Today’s post is about understanding the hidden benefits that life insurance offers. Survey after survey demonstrates that consumers do not fully understand the full package of benefits they can buy with life insurance.
Most of today’s life insurance products provide a comprehensive set of benefits that provide cash to the buyer if a certain triggering event takes place. Examples include if the insured dies prematurely, becomes terminally ill or has a critical or debilitating illness. Cash value policies allow access to cash in case of an emergency or make it possible to create supplemental tax-advantaged income for the buyer’s later years.
These benefits are sometimes included in the coverage purchased or are available for an additional charge when purchased with the basic coverage for premature death. In the past ten years, the breadth of what are called living, rather than death-triggered, benefits offered by life insurance companies has increased substantially as the impact of new technologies and product innovation has come to the industry.
The ability to purchase one product and at the same time protect against multiple financial risks for one lower, combined price is why you need to consider purchasing the product as part of your financial protection arsenal. You can also gain significant income tax advantages with life insurance through tax-advantaged benefits and the use of loans. This is not widely known or understood by most consumers. Let’s look at the key benefits you get when purchasing a life insurance policy.
Protection against the risk of dying too soon. The key reasons you work are to pay for current living expenses and to accumulate savings for the later years of your life when you can no longer actively work because of age, health or personal preference. If you die too soon, you will be unable to accumulate cash to pay for your funeral expenses (these can range from $5,000 to $20,000 depending on the type of service chosen), final expenses, your potential desire to create a legacy for others or the cost of supporting any dependents you may have such as children, a partner or aging parents (in situations) where you are the key caregiver.
How do you get the cash to pay for this shortfall in your expected savings? Would you want your dependents to have to sell the family home or other assets to pay for the costs related to your untimely passing? How would these sudden changes make your family feel? That is what life insurance does—it provides money for future delivery when it is needed most.
Protection against the risk of a debilitating illness. Your most significant financial asset in the FinancialVerse will likely be your ability to earn cash income by working in your chosen field, trade, or profession. But suppose just after investing in that education or training and starting your dream job, you are struck down by a debilitating illness. This is not your fault, but such unplanned life events or crises happen in the FinancialVerse.
If you are struck with an illness, what happens to the future income you planned on earning? What happens to your planned savings for the later years of your life or that of your partner’s? How do you provide for your family if this happens? How do you protect against this risk? It is thought that about 35 percent of working individuals will have an event that will make them disabled for some period of time during their active-earning years. The answer to these questions lies in disability benefits provided by life insurance, government disability programs or by purchasing private disability income insurance.
If you are unfortunate and become disabled and unable to work, the federal and state governments have programs that can help you, if you qualify. These programs include Social Security disability and workers’ compensation insurance at the state level. The positive news is that these programs exist; the negative news is that the income these programs provide will likely be insufficient to fully meet your financial needs. To supplement these programs and replace your full after-tax income you should consider having private life or disability income protection.
Private disability insurance will usually pay, based on certain restrictions, about 65 percent of your pre-disability earnings until such time as you recover and can return to work or hit age sixty-five, whichever is the longer time period. Most life insurance policies are designed such that, for an additional cost, the policy will remain in force and premium payments will automatically continue to be made so that cash will continue to accumulate as planned. In addition, there are policies that will pay a certain income based on the amount of the policy in case of permanent or total disability.
You can get this insurance coverage by purchasing a personal policy from a life insurance company or, if your employer offers this type of coverage, buying a policy as part of an employee benefit plan through your company’s benefits election. My best advice to you is to seek a licensed insurance agent to walk you through the best, most cost-effective strategy to obtain sufficient disability and medical cost coverage. It should be an essential part of your protection program to mitigate the risk of having a disability.
Protection against the risk of living too long. On the other side of the risk spectrum, suppose your life goes really well from a health standpoint and you reach the later stages of your life without having to use the death, disability, emergency funds and/or critical illness benefits of your life insurance policy. If it is a cash value policy, you can instead use the cash accumulated in that policy for the third of your financial risks—the risk of living too long.
Based on the type of policy you have purchased and its options you can create supplemental streams of income by using the loan features of the contract or by converting the cash value into an income annuity.
Summary
Do you understand the benefits that life insurance products offer? You purchase this product for the protections it provides. You buy because you have financial risks in your life that life insurance can address on a contractual, guaranteed and cost-effective basis. Life insurance provides money for future delivery for a growing variety of needs. Please take the time to understand what benefits you are buying and how they improve your financial security now and in the future.
To discover the answers to key questions of buying life insurance and to get more information on the benefits of coverage, check out The FinancialVerse: Today’s Life Insurance — A Protection Tool for Your Future.
This book will help you prepare to meet with a financial professional and apply for the life insurance coverage that you need. Order your copy today!