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7 reasons to buy life insurance in a turbulent economy
7 reasons to buy life insurance during a turbulent economy
Advisors provide their top reasons why consumers need coverage.
By Doug Bailey
Ask an agent about the best time to buy life insurance and the answer will likely be “now” or “anytime.” But consumers watching the value of their 401(k)s decline in this inflationary era as interest rates spiral may want to know if perhaps life insurance is a particularly good option to supplement investments and retirement accounts during a down economy. And if it is, why? We put the question to financial planners and insurance experts. Not surprisingly, they agreed it was a good time to buy life insurance. But their reasons differed.
Why buy life insurance during turbulent economic times?
1Portfolio diversification
One of the advantages of purchasing life insurance during a time of a bear market and rising interest rates is for portfolio diversification. Life insurance companies offer some unique policies that allow you not only to protect your family or business, but also to gain some portfolio diversification that offers guarantees. One of the unique product offerings from some life insurance companies is called indexed universal life. In its simplest terms, indexed universal life offers life insurance protection, along with potential growth tied to an outside 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 potentially earn marketlike returns. One of the best features of this product can be that once these linked returns are credited to your account, they cannot be lost in a future down market. This allows you the potential for equity growth with no loss. — Mike Raines, Owner/agent at Raines Insurance Group, Cumming, Ga.
2Asset leveraging
There are so many types, flavors and variations of life insurance used for so many different situations.
People buy life insurance because it allows them to leverage their other assets without the fear of ultimately losing them. It is the ultimate force multiplier. Own a business? You can get a loan to pay your life insurance premiums that will allow you to access the money you have locked up in bricks and mortar and machinery — and you can utilize those assets without ever having to repay the principal on the loans. Owning an business and having too many passive assets can lead to your paying too much in taxes. Life insurance can help solve that too.
Life insurance is useful if you make a lot of money, it is useful if you have a tax problem, and it is useful if you die too young.
It is useful if you live too long or if you are seriously ill. If you invest badly, it’s your backup plan. If you invest well, it can help pay future taxes. It allows you to maximize the lifetime value of other assets you have by allowing you to use them and still create intergenerational wealth. It can even protect you from bankruptcy. Life insurance provides dignity. — Naoshad Pochkhanawala, estate and financial planner, Chartered Life Underwriter at Amiko Benefits, Toronto, Ont.
3Accumulate cash
Is there the “right” economic time to buy life insurance? Depending on the type of policy one is purchasing, rising interest rates can be beneficial for life insurance. Permanent policies, unlike term policies, accumulate cash value. The cash value inside the policy grows tax-deferred, and depending on the type of policy, the interest rate credited to the policy could be directly affected by the current interest rates. An insurance company uses the premium a policy owner is paying for the policy and invests it. Many of those investments are interest-rate sensitive, and as the interest rates rise, so does the amount the insurance company is earning on its investment portfolio (which includes policyholder premiums), and therefore more interest is credited to the policy owner’s cash value.
The other reason to purchase more insurance in inflationary times is any existing death benefit will be worth less than it was worth prior to inflation increases. If you own a policy with a death benefit of $50,000, for example, that $50,000 will have less buying power following an inflationary period. Goods and services cost more than they did just a few years ago. If you determined your beneficiaries needed $50,000 a few years ago, they may need more than that today due to the higher costs of living. — Mark Williams, CEO of Brokers International
4Peace of mind
If the economy is turbulent, as it is now — with rising inflation and higher interest rates — clients tend to start feeling poorer or less wealthy, and again life insurance comes into play to shore up their investments and assets and help them feel more secure. Either having a long level-term life insurance policy in place for an extended period of time or designing a permanent life insurance policy for someone’s lifetime is very relevant — irrespective of the economy. — David E. Appel, MDRT member, managing partner at Appel Insurance Advisors, Newton, Mass.
5Protection
It’s taboo to consider what may happen due to an unfortunate passing, but it’s vital to put protection in place for loved ones. According to Life Happens and LIMRA, 44% of folks say in less than six months they would feel the financial strain after the death of a primary wage earner.
Each individual should decide for themself whether a life insurance policy is a sound investment based on their needs, what they are trying to protect and for how long they are seeking protection. If a consumer is looking for a life insurance product that builds cash value and offers a guaranteed rate of return, a whole life insurance policy could be an ideal product. If the consumer is looking for protection for a specific period of time, wants to protect their income, or wants protection to pay off their mortgage or other debts upon their unfortunate passing, a term life insurance policy may be a better solution. For older consumers who are looking to pay for funeral expenses or pay off credit card debt, a final expense insurance policy is likely the best option.
Inflation may be putting a strain on discretionary income, making it hard for people to consider this investment, but with new digital tools, it’s never been easier to apply for a policy online within minutes and be given options custom to unique budgets. — Jim Reboin, chief revenue officer of Afficiency, a New York City-based digital distributor of life insurance.
6Safety and security
During the pandemic, many people fundamentally shifted their attitudes toward core life priorities such as health and wealth, and they are turning to life insurance to support their new aspirations to live longer, healthier and better lives.
They are also looking for more safe and secure places to put their dollars, and if structured properly, permanent life insurance cash value accounts offer stated and guaranteed yields while protecting these dollars from IRS intervention, offering immediate liquidity through tax-free loans and withdrawals and potentially taxfree growth of those dollars.
Life insurance offers more than just benefits to your loved ones after you’re gone. Today’s life insurance industry has made major strides to create “living benefits” such as the ability to access the policy face amount tax-free to provide for the named insured to use for long-term care or chronic illness needs. This is a valuable benefit given the constantly increasing premiums for stand-alone LTC policies.
Permanent life insurance is more than just a death benefit paid to your chosen beneficiaries. When structured correctly, it can be a great source for building and protecting wealth. — Brian Carden, author of Castles & Moats, Insurance, Investment, and Life Planning Simply Explained
7For family
I never realized how influential the economy can be on how people make financial decisions, and it’s interesting that when money is good, people forget it will inevitably pass. When the market takes a turn, people tend to think about their financial position more seriously.
Unfortunately, sometimes life insurance has a negative connotation, so people tend to avoid it and only start to think about their financial situation when they are forced to do so.
It is always best to put your family first and secure financial stability while you still can. — Shawn Meaike, founder and president of the Connecticut-based life insurance company Family First Life.
Doug Bailey is a journalist and freelance writer who lives outside Boston. He can be reached at doug.bailey@innfeedback.com.
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Survey: Americans warming up to lifetime income
48% believe their retirement savings and income will last in retirement. 35% believe they will be able to fund their “wants” in retirement. 50% are more interested in protecting retirement income since the start of pandemic.
Source: Alliance for Lifetime Income and CANNEX
Maybe it’s the COVID-19 pandemic, or perhaps it’s inflation. Maybe it’s just the general economic malaise.
But Americans are loving lifetime income more than ever, a new survey finds. According to the third Protected Retirement Income and Planning Study from the Alliance for Lifetime Income and CANNEX, fewer than half of respondents (48%) believe their retirement savings and sources of income will last them throughout their lifetime — a 13% drop from a year ago.
The survey reveals a notable lack of financial preparation for the future. Despite
mounting economic concerns, nearly one-quarter of consumers don’t have any kind of financial plan, and another quarter (28%) have an overall direction in mind but no financial plan to get there.
Nearly half of nonretired consumers ages 45-75 are saving less than 10% of their annual income for retirement. Among those not yet retired who are advised by a financial professional, only three out of 10 have both talked with their financial professional and have a plan in place in the event they retire early.
LIFE/ANNUITY INCOME UP 62%, REPORT FINDS
It is a good time to be selling life insurance and annuities, a new AM Best report finds.
Net income for the U.S. life/annuity insurance industry increased by 62% in the first half of 2021, rising to $20.9 billion from $12.9 billion in the same prior-year period, according to the report.
The data is derived from companies’ sixmonth 2022 interim statutory statements received as of Sept. 8, 2022, representing an estimated 99% of total industry premiums and annuity considerations, AM Best said.
Total income in the L/A industry rose 3.2% to $478.8 billion from the prior-year period, driven by a 5.3% increase in net investment income and a 161.9% rise in other income. Total expenses for the industry
grew 4.6%, largely due to a $12.2 billion reduction in net transfers to separate ac-
counts, AM Best reported.
REGULATORS LOOK TO TIGHTEN INDEXED-LINKED ANNUITY REGS
Inclusion of a “market value adjustment” remains a sticking point as state insurance regulators close in on a new actuarial guideline to fit trendy indexed-linked annuities into variable annuity nonforfeiture rules.
The Index-Linked Variable Annuity Subgroup was created last year by a National Association of Insurance Commissioners task force to focus solely on the index-linked annuity products — known variously as structured, buffered or registered indexed-linked annuities.
While classified as variable annuities, the indexed-linked products do not fit into Model 250, which includes the nonforfeiture rules that determine how much money a contract holder can get back if they give up the annuity.
With the indexed-linked products, daily values are not based on the value of units of a separate account. Rather, the daily values are based on formulas set forth in the contract. The subgroup developed an actuarial guideline for technical changes to values that would bring the indexed-linked products in line with traditional VAs.
QUOTABLE
You would think that retirement-based products like annuities would be growing a lot more than just holding steady.
— Carmi Margalit, life insurance sector lead, S&P Global Ratings
POTENTIAL BENEFITS OF RILA ACT TOUTED
A group of industry trade associations pressed the House Finance Committee to bring to the House floor for a vote stalled legislation to reduce market barriers for the sale of registered index-linked annuities.
The group sent a letter to committee chair Maxine Waters, D-Calif., and ranking member Patrick McHenry, R-N.C., asking for a vote on the RILA Act. The
bill would lower barriers to retirement income products by requiring the Securities and Exchange Commission to revise rules regarding developing and offering certain annuity products, including RILAs.
Signatories of the letter include the American Council of Life Insurers, Committee of Annuity Insurers, Finseca, the Insured Retirement Institute and the National Association of Insurance and Financial Advisors. The bill remained stalled as of press deadline.
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