Life Insurance: The Financial Offense vs. The Financial Defense

LIMRA research shows that six in 10 Americans have a heightened sense of awareness around the importance of life insurance, especially in the wake of the COVID-19 pandemic. Seven in 10 Americans go so far as to say that the pandemic has been a wake-up call to reevaluate their long-term financial goals. COVID-19 reinforced the need to prepare for both the expected and the unexpected.

In sports, coaches will often tell you that the best offense is a good defense. When it comes to the role of life insurance in overall financial planning, the same thing applies. For today’s advisors, creating resilient financial and retirement plans means having a strong financial defense that supports their financial offense to achieve clients’ goals.

Financial Offense

Financial security is the foundation for a good life — knowing one’s family is protected and that a comfortable future lies ahead can give people confidence. And while no one wants to collect from their insurance, when they need to collect from it, they’re glad the insurance is there.
To start building this foundation, it’s important to figure out your client’s risk tolerance and balance their portfolio. Then, explain to them what their financial trajectory looks like by elaborating on what they’re projected to have at retirement, how much they can spend each year and what will be left for their legacy. This is where you’re helping them plan their “financial offense.”

Permanent life insurance can also play an important role in their financial offense. Some types of life insurance — such as whole life, universal and variable life insurance policies — can help clients with financial needs during retirement. These types of policies build up cash value as policyowners make premium payments over time. As an advisor, explain the economic benefits of life insurance. For example, it can provide a way to accumulate tax-deferred cash value and also provide an option for clients to take tax-advantaged distributions depending on the policy type.

Financial Defense

Life doesn’t always go as planned, which is why “financial defense” is equally as important as offense.

For example, a family with young children may face significant financial hardship if the household breadwinner dies unexpectedly. And for those approaching retirement, a new set of concerns may emerge. What impact might stock market corrections, increasing tax rates, low interest rates or home repairs potentially have on a retirement portfolio? Or if someone needs nursing home care, will there be any money left for their spouse to remain financially independent and secure?

In all of these examples, life insurance can be used to play “defense” to protect families from potential unexpected events.

Cash value life insurance in particular provides death benefit protection throughout the insured’s life. If a husband or wife passes away, the life insurance death benefit can be added into the surviving spouse’s retirement portfolio, restoring it to a level that enables the survivor to live a financially secure and independent life.

There’s also the cash value component of a policy, which, depending on the type, can grow tax-deferred over the life of the policy. Some of the benefits of cash value life insurance may include taking out a loan on a policy, withdrawing cash from the policy, surrendering the life insurance policy for its cash value, or using cash value to pay premiums (once it’s reached a certain point).

For example, if a client needs to pay for college tuition or to supplement their retirement income, they can borrow from the cash value life insurance policy to fund these needs. If they take out a loan, they won’t have to pay taxes on the loan, as long as the policy is active and not considered a modified endowment contract.

Winning The Game

When it comes to offense and defense, this is the bottom line: Listen to your clients to help them identify which life goals are most important and build their strategy with them from that base.

That way, their financial plan can be optimized for offensive strategies that will maximize growth, and defensive strategies that will protect what they’ve worked so hard to build.

Most people choose to work with a financial advisor based on trust, so be open, transparent and genuine. In the end, remember your clients are putting their trust in you to guide them toward the best protection for themselves and their families.

Joe Ross, ChFC, CLU, CRC, is vice president, sales productivity and business development, with Corebridge Financial. Joe may be contacted at joe.ross@innfeedback.com.