continue to be paid.
Whole Life – I have heard people say whole life is too expensive. I think that simply depends on how you define “expensive.” Premiums are much higher than term insurance, but in addition to the life insurance benefit, whole life builds cash value on a tax free or deferred basis inside the policy that is accessible. I have had many clients utilize this accessibility feature when they were in a cash crunch. Others use it routinely to save for education. Whole life (and some other types of insurance) also offers the ability to accelerate the death benefit or add a long-term care rider should you have a medical event.
Universal Life – Universal Life comes in so many forms that it would need its own blog. I will cover the two most popular I see today. Guaranteed Universal Life, or GUL, should be thought of as a permanent term policy. While some cash value builds inside the policy, the policy typically eats that cash as you get older, and the cost of insurance goes up. There is a contractually fixed premium and, as long as you pay that premium as scheduled, the death benefit is guaranteed for life. Indexed Universal Life, or IUL, is intended more as a cash value build up while providing a hedge against a market downturn. IUL’s can be tied to several different market indices, most commonly the S&P 500, and the cash value can fluctuate based on market performance. The major hedge benefit is while these policies allow you to participate in a set amount on the positive performance of the S&P, they will provide a 0% floor in the case of a negative market. These types of policies are great options for business owners as an additional savings plan for themselves that fall outside of the Federal Government’s ERISA (Retirement Plans) guidelines.
Here are a few other things to think about:
Cost - Surprisingly, the cost of life insurance has come down over the years. As we continue to live longer, actuarial tables have changed which have brought premiums down from where they were 10 or 20 years ago. If you have an old policy, it may be worth exploring if there are better options on the market for you today.
Estate Planning – If the tax code does change after the upcoming election, many more families will be over the exemption for estate taxes. Life insurance is a great way to plan for this liquidity need for assets held outside of a trust.
Beneficiaries – Your will does not trump the beneficiary on a life insurance contract. Let me say that again, your will does not trump the beneficiary on a life insurance contract. Make sure this is part of your annual review in your planning. In addition to having a primary beneficiary, you always want to add contingent beneficiaries that will step into the contract should something happen to your primary beneficiary.
Without life insurance, your financial plan is not self-completing. Whether it’s through me, online, or through work, put the coverage in place that’s necessary for your loved ones. If you’re not even sure where to start I’ve embedded a life insurance needs calculator for you below. If this blog has generated more questions don’t hesitate to pick up the phone and call me. As I mentioned in my State of the Union blog, Birds Eye’s partnership with the Fortis Agency provides access to any insurance company in the country on an independent basis. As always, please share this with anyone you think may help.