So life insurance isn’t the most captivating dinner conversation. That doesn’t mean it’s not a worthwhile topic. In fact, recent reports about shifts in the U.S. life insurance industry reveal some interesting information.
Despite over $20 trillion in life insurance coverage, 16% of Americans (41 million people) could benefit from life insurance yet don’t have it…
- Term – 03%
- Whole Life – 04%
- Universal Life – 29%
- Variable Life – 72%
Considering the lifestyle and employment changes over the course of the average person’s life, people should want insurance, even if they believe they don’t. After all, people want to have certainty in their finances. The reality is, many people lack information about how insurance creates certainty.
The Nuts and Bolts: Who Assumes the Risk?
A life insurance policy has three sections: the cost of insurance, the operating expense of the company, and the return generated from the collected premiums.
Term insurance is the cheapest insurance (though not necessarily the best value).
Term insurance is insurance for a period of your life, often 25-60, and has no cash value. Despite its popularity, about 88% of consumers don’t receive benefits, because the policy is in force when the risk of dying is at its lowest.
Prices spike at age 60 because the likelihood of death is much more significant. Term insurance works best in conjunction with whole life insurance, to provide full coverage and peace of mind.
Unlike Term, Whole Life Insurance includes a cash value.
Term insurance is cheap because the companies bear almost no risk. Whole life insurance, on the other hand, is guaranteed to payout. Therefore, the company assumes all the risks. And the opportunities afforded by the cash value, which eventually exceeds premiums paid, are priceless.
Life Insurance Benefits
How Life Insurance Premiums Work
Average term life insurance costs for a 20 or 30-year-old nonsmoker can range from $10-$50 each month. This can seem like a bargain, however, prices increase dramatically at a certain age, and can be tens of thousands of dollars overnight. Term insurance may seem like an affordable, “set-it-and-forget-it” solution, yet it only lasts for a term of your life. Therefore, it shouldn’t be your sole source of insurance if you’re seeking liquidity, flexibility, and certainty.
Whole life insurance, on the other hand, locks in your premium payment for life. And while you’ll get a more favorable premium when you’re younger, you don’t have to worry that costs will increase. In uncertain times, that greater financial certainty can help soften the blow in the case of a job loss or other event. Because companies charge a level premium over your lifetime, they can meet contractual guarantees, like the death benefit.
The price may seem higher, yet you’re paying for lifetime service and the guaranteed event of death, rather than a short term period where you may not even use the insurance.
What is Cash Value Insurance?
The cash value component is perhaps one of the greatest benefits to a whole life insurance policy, because it provides a place to store cash that is liquid and guaranteed to increase. While term life insurance can create peace of mind, it doesn’t have a cash component.
The cash value of a life insurance policy is not only an emergency fund, it’s a fund for opportunities. Policy loans, can help you fund a new business venture, make an investment, or support a loss of income. The sooner you begin a policy, the sooner you can have that peace of mind.
Being a “High-Risk” Insured
Consumers who enjoy extreme sports are in high-risk categories. Or, those with high-risk or high-stress jobs like construction and sales. Illness and injury become likelier with age, so having permanent insurance in place can act as a certainty net. (Thrill-seekers and those in high-risk environments should state their hobbies honestly on their applications.)
Disclosing an extreme hobby might increase the base premium, however, you can still walk away insured. Simply put, policyholders can still leave their loved ones with a death benefit despite the slight premium increase.
And, with the right policy riders, you can even use your whole life insurance policy as disability income or long-term care coverage. So if you’re a thrill-seeker, don’t discount the value of a whole life policy. It can give you certainty and peace of mind, so you can continue to live your life at high speeds.
Protection for Business Owners
Even business owners can protect their businesses with whole life insurance. In the event of the insured’s death or disability, employees can receive payment if the policy includes “buy/sell agreements” or a “key person” as stipulated in their policy.
With these policies, the other owner or higher up in a business acts as the beneficiary. As a business owner, having a whole life insurance policy can also help you support your business in the event you become disabled. You can setup a policy so that if you become unable to work, you can get early access to capital to support your business.
Start Your First Policy Today
Doing the research, understanding different policies, and working with an advisor who understands you are paramount. Do you currently have an insurance policy? There’s no better time than the present to meet with an advisor.
Contact us to be put in touch with a Prosperity Economics Advisor who can help you design a policy that works for you.