Life insurance is a versatile financial tool that can play a critical role in a family’s overall financial strategy. However, too often, it’s overlooked and seen as a tool that can play only a more limited role.
Here are several statistics that show how Americans feel about life insurance:
- The top reason for not purchasing life insurance is that it is too expensive. However, only 31% of Americans say they are knowledgeable about life insurance, which may be why more than 50% greatly overestimate the cost of a policy.1
- Roughly half of Americans (53%) say they are hesitant to buy life insurance, or boost existing coverage, because they are unsure how much they need or what type of policy to buy.1
- Seven out of 10 people are unsure how insurance benefits are taxed: 30% believe benefits are taxed, and 40% are uncertain. In most instances, the proceeds from a life insurance death benefit are not taxed.2
If you have questions about life insurance, we can help. Policies can have language that might be difficult to understand, but we can break the concepts down so you are more comfortable. Life insurance can play a critical role in a family’s finances, so we welcome the opportunity to help you better understand what a policy can and can’t do.
“Give proper recognition to those widows who are really in need. But if a widow has children or grandchildren, these should… put their religion into practice… If anyone does not provide for his relatives… he has denied the faith.” Timothy 5:3-8
Several factors will affect the cost and availability of life insurance, including age, health, and the type and amount of insurance purchased. Before buying, be sure to understand the policy charges and fees. If a policy is surrendered prematurely, the policyholder may also pay surrender charges. And the policy may have income tax implications.
In addition, it’s important to determine whether you are insurable before considering a financial 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.
One of the primary reasons people buy life insurance is for income replacement. Life insurance can be designed to provide financial support to your loved ones when you die. For example, a policy can be structured to help your family maintain their buying power, which might mean that they can stay in their home and the children can attend the same schools.
Another key role of life insurance is during the creation of an estate strategy. A policy can help provide the necessary funds to pay for potential estate taxes, as well as pay for certain end-of-life expenses. A properly structured policy can help transfer wealth to family members efficiently.
Life insurance can play a special role for business owners. If there are two business partners, for example, life insurance can be structured to help ensure that the business is passed to the living partner in the event of one partner’s death.
A detailed needs analysis (DNA) can help you better assess how much life insurance you may need. A DNA helps examine short-term needs, longer-term needs, and any potential new obligations that may have been overlooked. Once your needs and obligations are outlined, a DNA test evaluates your finances to see which assets can be easily exchanged for cash.
- LIMRA.com, 2022
- Bankrate.com, October 18, 2022