Ask a broker about the best time to get life insurance and the answer will likely be “now” or “anytime.” But consumers watching the value of their 401k plummet in this inflationary era as interest rates skyrocket may want to know if life insurance might be a particularly good option to supplement investments and retirement accounts during an economic downturn. And if so, why? We put the question to several financial planners and insurance experts. Not surprisingly, they agreed it was a good time to get life insurance. But their reasons were different.
Why take out life insurance in economically turbulent times?
1. Portfolio diversification
One of the benefits of buying life insurance during a bear market and rising interest rate period is portfolio diversification. Life insurance companies offer some unique policies that allow you to not only protect your family or business, but also give you some portfolio diversification that offers guarantees. One of the unique product offerings of some life insurance companies is called Indexed Universal Life. In its simplest form, indexed universal life provides life insurance coverage along with potential growth tied to an external index such as the S&P 500 or others. These policies allow you to use a portion of your premium payment to grow tax-deferred and generate potentially market-like returns. One of the best features of this product may be that once these linked returns are credited to your account, they cannot be lost in a future market decline. This allows you the potential for lossless stock growth.
— Mike Raines, owner/agent of Raines Insurance Group, Valparaiso, Indiana.
2. Use of Assets
There are so many types, flavors and variations of life insurance that are used for so many different situations.
People buy life insurance because it allows them to use their other assets without fear of eventually losing them. It’s the ultimate power multiplier. Do you own a business? You can get a loan to pay your life insurance premiums, which allows you to access the money you’ve locked away in bricks and mortar and machines – and you can use those assets without ever having to pay back the principal on the loans . Own a business and have too many passive assets causing you to pay too much in taxes. Life insurance can also help here.
Life insurance is useful when you make a lot of money, useful when you have a tax problem, useful when you die early. It is useful when you live too long or when you are seriously ill. If you’re investing poorly, it’s your backup plan. Investing well can help pay future taxes. It allows you to maximize the lifetime value of other assets you have, allowing you to use them and still create generational wealth. It can even protect you from bankruptcy. Life insurance gives dignity.
— Naoshad Pochkhanawala, Estate and Financial Planner, Chartered Life Underwriter at Amiko Benefits Inc., Toronto, Ontario.
3. Collect cash
Is there an economically “right” time to take out life insurance? Depending on the type of policy, rising interest rates can be beneficial for life insurance. Perpetual policies, unlike term policies, accumulate cash values. The cash value within the policy grows in a tax-advantaged manner and depending on the type of policy, the interest rate credited to the policy may be directly affected by current interest rates. An insurance company uses and invests the premium that a policyholder pays for the policy. Many of these investments are interest rate sensitive, and as interest rates rise, so does the amount the insurance company earns from its portfolio of investments (including policyholder premiums) and therefore more interest is credited to policyholder cash value. The other reason to buy more insurance in times of inflation is that an existing death benefit is worth less than it was before inflation started to rise. For example, if you have a policy with a $50,000 death benefit, that $50,000 becomes worth less in times of high inflation. The amount we spend on goods and services costs more than just a few years ago. If you determined a few years ago that your beneficiaries needed $50,000, today they may need more than that due to the higher cost of living.
– Mark Williams, CEO of Broker International
4. Peace of mind
When the economy is as turbulent as it is now – with rising inflation and higher interest rates – customers tend to feel poorer or less wealthy, and again life insurance comes into play to shore up their investments and assets and help them feel more secure . Taking out long-term life insurance for a longer period of time or designing permanent life insurance for someone’s life is very relevant – regardless of the economic situation.
— David E. Appel, MDRT Member, Managing Partner at Appel Insurance Advisors, LLC, Newton, Mass.
5. Protection
It’s taboo to think about what could happen as a result of an unfortunate death, but it’s important to provide protection for loved ones. According to Life Happens and LIMRA, 44% of people say they would feel the financial strain of the death of a key breadwinner in less than six months.
Everyone should decide for themselves whether life insurance is a worthwhile investment, based on their needs, what they want to protect and how long they want protection. When a consumer is looking for a life insurance product that builds cash value and offers a guaranteed return, a life insurance policy could be an ideal product. If the consumer is looking for protection for a period of time, wants to protect their income, or wants protection to pay off their mortgage or other debt in the event of their unfortunate death, term life insurance may be a better solution. For older consumers who want to pay funeral expenses or pay off credit card debt, terminal expense insurance is probably the best option.
Inflation can weigh on discretionary income and make it difficult for people to consider this investment, but with new digital tools, it’s never been easier to apply for a policy online in minutes and get options tailored to unique budgets are tailored.
– Jim Reboin, Chief Revenue Officer of Afficiency, a New York City-based digital life insurance distributor.
6. Security and Protection
During the pandemic, many people have fundamentally changed their attitudes toward core life priorities like health and wealth, and are turning to life insurance to support their new aspirations to live longer, healthier, and better lives.
They are also looking for safer places to invest their dollars and when properly structured, permanent life cash value accounts offer reported and guaranteed returns while protecting those dollars from IRS interference and providing instant liquidity through tax-free loans and withdrawals and potentially tax-free growth of those dollars.
Life insurance offers more than just benefits for your loved ones after your death. Today’s life insurance industry has made great strides in creating “vital benefits” such as: For example, the ability to access policy face value tax-free to use the named insured for long-term care or chronic disease needs. With premiums for standalone long-term care insurance steadily increasing, this is a valuable benefit.
Permanent life insurance is more than just a death benefit paid to your chosen beneficiaries. When properly structured, it can be a great source for wealth building and wealth protection.
— Brian Carden, author of Castles & Moats, Insurance, Investment, and Life Planning Simply Explained
7. For the family
I never realized how influential economics can be on how people make financial decisions, and it’s interesting that when money is good, people forget that it inevitably goes away. When the market turns, people tend to think more seriously about their financial situation.
Unfortunately, life insurance sometimes has a negative connotation that people tend to avoid and only start worrying about their financial situation when they are forced to.
It’s always best to put your family first and secure financial stability while you’re still alive.
The best day to buy life insurance is today, not yesterday.
— Shawn Meaike, founder and president of Connecticut-based life insurance company Family First Life
Doug Bailey is a journalist and freelance writer based outside of Boston. He can be reached at [email protected].
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