It’s impossible to be fully prepared for all of life’s what-ifs, but life insurance can play an important role in making sure you’re as prepared as you can be. On a recent episode of Lifetime Planning, Financial Sense Wealth Management’s Lead Wealth Advisor Aaron Wiegman explains how life insurance can work as income replacement for young families, for those getting ready to retire and even for businesses.
See How Life Insurance Can Help You Prepare for Life’s What-Ifs for audio.
Why Life Insurance?
Traditionally, life insurance was used to defray catastrophic loses, but there are many more options available today. A study conducted by the Life Insurance Marketing and Research Association found 84% of people believe having life insurance is good idea and 66% said they need life insurance. Yet, only 57% of people have life insurance policies and they’re often through a group plan at work.
The reality is, most people in the United States are actually under insured or uninsured altogether, Wiegman stated. Four in 10 U.S. households would be unable to pay their bills if the main breadwinner were to pass away, he noted.
For a younger family, the focus of life insurance is likely to replace income in the event of an unforeseen loss. Many rely on cheap term life insurance to cover expenses in such an event. Later in life, around someone’s forties, financial needs may have changed, but life insurance can still present a great deal of value. At this point, accumulation of assets is likely to be the primary concern and life insurance plans can help in this case as well.
Finally, even in retirement, there are several reasons to own insurance, Wiegman noted. While many think they no longer need life insurance once they’ve retired, this isn’t necessarily the case.
“People are realizing that might be a misconception,” Wiegman said. “For a lot of people, even when they come into retirement, they are still going to have some debt that they need to manage. If someone loses a spouse, there's a possible loss of Social Security or pensions. There are concerns about long-term care. … There are a lot of different reasons why you wind up needing life insurance or strategies around life insurance throughout your lifetime.”
Life Insurance in Retirement
The appropriate policy can help retirees address several issues. In many cases, long-term care costs can be defrayed with the right life insurance plan. With a hybrid policy that allows access to benefits if long-term care becomes necessary, retirees can access those benefits if they need care either at home or in a facility.
If the policy holder ultimately does not need that care, it winds up passing on to beneficiaries’ income tax-free as a death benefit, Wiegman noted. It’s also possible to surrender the policy and get the premium back in many cases, he added.
Life insurance should be a crucial part of any financial plan; whether you’re just starting out or getting ready to retire, ask your advisor how life insurance can work for you.