Life Insurance: The Unsung Hero
September 19, 2018 by Matthew Purington
Life insurance is the foundation of any sturdy financial plan. Before you can help your customers start tackling other goals, you should assure their loved ones are protected against the devastating costs associated with a sudden death. And while the death benefit is the most important feature of life insurance, a policy can offer even more value to your clients.
Life insurance policies often include other often-overlooked financial planning benefits. For Life Insurance Awareness Month, we’re covering a wide range of these benefits, so you can help your customers take advantage of their investment.
Provides counseling through an EAP
Some life insurance companies may include access to an Employee Assistance Program (EAP). This is a free hotline and counseling service that can be used for a range of issues like depression, stress at work, even guidance on important family decisions like adult caregiving resources, financial planning and other common stressors in life. The EAP specialist can talk users through the problem and refer them to the best resources available, like a local therapist or attorney.
Despite this wide range of benefits, only 6.9 percent of U.S. workers have used an EAP because they don’t know what it offers or are reluctant to ask for help.1 That is far too low for such a valuable resource. If your customers have access to an EAP, make sure to help them take advantage.
Income replacement during working years
Term life insurance, often popular for its portability and flexibility, provides additional financial protection during a person’s working years. It’s relatively affordable coverage that can help survivors weather an unexpected loss if a family breadwinner dies prematurely. People can use the protection for a set period of time or on an ongoing basis, and coverage can be increased as their needs and the needs of their families evolve.
More importantly, though, if the worst were to happen, expenses that income typically covers – like housing, education, or saving for retirement – can be accounted for with this important coverage.
Coverage typically decreases after specified age (often 65 or 70), and may end at retirement, when income replacement may no longer be necessary.
Plan ahead for needs by adding or laddering coverage
With different life stages, new needs may outpace the coverage that a standard policy provides. But additional coverage can be added – and probably should be added – with major life events like marriage, birth of a child or adoption, or a home purchase. Beyond this, often overlooked life events that can warrant an increase in coverage include an increase in income, a spouse leaving the workforce, sending kids to college, or any event that results in a person or family taking on new, significant debt.
Group term life insurance provides the flexibility to increase coverage, sometimes without evidence of insurability, or decrease coverage as people move into different life stages and have evolving needs.
Some providers may allow the option for covered individuals to ladder their life insurance coverage. For individual term coverage, there are two main ways to ladder policies: Buying policies with differing term lengths at the same time or buying one policy now (with a longer term) and adding on shorter-term policies later in a customer’s career.
The key is helping your customers anticipate needs so they don’t over- or underestimate the recommended amount of coverage. This is where life insurance representatives can provide an objective look to ensure all your client’s needs are accounted for.
Pays early after a terminal illness
If a covered individual is diagnosed with a terminal illness and has a life expectancy of less than six months or a year, some term or whole life insurance policy may offer an accelerated death benefit payment. This means some of the life insurance death benefit is paid before the covered individual passes away. However, be sure to verify tax laws, as there may be implications for early payouts
Insurance companies realize that a terminal illness diagnosis can cause costly medical expenses and a family may need the money sooner rather than later. An accelerated death benefit provides a benefit that the covered individual can use any way they see fit.
Long-term care coverage for nursing home
There is a looming crisis for long-term care expenses. More than 45 percent of Americans will spend time in a nursing home at some point in their lives. 2 Today, the national average cost of a year at a nursing home is $92,000.3 Even worse, Medicare rarely covers these expenses. While some of these bills may be covered through Medicaid, a person must spend down all their assets first which means nothing remaining as an inheritance.
Life insurance policies can be a compromise solution when a policy is set up with a long-term care rider. This means if a person ever needed long-term or skilled nursing care, the policyholder can use a percentage of their death benefit to help pay for long-term care. For example, a $300,000 life insurance policy might pay up to $15,000 in long-term care expenses and the heirs would receive whatever’s left over.
Be sure to review details of your policyholder’s specific policy for additional information.
Allows family members to buy coverage in the future
With life insurance, not everyone is able to buy coverage. For those buying individual life insurance policies outside of the workplace, health underwriting is a typical requirement. But once a policy is set up, covered individuals can purchase an extra option called a guaranteed insurability rider, which would allow them to buy more coverage later even if health problems develop down the road.
This helps people buy additional coverage — without proving they’re in good health – at set dates in the future or when certain life events occur, like marriage or the birth of a child.
Spouse or child term riders are an additional option to help people buy term life insurance for their spouse or dependent children. It can be a more affordable way to get coverage if they can’t afford separate policies for family members.
Portability and conversion
If a person’s relationship with their employer changes – either because they’re leaving the company, they’ve become disabled, or they’re no longer eligible for coverage – they can still take steps to preserve their life insurance as a critical component of their full financial plan.
Depending on the circumstances, there are typically two options to keep coverage: conversion and portability.
With conversion, the covered individual can change their group life coverage to an individual whole life policy, which builds cash value. They pay the premium at individual rates, but the right to convert their policies is guaranteed by law under certain circumstances.
With portability, the covered person can take their group term life coverage with them and pay for it at group rates. This coverage does not build any cash value, but it helps ensure there’s no lapse in this important coverage.
Support for survivors
It goes without saying that losing a loved one is a devasting emotional blow for those they leave behind. While the life insurance death benefit will give beneficiaries money to handle the situation, they will still need help figuring out what to do next.
Most life insurance companies offer a range of support resources for survivors, like emotional counseling, legal and financial advice along with the death benefit payout. This way beneficiaries have access to professional help in working through grief and determining how to best use the proceeds and properly manage the estate during the difficult stretch.
Life insurance is a critical tool in helping your customers protect what they’ve built, and its benefits touch so many areas of the financial planning world. For more information about life insurance and these financial benefits, visit unum.com/brokers. ◊
Sources
Chestnut Global Partners, “Trends Report 2016,” 2016
U.S. News & World Report, “How to Pay for Nursing Home Costs,” Nov. 16, 2016
U.S. News & World Report, “How to Pay for Nursing Home Costs,” Nov. 16, 2016
