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WHAT IS LIFE INSURANCE?

The following description of major features of life insurance appears in a recent blog from Forbes Advisor.

Life insurance is a contract between you and an insurance company. Essentially, in exchange for your premium payments, the insurance company will pay a lump sum known as a death benefit to your beneficiaries after your death.

Your beneficiaries can use the money for whatever purpose they choose. Often this includes paying everyday bills, paying a mortgage, or putting a child through college. Having the safety net of life insurance can ensure that your family can stay in their home and pay for the things that you planned for.

There are two primary types of life insurance: term and permanent life. Permanent life insurance such as whole life insurance or universal life insurance can provide lifetime coverage, while term life insurance provides protection for a certain period.

How to Find the Best Life Insurance Policy For You

With the wide variety of life insurance policies available, pinpointing the right one can be a challenge for any buyer. Here are the important aspects to consider.

Look at financial strength ratings.

A strong financial strength rating is more than just peace of mind that the company won’t go out of business decades from now. Insurers with greater financial strength can be less likely to need to increase internal policy costs and premiums in response to challenging financial times.

Ratings are available from agencies such as Standard & Poor’s and AM Best, and are usually found on insurers’ websites.

Don’t assume insurers offer competitive pricing for everyone.

Life insurance companies want your business, but they all operate from their own playbooks. Premiums can vary wildly and, for cash value policies, cash value growth can be very different among companies and policies.

Be aware that a life insurance quote for a cash value policy may not reflect what you’ll actually end up paying over the years to keep the policy in force.

“Current regulations in some states and for some products permit insurers to ‘quote’ a low premium while charging high costs—without disclosing that you may need to pay additional premiums later in order to avoid a lapse,” warns Barry Flagg, founder of Veralytic.

Insist that cost disclosures for universal life insurance be included in any proposals.

A life insurance quote reflects what you’ll be billed for, but it doesn’t tell you anything about a policy’s internal costs, such as expenses and fees, and the actual cost of insurance that’s charged within the policy.

Be sure to insist that any universal life insurance illustration include the detailed expense pages or policy accounting pages. Products with a low premium quote could have higher internal costs, which can slow your cash value growth.

Read the remainder of the article here.

PREPARING FOR THE UNPREDICTABLE: A CHECKLIST FOR EVALUATING LONG-TERM CARE INSURANCE OPTIONS

The following blog written by Kirk Cremer appeared in the Life Happens blog.

Life often has a way of taking unexpected turns, especially when we get older. While there’s no way to know for sure if you’ll need long-term care in the future, it’s quite likely considering that people are living longer than ever—in fact, 69% of people will use long-term care services at some point.

As you draw closer to your golden years, getting long-term care insurance (LTCI) can be a smart decision to ensure peace of mind and financial stability for both you and your loved ones. With many options available, making the right choice can feel overwhelming. Use this checklist to help you evaluate and take that next step toward getting coverage.

1. Understanding Long-Term Care and Early Planning:

• Define the types of care: Understand the various forms of long-term care, such as nursing home care, home health care or assisted living. Determine what kind of care you or a loved one might need. It’s also important to think about the kind of care that LTCI doesn’t cover, which typically includes care provided by family members or medical care costs.

• Start early: The sooner you start evaluating your long-term care insurance options, the better. Early planning can allow for better financial preparation and a broader range of choices.

2. Exploration of Insurance Options and Policy Features:

• Traditional vs. hybrid policies: Traditional long-term care insurance (also known as a standalone policy) covers nursing home care, home health care and assisted living, while hybrid policies combine the death benefit of life insurance or annuities with long-term care benefits.

• Policy features: Look into the specific features like the daily or monthly benefit amount, length of benefit period and the elimination period. Consider inflation protection to ensure the benefit amount keeps pace with rising care costs.

3. Costs, Premiums and Coverage Specifics:

• Premium costs: Understand the cost of premiums and assess if they fit within your budget. It’s also important to understand whether the premiums can increase in the future and under what circumstances.

• Coverage details: Know which services are covered, which are not and any conditions or restrictions. This can help you avoid any surprises later.

4. Provider Reputation, Financial Stability and Legal Consultation:

• Provider reputation: Choose companies known for servicing long-term care policies well. Check the financial strength ratings of the insurance company.

• Legal and financial advice: Seek advice from legal and financial professionals familiar with long-term care planning to understand the implications of long-term care insurance.

5. Family Discussion and Continuous Evaluation:

• Family discussions: Engage family members in discussions about long-term care planning to ensure everyone is on the same page. LTCI is also there to help your loved ones, as it takes the pressure off your family to provide care.

• Continuous evaluation: As needs change over time, review and update your policy regularly, especially after major life events. It’s always a good idea to review any form of insurance annually.

By following this checklist, you can make informed decisions that provide peace of mind and financial stability for yourself and your loved ones. Evaluating long-term care insurance options is a crucial step in preparing for life’s uncertainties. 

LIFE INSURANCE AS AN INVESTMENT: PROS AND CONS FOR RETIREMENT PLANNING

This article, written by Aaron Cirksena for The Forbes Financial Counsel, appeared in Forbes on April 18.

Life insurance is commonly purchased to provide financial support for the policyholder’s loved ones in the event of an untimely passing. It acts as a legacy planning tool that can provide funds for much-needed expenses incurred by those left behind.

Yet life insurance can serve investors before their passing when it is used as part of a retirement planning strategy. As a retirement investment, it can improve a retiree’s financial capabilities in a number of ways.

The following pros and cons should be carefully considered to determine whether life insurance would be a good addition to one’s overall retirement strategy.

The Upsides Of Life Insurance In Retirement Planning

One of the primary goals of retirement planning is minimizing the retiree’s tax exposure. Retirement strategies carefully consider the best way to grow retirement wealth with minimum tax costs, using pre-tax deposits when most beneficial and converting to tax-free withdrawals when the time is right.

Depending on the type of policy, life insurance can provide tax advantages for retirement investors. Permanent life insurance, which offers lifelong coverage as long as the policyholder continues to pay premiums, provides both a death benefit and a cash value that grows over time.

Because the cash value of a permanent policy is tax-deferred, it facilitates more efficient growth than some other investment vehicles. Permanent life insurance also typically provides tax-free death benefits, which allow heirs to receive assets in a way that offsets estate taxes.

Permanent life insurance can also provide retirees with a source of liquid assets to supplement other retirement income since the policy’s cash value can be accessed via loans or other types of withdrawals. As long as the amount withdrawn does not exceed the total number of premiums paid—commonly known as the policyholder’s basis—it is typically tax-free.

The types of tax-free loans life insurance can provide may be becoming increasingly valuable to retirees. Research has found that 45% of American investors retiring at age 65 are at risk of running out of money during retirement, with experts saying a lack of tax preparation and high medical costs are two common issues that can drain retirees’ funds.

Another valuable upside to including life insurance as a part of retirement planning is the long-term care benefits it can provide. Certain life insurance policies offer riders that allow policyholders to draw on their death benefits to cover long-term care costs. In some cases, the benefits provided for long-term care are tax-free.

The Downsides Of Life Insurance In Retirement Planning

Cost is the most glaring downside to life insurance as an investment. Policies that provide the best benefits, such as permanent life insurance, require higher costs than policies like term life, which only provide benefits for a set period. Riders that provide long-term care benefits also add to the costs.

Premiums for life insurance also generally increase with the policyholder’s age. With some permanent policies, the amount policyholders must pay in premiums can increase annually.

Additionally, the return on investment offered for permanent insurance policies is a fixed rate. While this provides a more predictable return, it can’t compete with the rate of growth long-term investors typically experience in the stock market.

Another downside to using life insurance for retirement investing is a lack of flexibility. With a traditional or Roth IRA, investors have the flexibility to choose from a virtually endless number of investment options. With the majority of insurance policies, however, the choices are extremely limited. This can make it challenging for retirement investors to practice rebalancing, which is a valuable component of a long-term strategy.

Life insurance also provides less flexibility when it comes to accessing funds. Whereas all the funds invested in conventional retirement accounts such as 401(k)s and IRAs become accessible once an investor hits retirement age, the portion of life insurance premiums that go to death benefits typically remains inaccessible during the policyholder’s lifetime.

Complexity is yet another downside of life insurance. A broad range of factors can affect the amount of a policyholder’s premiums, including their age, lifestyle, and health conditions. Additionally, premiums can increase annually with certain policies, and because policy costs are variable, it can be difficult for investors to determine the actual return on investment they are receiving.

Life insurance can be a valuable investment tool for retirement savers looking to improve their tax position; however, there are a number of downsides to consider, not the least of which is the potential to significantly increase investment costs. Before adding life insurance to their retirement portfolios, savers should carefully consider each of the pros and cons and evaluate how they could ultimately impact their earnings.

The information provided here is not investment, tax, or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

About Paul Cholak

Paul has over forty years of benefits experience and has been Director of Employee Benefits for large companies, as well as a benefits consultant with major consulting firms. He understands the life and health insurance needs of individuals and families of all ages. He also has considerable experience in selling life and health insurance to employer groups.

He guides you through the steps of getting insurance and is available to help you both BEFORE and AFTER you've made your purchase decision.