Life Insurance
102 million Americans are uninsured and/or underinsured…and they know they need (or need more) life insurance coverage.
Life Insurance — The insurance almost 100% of the people need…but yet, less than 60% of the people have. And the older you are, the less likely you have it and the more likely you need it.
Why is that? Do people think they are not going to die?
Do they not care about the potential financial burden they will leave to their spouse and/or children when they pass away?
Do they not realize how inexpensive life insurance is compared to the return their beneficiaries will receive?
Do they not see the value of life insurance?
Or, are they independently wealthy and have enough assets to cover any outstanding debt and provide an income for their spouse and family?
The Top Reasons People Buy Life Insurance…But Aren’t Necessarily The Best Reasons To Buy Life Insurance
According to LIMRA’s 2021 report, these are top reasons why people buy life insurance.
The Number 1 Reason | 84% for Burial and Final Expenses: These policies are known as “Burial Policies”, “Final Expense Insurance”, or “Memorial Funds.” You’ve no doubt seen the ads on TV and in magazines for years that say “For a $1 per day, you can have life insurance.”
When I read that 84% of the people buy life insurance to pay for their burial, I wonder why they:
- Don’t already have life insurance? And…
- Haven’t already set aside enough money to cover their burial and final expenses.
When you are younger (certainly under 60), buying life insurance for your future funeral, burial and final expenses should be near the bottom of the list for reasons to buy.
If you are over 60, don’t have substantial savings and are concerned about leaving a financial burden to your family…then you should consider a Final Expense policy.
These policies are marketed heavily to seniors as well as low-income, unhealthy people.
If someone genuinely needs some life insurance and this is all they can qualify for, then that’s fine.
If you are considering such a policy, then please call me first for a review and to see if there’s a better alternative.
Better Alternatives To Burial/Final Expense Policies:
- Term or Traditional Whole Life: For someone who is moderately healthy, a better alternative will be a term policy or traditional whole life policy…even if they are over 65. You will get more bang for your buck!
- Pre-Paid Funeral: A typical pre-paid funeral plan is a life insurance policy sold by a funeral home. What you may very well find is that you can purchase a pre-paid funeral policy to cover your funeral, burial and burial plot for less money.
The Number 2 Reason | 66% for Wealth Transfer: Purchasing, owning and using life insurance for wealth transfer is a much better reason as compared to paying for your future funeral and burial expenses.
Leaving your spouse, children or charity the proceeds from your life insurance can transfer a significant amount of wealth to them tax-free. The death benefit can be placed in a trust and money can systematically disbursed from the trust to your pre-determined beneficiaries.
Owning a life insurance policy for the purpose of transferring wealth to your beneficiaries upon your death, relieves you from worrying about spending and depleting your assets (savings, investments, home) and thereby leaving little to nothing to them. You are free to use your assets to cover your living and health expenses as needed and be at peace knowing that when you die, your beneficiaries will receive the funds from your life insurance policy.
The Number 3 Reason | 62% Income Replacement: In most cases, this should really be the number 1 reason why you buy life insurance…especially if you are younger with a spouse and young children.
But for a retiree, having a life insurance policy for the purpose of income replacement can be a good idea. If you are married, when you die, your surviving spouse’s Social Security Income will increase because of survivor benefits…but that new amount, though higher, will typically still be considerably less than what the combined amount was before your death. So, your life insurance policy death benefit can be:
- Put into a savings account and used to fill the income gaps as needed.
- Used to purchase an Immediate Annuity that can provide a guaranteed lifetime income to your spouse.
- Used to pay off a mortgage or other debt thereby lowering your spouses overall expenses.
The Number 4 Reason | 57% Supplement retirement income: Similar to the number 3 reason, but more specific for certain stage in life.
In this case, a Whole-Life or Universal Life policy is purchased and funded prior to retirement and usually much earlier in life. Upon retirement (or really any time) you have access to the cash value of the policy that you can withdraw from, tax-free, for income or other retirement expenses. Structured and understood correctly, this can be very advantageous in saving you tens of thousands of dollars in taxes over the remainder of your life.
These polices grow in value over time due to either earning interest, participating in market gain (Universal Life) or receiving dividends in a Whole-Life policy from a mutual insurance company.
The Number 5 Reason | 50% Pay off mortgage: This can be an excellent reason to purchase and own life insurance.
You can use life insurance to pay off a mortgage in a couple of ways:
- Your beneficiary uses the proceeds from the death benefit to pay off the mortgage and any other debt.
- You use the cash value that is in your Whole-Life or Universal Life policy to pay off your mortgage regardless of whether you have passed away or not.
Purchasing life insurance should start by your mid-20’s. The simplest and most affordable option is to purchase Term Life Insurance. But, both Whole Life and Universal Life should be taken into consideration. And, sometimes it’s never too late to purchase a life insurance policy.
Life Insurance Is A Protection Tool
- Protect your family
- Protect your business
- Ensure liabilities are cancelled
Remember, the main reason you have life insurance (or any insurance) is to protect your income and your assets (investments, savings, home) from being used and even used up in the event of catastrophic event. Does that make sense?
Sources:
1. https://www.limra.com/siteassets/newsroom/fact-tank/fact-sheets/facts-of-life-2021-format-vfinal.pdf
