Ask an agent about the best time to buy life insurance and the answer will likely be “now,” or “anytime.” But consumers watching the value of their 401ks decline in this inflationary era as interest rates spiral, may want to know if perhaps life insurance is a particularly good option to supplement investments and retirement accounts during a down economy. And if so, why? We put the question to a number of financial planners and insurance experts. Not surprisingly, they agreed it was a good time to buy life insurance. But their reasons differed.
Why buy life insurance during turbulent economic times?
1. Portfolio diversification
One of the advantages of purchasing life insurance during a time of bear market and rising interest rates is for portfolio diversification. Life insurance companies offer some unique policies that allow you to not only protect your family or business, but also allow you to gain some portfolio diversification that offers guarantees. One of the unique product offerings from some life insurance companies is called indexed universal life. In its simplest terms, indexed universal life offers life insurance protection, along with potential growth tied to an outside index, such as the S&P 500 or others. These policies allow you to use a portion of your premium payment to grow tax-deferred and potentially earn market-like returns. One of the best features of this product can be that once these linked returns are credited to your account they cannot be lost in a future down market. This allows you the potential for equity growth with no loss.
— Mike Raines, Owner / agent at Raines Insurance Group, Cumming, GA.
2. Asset leveraging
There are so many types, flavors and variations of life insurance used for so many different situations.
People buy life insurance because it allows them to leverage their other assets without the fear of ultimately losing them. It is the ultimate force multiplier. Own a business? You can get a loan to pay your life insurance premiums that will allow you to access the money you have locked up in bricks and mortar and machinery – and you can utilize those assets without ever having to repay the principal on the loans. Own a business and have too many passive assets leading to your paying too much in taxes. Life insurance can help solve that too.
Life insurance is useful if you make a lot of money, it is useful if you have a tax problem, it is useful if you die too young. It is useful if you live too long, or if you are seriously ill. If you invest badly, it's your back up plan. If you invest well, it can help pay future taxes. It allows you to maximize the lifetime value of other assets you have by allowing you to use them and still create inter-generational wealth. It can even protect you from bankruptcy. Life insurance provides dignity.
— Naoshad Pochkhanawala, estate & financial planner, Chartered Life Underwriter at Amiko Benefits Inc., Toronto, Ont.
3. Accumulate cash
Is there the “right” economic time to buy life insurance? Depending on the type of policy one is purchasing, rising interest rates can be beneficial for life insurance. Permanent policies accumulate cash value, unlike term policies. The cash value inside the policy grows tax-deferred and depending on the type of policy, the interest rate credited to the policy could be directly affected by the current interest rates. An insurance company uses the premium a policy owner is paying for the policy and invests it. Many of those investments are interest-rate sensitive and as the interest rates rise, so does the amount the insurance company is earning on their investment portfolio (which includes policy holder premiums) and therefore more interest is credited to the policy owners’ cash value. The other reason to purchase more insurance in inflationary times is an existing death benefit is worth less than it was worth prior to inflation increases. If you own a policy with a death benefit of $50,000 for example, that $50,000 becomes worth less in high inflationary times. The amount we are spending on goods and services costs more than they did just a few years ago. If you determined your beneficiaries needed $50,000 a few years ago, they may need more than that today due to the higher costs of living.
— Mark Williams, CEO Brokers International
4. Peace of mind
If the economy is turbulent as it is now – with rising inflation and higher interest rates – clients tend to start feeling poorer or less wealthy, and again life insurance comes into play to shore up their investments and assets and help them feel more secure. Having either a long level term life insurance policy in place for an extended period of time, or designing a permanent life insurance policy for someone’s lifetime, is very relevant – irrespective of the economy.
— David E. Appel, MDRT member , managing partner at Appel Insurance Advisors, LLC, Newton, Mass.
It’s taboo to consider what may happen due to an unfortunate passing, but it’s vital to put protection in place for loved ones. According to Life Happens and LIMRA, 44% of folks say in less than six months they would feel the financial strain after the death of a primary wage earner.
Each individual should decide for themselves whether a life insurance policy is a sound investment based on their needs, what they are trying to protect, and for how long they are seeking protection. If a consumer is looking for a life insurance product that builds cash value and offers a guaranteed rate of return, a whole life insurance policy could be an ideal product. If the consumer is looking for protection for a specific period of time, wants to protect their income or wants protection to pay off their mortgage or other debts upon their unfortunate passing, a term life insurance policy may be a better solution. For older consumers that are looking to pay for funeral expenses or pay off credit card debt, a final expense insurance policy is likely the best option.
Inflation may be putting a strain on discretionary income, making it hard for people to consider this investment, but with new digital tools, it’s never been easier to apply for a policy online within minutes and be given options custom to unique budgets.
— Jim Reboin, chief revenue officer of Afficiency, a New York City-based digital distributor of life insurance.
6. Safety and security
During the pandemic, many people fundamentally shifted their attitudes toward core life priorities such as health and wealth, and they are turning to life insurance to support their new aspirations to live longer, healthier, and better lives.
They are also looking for more safe and secure places to put their dollars and if structured properly, permanent life insurance cash value accounts offer stated and guaranteed yields while protecting these dollars from IRS intervention, offering immediate liquidity through tax free loans and withdrawals, and potentially tax-free growth of those dollars.
Life insurance offers more than just benefits to your loved ones after you’re gone. Today’s life insurance industry has made major strides to create “living benefits” such as the ability to access the policy face amount tax-free to provide for the named insured to use for long-term care or chronic illness needs. This is a valuable benefit given the constantly increasing premiums for standalone LTC policies.
Permanent life insurance is more than just a death benefit paid to your chosen beneficiaries. When structured correctly, it can be a great source for building and protecting wealth.
— Brian Carden, author of “Castles & Moats, Insurance, Investment, and Life Planning Simply Explained”
7. For family
I never realized how influential the economy can be on how people make financial decisions, and it's interesting that when money is good, people forget it will inevitably pass. When the market takes a turn, people tend to think about their financial position more seriously.
Unfortunately, sometimes life insurance has a negative connotation, so people tend to avoid it and only start to think about their financial situation when they are forced to do so.
It is always best to put your family first and secure financial stability while you are still living.
The best day to purchase life insurance is today, not yesterday.
— Shawn Meaike, founder and president of the Connecticut-based life insurance company Family First Life
Correction: The location of Raines Insurance Group was incorrect in an earlier version of this article. The company is based in Cumming, GA.
Doug Bailey is a journalist and freelance writer who lives outside of Boston. He can be reached at [email protected].