The pandemic has influenced all of our lives in different ways, some tragic, but also some that have made us rethink our needs and goals. Some of us have decided they want a new type of career; some have devoted more of their lives to helping others. One impact has been to protect loved ones in case something happens to us.
After climbing steadily for many years, life expectancy fell by 1.5 years from 2019 to 2020 – the largest one-year dip since World War II. A survey by Life Happens and LIMRA, a research organization, published in April 2021 found that about 31 percent of consumers said they are more likely to buy life insurance because of the pandemic. The survey also shows that 45 percent of millennials said they are more likely to buy life insurance because of COVID-19, possibly because these younger people have more years of income to protect, are more likely to have children and may still have large balances on their mortgages or even student loans.
When most people think about life insurance, they focus on term life, which is offers the lowest cost and generally covers the insured for a fixed period of time, say 20 or 30 years. Certainly, term insurance can play an important role, but it may not be enough on its own for extended retirement planning. Enter whole life insurance and some of its offshoots, which fall into the category of permanent life insurance. With whole life, a portion of your premiums are invested alongside highly rated companies and will grow on a tax-deferred basis. Some believe that whole life is mainly for wealthier people who are doing longer term planning and want to leave a legacy/ However, there are many benefits to the average investor, including fast access to cash for expenses or opportunities (typically 1-2 days) and the comfort of knowing your equity is increasing annually every year.
Whole life insurance offers three kinds of guarantees:
- Guaranteed minimum rate of return on the cash value, typically between 2 and 4%
- The guarantee that your premiums won’t increase
- A guaranteed death benefit that will never decrease.
As noted, there are various offshoots of whole life insurance. One is universal life. Unlike traditional whole life, the cash-value component accumulates interest at rates tied to market interest rates. When rates are high, you pay lower premiums to get the same amount of cash value. However, if interest rates are low, premiums may need to increase.
Another alternative is single premium life insurance (SPLI), also known as prepaid life insurance. Instead of paying a premium in monthly or annual installments as you would with other kinds of life insurance, you pay for the policy up front to secure a death benefit when you die. As with other forms of permanent insurance, your premium funds both the death benefit and a cash value amount. There are other vehicles which can be used to supplement your savings, such as variable life and variable-universal life. All of these policies have their complexity and their value. It can be worthwhile to learn more about them from your financial advisor.
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