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Category: Life Insurance

Life Insurance

4 Recent Innovations in Life Insurance Policies

September 21, 2022

Life insurance is no longer constrained to the inflexible policies our parents held. Here are some of the latest additions and innovations to give you more options than ever.

Today’s life insurance policies are not the policies our parents and grandparents grew up with and purchased. They offer more features and more customization, at a price lower than many consumers expect to pay.

In fact, a recent study showed that more than 50% of people assume that the cost of life insurance is three times higher than it actually is [1]. Furthermore, 44% of millennials, a group whose net worth continues to rise more rapidly than any other generation [2], overestimate the cost of term life insurance by more than six times.

Price, however, isn’t the only barrier holding people back from looking at what life insurance has to offer. Lack of information, explanation and time to research options, combined with the fact that no one enjoys thinking about and planning ahead for their own death, can make life insurance a tough subject.

New life insurance policy features are designed to quell those worries, as insurance companies look for more ways to build client-oriented policies. Here are some of the latest innovations in the life insurance industry:

  1. Cash Value Component and Living Benefits

Life insurance used to be exactly what it might sound like: insurance for your life. In the event of their unexpected death, policyholders wanted to protect their families, usually by purchasing term life insurance. Term life insurance covers policyholders for a predetermined period of time, typically for a low monthly rate.

Now, carriers offer whole and universal life insurance, which are permanent policies with a tax-deferred cash value component that allows retirement planners to create another avenue to build a nest egg, or savers to save for other things, like college or self-funding a business startup venture. Though the cash value component often increases the monthly premium costs, with these types of policies, the cash value can grow at a rate guaranteed by the claims-paying ability of the insurance company.

One advantage of universal life as opposed to whole life is flexible premiums, allowing you to increase or decrease your premium and the amount that goes toward your cash value. Indexed universal life, a type of universal life insurance, can offer principal protection with market upside potential in correlation with a market index or indexes. (It’s important to understand that indexed universal life is a contract between a consumer and an insurance company, and unlike variable life insurance, isn’t actually subject to stock market risk.)

Permanent life insurance policies that can build cash value can be a good option for healthy younger investors with time and low likelihood of death in the near future. Depending on their situation, healthy retirees can also sometimes benefit from single-premium permanent life insurance which can provide tax-advantaged retirement income.

  1. Long-Term Care Hybrid Policies

Just as no one enjoys planning for their own death, no one likes to imagine needing long-term care. Unfortunately, 70% of people currently age 65 or older in America will need long-term care, with 20% needing support for longer than five years [3}. Additionally, Medicare does not cover long-term care, necessitating some sort of plan to pay for long-term care to avoid the accelerated depletion of funds in retirement.

One solution to the problem is a modern life insurance and long-term care hybrid plan. Obviously, the main sticking point and fear when it came to traditional long-term care insurance was the potential for not needing long-term care, and that fear was completely rational and well-founded. Older policies were “use-it-or-lose-it.” If you didn’t end up needing long-term care, all of those premiums you paid through the years were for nothing.

Now, hybrid policies provide flexibility. Policyholders have the ability to use their benefit to fund long-term care if they need it. If they don’t need it, it becomes a death benefit provided to their beneficiaries.

  1. Riders

One of the biggest expansions in life insurance is in the way you can customize a policy to your needs using a wide array of options available as riders that can be added to an insurance policy. A guaranteed insurability rider, for example, allows the policyholder to purchase more coverage without additional medical examination. It can be helpful to have a guaranteed insurability rider if you expect changes in circumstances that would have affected your original premiums.

Accidental death riders are also common, usually doubling the death benefit in the event that the policyholder dies in an accident. Additionally, accelerated death benefit riders can give the policyholder access to the death benefit if diagnosed with a terminal illness [4]. The amount accessed is typically subtracted from the death benefit, meaning that the policyholder’s beneficiaries receive a smaller death benefit, but it’s yet another example of a feature allowing access to funds during life.

  1. Better Support for Policyholders

Whether it be because of life insurance riders or enhanced operations, life insurance does not have to be difficult to obtain. Modern technology, increased access to better medical information and simplified underwriting have helped innovative companies that are always looking for ways to reach broader audiences with better products.

With an independent financial advisor who works with multiple insurance companies, you can find the insurance policy that suits your own unique situation and budget, with the most beneficial features and/or riders for your needs.

If you have any questions about life insurance and the latest advancements, please give us a call! You can reach your private wealth advisor at Silverhawk Private Wealth by calling 480.296.0200. We have offices across the United States to serve you. 

 

Sources:

  1. https://lifehappens.org/research/life-insurance-is-on-peoples-minds/
  2. https://www.cerulli.com/press-releases/millennials-want-more-advice-and-are-willing-to-pay-for-it
  3. https://www.annuity.org/retirement/planning/average-retirement-income/
  4. https://www.investopedia.com/articles/pf/07/life_insurance_rider.asp

 

5 Reasons to Consider Life Insurance

September 23, 2021

September is “Life Insurance Awareness Month.” Is your family using life insurance in the right ways as part of your comprehensive financial plan? Here are five reasons you should consider life insurance.

  1. You Have a Young Family1

Even though the pandemic has shown us all the need for financial protection for the family from sudden death or disability, there are roughly 102 million uninsured and underinsured Americans, representing 40% of the adult population according to the 2021 Insurance Barometer Study by LIMRA. One of the reasons cited was a lack of basic information about life insurance; less than a third of consumers said they were “very” or “extremely” knowledgeable about it.

Life insurance policies have completely changed in the last two decades. According to LIMRA research, simplified underwriting means that many term life policies don’t even require a medical exam anymore, depending on your age and general health. Term life insurance can be much less expensive than you think; the research showed that healthy 30-year-olds often overestimate costs by 5x.

Another reason people say they don’t pursue life insurance is that they have a policy through work. But even though you may have a small policy at your workplace, usually $20,000 or so according to the U.S. Bureau of Labor Statistics, these policies are often in place to help with burial costs and final expenses. In order to cover your family’s finances adequately, consider mortgage costs, existing debt, health care, living expenses for your spouse and children, and future college expenses for your children in order to get an idea of how much protection you should have.

  1. You Need More Tax-Advantaged Wealth Transfer2

Depending on your situation, if you are a business owner or person of high net worth, you may want to consider life insurance as an option as part of your succession and/or estate plan. Most of the time, life insurance passes to beneficiaries and heirs tax-free, and there are many different strategies to help mitigate taxes and provide other benefits by using life insurance policies. Here are some ideas.

  1. You Are Looking for Tax-Advantaged Retirement Income2

A permanent life insurance policy with cash value can provide a stream of income if necessary, depending on how the policy is structured. The cash value in the policy can build up and be borrowed against to pay for college expenses, retirement, or other costs during your lifetime, usually without any taxes owed if all IRS rules are followed.

  1. You Want to Protect Your Spouse2

Many people don’t realize that when one spouse dies, the surviving spouse only gets one Social Security check (the larger one) from that point forward. Permanent life insurance can protect your spouse’s lifestyle in the event of your passing.

  1. You Want Long-Term Care Insurance3, 4, 5

Some of today’s life insurance policies are called “hybrid” policies because they cover additional potential adverse events in addition to death, such as disability or the need for long-term care. These extra coverages may be part of the policy itself, or be available as optional insurance policy “riders” depending on the way an insurance company structures their contracts.

According to the 2020 Insurance Barometer study conducted by Life Happens and LIMRA, hybrid policies have become more popular than traditional long-term care (LTC) insurance policies because they offer a long-term care benefit that kicks in if you need it, or a death benefit that remains if you don’t. (One of the drawbacks of traditional LTC insurance is that you may end up paying a lot for something you may never need.)

If you do end up needing long-term care at home or in a nursing facility, it’s expensive. The average cost of a semi-private room in a nursing facility is $7,756 per month according to Genworth.

Remember, Medicare pays for short stays in nursing care facilities, but it does not pay for long-term care. Medicaid pays for long-term care, but qualifying for Medicaid requires a complete spend-down of assets, leaving your spouse and heirs with virtually nothing.

 

Do you have questions about life insurance? Please call your private wealth advisor at Silverhawk Private Wealth at 480.296.0200. We have offices across the United States to serve you.

 

Sources:

1 https://insurance-forums.com/life-insurance/study-reveals-common-misconceptions-that-prevent-americans-from-getting-life-insurance-they-know-they-need/

2 https://www.investopedia.com/articles/financial-advisors/111215/why-wealthy-should-buy-lots-life-insurance.asp

3 https://www.forbes.com/advisor/life-insurance/long-term-care-hybrid/

4 https://www.limra.com/en/research/research-abstracts-public/2020/2020-insurance-barometer-study/

5 https://www.genworth.com/aging-and-you/finances/cost-of-care.html

 

September is Life Insurance Awareness Month

September 24, 2018

Risk Management Is About More Than Your Investments

A lot of financial services professionals talk about “risk” when it comes to your stock market investments. But risk can encompass more than your investment risk tolerance. The broader definition of financial risk is the possibility of loss from any unexpected life event.

For instance, what will happen to your family’s income if one spouse passes away, becomes disabled or unable to work, or needs long-term care? What happens to your kids’ education fund, or your retirement? Risk management in this case means shifting risk of financial loss from adverse events to an insurance company in order to protect your family’s assets and lifestyle.

New Innovations in Life Insurance

First and foremost, life insurance offers financial protection to your family by helping mitigate the risks that you face from life’s unexpected tragedies, as it has done for hundreds of years. But in the last decade, life products have expanded and improved to offer much more.

Many new types of insurance policies and policy rider innovations have come about in order to answer the needs of Baby Boomers–10,000 of whom are turning 65 every day and will continue to do so until 2030.1

Life insurance companies are now covering a whole host of pre-retiree and retiree risks with permanent universal insurance policies and fixed annuities which offer features like:

1) Lifetime income in retirement

2) Spousal survivorship benefits

3) Long-term care coverage if needed

4) Disability coverage if needed

5) Income tax advantages

6) Tax-advantaged wealth transfer or death benefit

Universal Life Insurance or Fixed Annuities as Part of the Retirement Portfolio

In addition to the many retirement risks they can help address, new types of life insurance policies and fixed annuities may have other attractive advantages. Some of the newest policies offer the chance for growth by earning interest linked to market performance. And this potential growth comes with guaranteed* principal backed by the financial strength of the insurance carrier.

These are just some of the reasons more and more financial advisors are including permanent life insurance and/or annuities as part of the retirement portfolio itself.

Let’s Talk About Your Family

For help with your financial planning needs, please reach out to your personal wealth advisor at Silverhawk Private Wealth.

Silverhawk Private Wealth – Headquarters
21090 N. Pima Road
Scottsdale, AZ 85255
Irvine Office 
949.207.6036
Seattle Office
1601 5th Ave Suite 1100
Seattle, WA 98101

 

1 Pew Research Center “Baby Boomers Retire.” http://www.pewresearch.org/fact-tank/2010/12/29/baby-boomers-retire/ (accessed September 10, 2018).

This article is for informational purposes only and is not intended to provide any recommendations or tax or legal advice. We encourage you to discuss your tax and legal needs with a qualified tax and/or legal professional.

*Guarantees and protections for fixed or fixed indexed annuities and/or universal or indexed universal life policies are subject to the claims-paying ability of the issuing insurance company. These policies are contracts purchased from a life insurance company. They are designed for long-term retirement goals, and also intended for someone with sufficient cash and liquid assets for living expenses and unexpected financial emergencies, including, for example, medical expenses. Depending on the product, they may include surrender charges, rider charges, life insurance premium charges and/or other fees as detailed in the individual contract.

An indexed annuity or indexed life insurance product is not a registered security or stock market investment. As such, it does not directly participate in any stock, equity or bond investments, or index. Gains on indexed accounts are based on participation rates and other conditions offered by the issuing insurance company. Depending on the nature of funds used to purchase annuities, withdrawals may be subject to income tax and withdrawals before age 59½ may be subject to a 10% early withdrawal federal tax penalty.