September is Life Insurance Awareness Month and it is a little different this year. COVID-19 wreaked havoc on the finances of millions and exacerbated just how fragile life can be. Financial stability is more important than ever before.
According to LIMRA research, nearly half of Americans are uninsured and those who are, do not have enough coverage. Why are so many uninsured? There is a stigma attached to life insurance. It’s Regent Wealth Management’s goal to help break that stigma and help people be the most protected.
Brie Mason, Regent Wealth Management’s advisor, was recently interviewed to discuss life insurance in conjunction with Life Insurance Awareness Month.
Does everyone need life insurance?
There are more reasons to hold life insurance than just the death benefit but I don’t think that everyone should have it. I am aligned with a lot of the more public and prominent financial folks out there until they say “everyone should”. That is when my opinion starts to differ. There are a lot of different types of policies and different benefits come with each type but certainly, it doesn’t mean that every single person should have it.
Why would someone NOT get life insurance?
The most common reason is they think they don’t have a need for it. The other common reason is that it doesn’t fit in their budget. Sometimes consumers do not know enough about life insurance to fully understand what they need or how it would benefit them. Plus, who should they go to? Agents are there to sell them on more than they need, right? Look for an independent financial advisor who is licensed and has other offerings than insurance. When you find the right advisor, they can walk with you up to a tree and you can pick the best fruit, metaphorically speaking.
How does life insurance protect a person?
Life insurance can protect you in many ways. If you’re married and you have a higher earner and a lower earner in the household or one of you is staying at home to raise the kids, if the earner passes away, there is a monetary benefit to you that’s tax-free. It can protect you from paying income tax but provide you with income. You can fund a policy in many ways that can provide long term care benefits, college funding, retirement income, tax-free legacy and that is just a few of the ways life insurance can be used.
What would you say is the most underestimated benefit of life insurance?
Life insurance enables people to take care of their families in ways that their earnings could never do. It can help minimize income tax or capital gains tax on investments because every dollar that you put into an insurance policy you’ve already paid taxes on. In most cases, and if it’s the type of policy that is indexed or has some kind of growth component to it, all of that growth is tax-free to you.
How can life insurance impact taxes, if at all?
The IRS has rules & guidelines on how a life insurance policy remains tax-free either as a legacy vehicle or using the cash built up inside the policy, with the exception of term insurance because it typically does not build cash value. Other types of policies can allow the use of most of the principal and policy growth without having to pay taxes.
Why do you think there’s a stigma about life insurance?
There are a lot of reasons. I think the stereotypical impression of a life insurance agent still exists. People feel as though agents are going to push something on you that you don’t really need and that it’s going to stretch your budget so far that with every payment you make, you second guess having it.
People question the need for life insurance because they are not really sure of what the benefit is to them until they die, which is not a very fun thing to think about. Though it’s really not necessarily a stigma, it’s about facing their own mortality. There are all sorts of living benefits too. Some of them I mentioned earlier like having the flexibility to use the cash within the policy or tap into much more than the cash value for long-term care needs.
What advice do you have for those who are hesitant but curious about life insurance?
We have so much information at our fingertips with Google and other search engines. However, if a person has any bias and chooses to turn to digital resources, they may follow sensational facts or data that support their bias towards life insurance, etc.
On the flip side, there can be so much information that it’s overwhelming, and I would say it’s not something that you should purchase online because you really don’t know what you’re getting. For example, there was a person I sat with two years ago who bought a term policy, meaning that the term was going to end at a certain date. It was a 25-year term policy that was advertised as such. This client was under the impression he was going to pay a fixed amount for the next 25 years. It wasn’t until I read the policy that we learned that the premium was going to nearly double every five years as he got older, and he had no idea.
The best advice is to talk to someone who will first understand you and the needs of your family and goals. Your advisor will know the different policy types and together you can determine what you need, how much you need, and what the best policy is for you.
Have more questions about life insurance? Regent Wealth Management is here to help. Contact us and we’ll explain the ins-and-outs of life insurance and why your financial plan should include this added protection.