And how life insurance can guide your clients through
by Debbie CecilMs. Cecil is Director of Product and Market Development, Unum. Connect with her by e-mail: [email protected] ; also, visit www.unum.com
Most Americans believe in the importance of life insurance. Yet today, 30 percent of U.S. households have no life insurance at all.1 In a 2013 LIMRA survey, many households said they have other financial priorities that preclude the purchase of life insurance, not surprising given the current economy.2
The financial consequences of being uninsured isn’t lost on these families, however. Another LIMRA survey showed that if a primary wage earner died, 35 percent of married households with children would have immediate trouble paying everyday expenses, 36 percent could cover these expenses for only several months, and just 29 percent would be able to cover living expenses well into the future.3 Half of U.S. households believe they need more life insurance.4
So how can advisors tap into the clear need that individuals have for life insurance or for more coverage? Education is the first and most important step. One common misperception is that not everyone needs this protection, when in fact just about everyone does. Another misperception is that life insurance is unaffordable, with consumers overestimating the cost by as much as three-fold.5 In fact, according to the LIFE Foundation, life insurance rates today remain near historic lows and the cost of basic term life insurance has fallen by nearly 50 percent over the past decade.
The good news is that no matter what an individual’s age or circumstances, there is a life insurance plan to meet everyone’s budget and financial protection needs. For most people, the most convenient way to purchase life insurance is at the workplace, where group term coverage is both accessible and affordable. Like many insurance coverages, the best time to buy is when an individual is young and healthy, even though most people don’t think about the possibility of dying at this stage in their life. With a plan to fit every stage of life, here are the types of life insurance coverage most appropriate for each:
Starting out: Singles and Young Marrieds
Employer-sponsored term life insurance provides basic coverage during the working years and is the right fit for young single people with limited financial responsibilities. Although many single people don’t think they need coverage because they have no dependents or family obligations, the truth is if anyone would suffer financially when they died, they should have coverage.
With lower group rates and the option to “buy up” as life’s circumstances change, it makes sense for these employees to get coverage where they work. Yet while 50 percent of U.S. households are unmarried, only 26 percent of households approached to purchase life insurance were single.6 This untapped market suggests that employers may want to help educate single employees about the importance and need for life insurance at this stage of their lives.
For married couples starting families, basic coverage with group term life insurance is a solid foundation for financial protection, with the option to increase coverage later as their families grow. In addition, these employees may want to consider purchasing supplemental whole or universal life for maximum protection. Both of these permanent employee-paid policies have a savings component that builds cash value accessible to the policy holder.
As families grow and children get older, married employees face added financial obligations that may include financing a home and paying college tuitions. These employees still need the basic protection of group term life while they continue to work, along with available dependent coverage for their spouse and children. Now, however, is also the time to think about coverage beyond employment by adding another layer of protection with supplemental whole or universal life coverage. Because employees own this coverage, they can take it with them when they retire, ensuring they will be covered for their entire life. Other benefits of a voluntary whole life policy may include the long term care option. Whole life policies offer cash value and the flexibility to increase or decrease coverage as needed.
At this stage of life, an individual is usually on a fixed income and has reduced financial responsibilities. In some cases, though, a family may be supporting three generations under one roof, with an increasing number of retirees caring for their grandchildren. For them, the need for comprehensive, on-going coverage will be crucial as they seek to shield their retirement savings.
In addition, a life insurance policy can help retirees protect their heirs by providing funds to pay estate taxes and other related expenses, including funeral costs, as well as enabling them to provide a legacy through an inheritance.
Although term coverage typically ends when an employee retires, employees can purchase renewable term life with predictable level premiums and extend coverage for another specified period of time. In addition, employees can take supplemental whole life insurance with them into retirement, with the option to use the accumulated cash value to buy a reduced policy with no additional premiums due or for unexpected expenses.
For employees at any stage in their life, there are many advantages to purchasing additional life insurance with voluntary benefits. We know employees who are offered voluntary benefits are more satisfied with their employer and the gap in satisfaction with an employer between those who have access to voluntary benefits and those who do not continues to increase.7 In fact, life insurance remains one of the most popular voluntary plans, with two in five employees taking advantage of the opportunity to buy up additional coverage when offered by their employer.8 From convenient payroll deducted premiums to spouse and dependent coverage and the ability to port coverage, voluntary life insurance should be on every employee’s – and employer’s – must-have list.
One of the top reasons people don’t buy life insurance is because it’s too confusing.9 Now is a good time for advisors to help their clients present this important benefit in a clear and understandable way, enabling employees to appreciate why it’s so necessary at every stage of life.
1 LIMRA,“Facts from LIMRA: Life Insurance Awareness Month, September 2012” (Sept. 2012 ; accessed May 1, 2013), http://www.limra.com/Posts/PR/LIAM/PDF/2012_Facts_of_Life_pdf.aspx.
2 LIMRA, 2013 Insurance Barometer Study (2013).
3 LIMRA, Household Trends in U.S. Life Ownership (2011).
5 LIMRA,“Facts from LIMRA: Life Insurance Awareness Month, September 2012” (Sept. 2012 ; accessed May 1, 2013), http://www.limra.com/Posts/PR/LIAM/PDF/2012_Facts_of_Life_pdf.aspx.
6 LIMRA, To Buy or Not to Buy Life Insurance: Buyer and Nonbuyer Differences (2012).
7 Harris Interactive, Unum 2012 Employee Education and Enrollment Survey (2013).
9 LIMRA, What Do They Know, Anyway? Consumer Understanding of Life Insurance (2012).