Consumers who have the foresight to plan for the future can help their plans for retirement as well as reduce potential financial burdens on their family by using life insurance. Two out of three Americans are concerned about having enough money for retirement and more than one out of three are concerned about burdening their dependents if they die prematurely (Durham). Life insurance can connect retirement plans and the concerns of providing for one’s family.
Family birth certificates, marriage certificate, deeds of ownership, paychecks and retirement accounts have one thing in common: they represent something that most people care about. There is one class of asset that can connect all of them, life insurance. It provides for your spouse and children as well as paying off financial obligations such as your home mortgage, and it can offer a paycheck at retirement in the right circumstances.
In general there are two types of life insurance, term and permanent. Term insurance only pays if you die. It is purchased for one year or more. If purchased on a year to year basis, the price will increase year by year. Life insurance that is purchased for a particular period, such as ten-years, may be more expensive than the yearly term; however its cost remains level for the ten-year term of the policy. Term policies do not accumulate any cash value.
In brief, permanent policies allow consumers to build money year by year until the death benefit equals the cash value of the policy. When the cash value equals the death benefit, it is called endowing. In many instances but not all, over a period of years the cost of life insurance is cheaper in a permanent life insurance policy. Why then does not everyone buy permanent life insurance if it is cheaper in the long run? The answer is cash flow. Term life insurance policies are less expensive in the beginning years and become more expensive in years beyond their fixed term. For those who have the foresight and the cash flow, permanent life insurance can add money to retirement savings if the owner lives in retirement years.
A quick internet search of how to find the best life insurance policy quickly leads to buying the cheapest term life insurance and that may be the best option for some. However, all of the attention to a one-size-fits-all product has led a large number of consumers to be skeptical. Thirty-eight percent of people have not purchased life insurance or more of it because they are unsure of how much or what type to buy (Durham). Life insurance serves many purposes, and several top corporations offer life insurance policies as a part of employees’ compensation. Last year General Electric paid $314,511 for a $22 million dollar life insurance policy on its CEO, Jeffery Immelt (Melin)
Permanent life insurance (except for variable life insurance) can serve as a long term conservative asset class with significant tax benefits. Yet the most significant benefit of all life insurance is the tax free death benefit. Over the past 27 years, I have delivered six checks for life insurance death benefits. These were real everyday people: a police officer, a nurse, a flooring store owner, a heating & air conditioning business owner, a manufacturing business owner and my father-in-law. Fifty percent were term insurance, and fifty percent were permanent life insurance. The real key was that even though they did not know what the future would hold, they knew their family would need help without them. A well-planned life insurance policy can pay in the event that the owner dies or be a part of the owners’ retirement.
Melin, Anders. “GE’s Death Perk for Immelt Is a $22 Million Life Insurance Benefit.” Bloomberg.com. Bloomberg, 20 Aug. 2015. Web. 8 Sept. 2015.
Durham, Ashley. Insurance Barometer Study, Life Happens & LIMRA, 2015. Lifehappens.org, 8 Sept. 2015