According to A.M. Best, an insurance rating company, less than 50% of U.S. households have life insurance outside of what’s provided by their employer. This statistic begs the question – why have so many individuals abandoned their life insurance needs? There’s not a one-size-fits-all answer to such a question, but there are a couple of common contributing factors.
One factor is the alleged product misrepresentations cited in class-action lawsuits against several life insurance companies. Another factor is that much of the media focus today is centered around individuals living much longer than previous generations and the resulting need to prepare for retirement adequately. This focus has caused many Americans to redirect their attention toward saving for retirement and placing their money into tax-favored accounts. Consumer trending hasn’t gone unnoticed by life insurance companies. Even though most individuals don’t consider life insurance a good investment option, many insurers have been heavily marketing the investment side of life insurance policies instead of the death benefit aspect.
The First Protection
The protection life insurance provides through its death benefit is and always has been the main reason individuals purchase life insurance policies. The funds a life insurance policy beneficiary receives can replace the income lost by the death of the policyholder. It can also help to secure the future needs of the policyholder’s spouse, children, or other dependents, such as college funding.
Investments can be an essential aspect of funding retirement. That said, investing in the stock market can never be a substitute for a life insurance policy.
First, a life insurance policyholder has a guaranteed monetary return for the dollars paid in premiums. Since a return on money invested in mutual funds and stocks is never guaranteed, even under ideal market conditions, the same can’t be said of these types of investments. This is precisely why most brokers warn their clients not to invest more money than they can afford to lose. Even individuals with a stock portfolio with a reasonable rate of return must wait while it amasses over time and becomes substantial enough to meet their family’s long-term financial needs. A person can die before their stock portfolio makes enough money to cover their family’s long-term needs.
Secondly, stock portfolio values fluctuate; as the market conditions change, so will the value of a stock portfolio. The inconsistency of stocks can create significant problems when an individual tries to ensure that their family’s long-term financial needs will be met if they die unexpectedly. For example, if the death occurs while the stock market is in a down cycle and the survivors must sell the assets, they won’t net as much money as planned and will also pay capital gains taxes. On the other hand, the beneficiary of an adequately prepared life insurance policy will receive the death benefit tax-free.
Don’t Overlook the Basics
In closing, don’t mistakenly underestimate or overlook the value of a life insurance policy. Brian, a Licensed Insurance Planner, can help you determine the type and amount of coverage that best suits your needs. Give him a call or text today at 352-508-4221