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“A policy of life insurance is the cheapest and safest mode of making a certain provision for one’s family.” 

Benjamin Franklin

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For most people, discussing the working parts of a life insurance policy probably isn’t a captivating after-dinner conversation. Yet, recent reports about shifts in the U.S. life insurance industry reveal worthwhile information.

Despite over $20 trillion in coverage and growing digital trends, 16% of Americans (41 Million) could benefit from life insurance yet don’t have it…

  • Term – 03%
  • Whole Life – 04%
  • Universal Life – 29%
  • Variable Life – 72%

Customer preferences include personalized insurance products instead of one-size-fits-all strategies. However, the surprise is that consumers mistakenly perceive the cost of life insurance is high. Considering lifestyle and employment changes over the course of the average person’s life, people should want insurance, even if they believe they don’t.

After all, people want to have certainty in their finances. The reality is, many people lack information about how insurance creates certainty.

Life Insurance Premiums

Average term life insurance costs for 20-30-year-old nonsmokers ranges from $10-$50 each month. However, prices increase dramatically once you reach a certain age, and can be tens of thousands of dollars overnight. This occurs because term insurance isn’t guaranteed to pay out, and around age 65 the insurance company is at a greater risk.

Whole life insurance, on the other hand, locks in your premium for life. And while you’ll get a more favorable premium when you’re younger, you don’t have to worry that costs will increase. In uncertain times, that greater financial certainty can help soften the blow in the event of a job loss or other event. Because companies charge a level premium over your lifetime, they can meet contractual guarantees, like the death benefit.

Cash Value Insurance

The cash value component is perhaps one of the greatest benefits to a whole life insurance policy, because it provides a place to store cash that is liquid and guaranteed to increase. While term life insurance can create peace of mind, it doesn’t have a cash component.

The cash value of your policy is not only an emergency fund, it’s a fund for opportunities. With a policy loan, you can fund a new business venture, make an investment, or support a loss of income. The sooner you begin a policy, the sooner you can have that peace of mind.

Being a “High-RIsk” Insured

Consumers who enjoy extreme sports are in high-risk categories. Or, those with high-risk or high-stress jobs like construction and sales. Illness and injury become likelier with age, so having insurance in place can act as a certainty net. Thrill-seekers and those in high-risk environments should state their hobbies honestly on their applications. 

Disclosing an extreme hobby might increase the base premium, however, you’ll still walk away insured. Simply put, policyholders can still leave their loved ones with a death benefit despite the slight premium increase.  

And, with the right riders, which an insurance agent can discuss with you, you can even use your whole life insurance policy as disability income or long-term care coverage. So if you’re a thrill-seeker, don’t discount the value of a whole life policy. It can give you certainty and peace of mind, so you can continue to live your life at high speeds.

Protection for Business Owners

Small business owners can even protect their businesses with life insurance. In the event of the insured’s death or disability, employees can receive pay if the policy includes “buy/sell agreements” or a “key person” as stipulated in their policy.

With these policies, a co-owner acts as the beneficiary. With advantages including mutual benefits and payments for total disabilities or a medical trauma, it’s another reason life insurance is integral in the business process. And you can use the cash value like any other whole life insurance policy.

Are You Seeking the Right Life Insurance?

A Life Insurance Research and Marketing Association (LIMRA) report notes an uptick in online insurance searches. While 64% of Americans purchased insurance in person 10 years ago, online purchases increased from 17% to 29% today. What’s more, 1 out of every 4 consumers uses social media to pursue financial topics. 59% want information on specific products and services and 62% read reviews left by others.

The Insurance Barometer report explored the type of life insurance owned from 2011-2020 with three categories: Individual-only, Group-Only, and Both.

Here is the year-over-year change for each type:

  • Individual-Only: Increase from 40% to 55%
  • Group-Only: Decrease from 32% to 27%
  • Both: Decrease from 28% to 18%

Considering the noted decreases, the increase in individual-only coverage confirms consumers know they need insurance. And in fact, the LIMRA report noted that 36% of Americans want to purchase insurance within 12-months. This intent to purchase is a record high. “Educating consumers about the value and importance of life insurance—while also providing them information about the true cost of purchasing coverage—will help get more consumers to buy the coverage they say they need.” That’s according to Faisa Stafford, Life Happens CEO.

The Nuts and Bolts: Who assumes the risk?

A life insurance policy has three sections: the cost of insurance, the operating expense of the company, and the return generated from the collected premiums.

Term is the cheapest insurance (though not necessarily the best value).

Term insurance is insurance for a period of your life, often 25-60, and has no cash value. Despite its popularity, about 88% of consumers don’t receive benefits, because the policy is in-force when the risk of dying is at its lowest.

Prices spike at age 60 because the likelihood of death is much more significant. Term insurance works best in conjunction with whole life insurance, to provide full coverage and peace of mind.

Unlike Term, Whole Life Insurance includes a cash value.

Term insurance is cheap because the companies bear almost no risk. Whole life insurance, on the other hand, is guaranteed to payout. Therefore, the company assumes all the risks. And the opportunities afforded by the cash value, which eventually exceeds premiums paid, are priceless.

So What Has Changed?

Years ago, when consumers started exploring life insurance and underwriting, they did so in person. They sat with an agent and discussed financial advising to explore their options. They also understood the ramifications if they missed their premiums. With the Digital Era and smartphone technologies, consumers can now conveniently buy their insurance products online. However, they may fall prey to misinformation.

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With this approach to underwriting: 

  • 66% of consumers want a simple application process
  • 58% want transparent and easy-to-understand explanations and pricing
  • 56% want to avoid a medical exam (urine sample, blood sample)
  • 55% don’t want to visit a physician 

However, it’s important to remember that without exams, you may not be getting the insurance you want. Whole life insurance underwriting requires a physical exam, however, it’s now possible to do so as painlessly as possible through hassle-free scheduling. And you can consider it a free check-up.

Furthermore, many advisors are working entirely online, which means you can meet from the convenience of your own home. Gone are the days of in-person consultations.

If the purpose of insurance is to manage risk, making you feel comfortable and confident is important to us. And as best-selling financial author Garrett Gunderson, who is a friend of ours, is fond of saying, “Self-insurance is really no insurance.” Considering life-altering events like the pandemic, it’s logical that individuals are more risk-averse and less likely to gamble on any financial decision—including their life insurance policy.

During the last decade, consumers and especially millennials are exploring more insurance topics. They’re also concerned about the financial future of their beneficiaries. As recent data shows, there are no shortcuts when it comes to life insurance. The sooner a person signs up the sooner they have coverage, and the lower their premiums are.

Start Your First Policy Today

Doing the research, understanding different policies, and working with an advisor who understands you are paramount. Do you currently have an insurance policy? There’s no better time than the present to meet with an advisor.

Please contact us or email welcome@partners4prosperity.com if you have any questions—we’d be happy to discuss this further, or help you get started with your first policy.