By Stacy Miner, CLU, ChFC, CASL, RICP Vice President Marketing/Training, Global Atlantic Life Insurance Company
With September being Life Insurance Awareness Month, it’s a great time to consider the flexible lifetime benefits that permanent life insurance offers a financial strategy.
When I started in the life insurance business, I had the opportunity to work with an experienced agent who told me that life insurance can help alleviate the effects of time. He was not a mystic speaking philosophically, though I did initially think he was speaking of time in a chronological sense. He did, however, turn out to have wise insight.
“TIME,” as he defined it, is an acronym that helps illustrate the power and flexibility of permanent life insurance to prospects and clients. The acronym stands for Taxes, Inflation, Mistakes and Emergencies. By highlighting these financial challenges, agents can easily demonstrate to their clients how permanent life insurance provides an attractive option for financial flexibility during one’s lifetime. Most people already know how life insurance can help them manage the adverse financial effects of dying, but many do not realize that it can also help manage financial adversity in life.
The 4 Elements of TIME and how life insurance can help alleviate or reduce their impact on clients
1. Taxes. Generally, life insurance proceeds paid on the death of the insured are not included as taxable income for beneficiaries, with a few exceptions. Focusing our attention on how life insurance can help a policyholder during their lifetime, we also find some compelling tax advantages. First, policy values accumulate tax-deferred, so growth is allowed to compound rather than be dragged down. The second benefit, which makes the tax-deferred growth even more compelling, is the owner’s ability to access the value on a tax-advantaged basis through policy loans and withdrawals. Generally, withdrawals are tax-free up to the amount of premium paid into the policy, known as the cost basis. Policy loans are not taxed because the policyholder is responsible for repaying the loan, either personally or out of the policy’s proceeds. This assumes the policy remains in force until the death of the insured.
Of course, the tax results ultimately depend on exact circumstances. Withdrawals over cost basis are taxed, and if the policy is highly funded and becomes what is known as a Modified Endowment Contract, distributions are taxed to the extent of gain in the contract.
2. Inflation. According to InflationData.com, the average annual inflation rate in the United States from 1913 to 2015 was 3.18 percent. Depending on the type of permanent life insurance product chosen, many traditional universal life carriers are crediting non-guaranteed interest rates between 4 and 5 percent; indexed universal life insurance carriers illustrate non-guaranteed rates between 5 and 7 percent, just to highlight two product types. Over time, the interest credited to both products will likely outpace inflation based on the historical average inflation rate. Couple that with the tax benefits, and the policy can be an attractive supplemental resource for rising costs, particularly in retirement.
3. Mistakes. We all make mistakes, even financial ones. Cash value that accumulates inside a permanent life insurance policy can be accessed for any reason, likely on a tax-advantaged basis. So if a mistake is a result of a financial misstep, such as investing in a business venture that fails, your clients can take comfort in knowing that their life insurance cash value can serve as a bandage.
4. Emergencies. Not all financial emergencies involve premature death. It’s quite likely your clients will suffer some injury, disability or chronic illness over the course of their lifetime. If they’re lucky, the “emergency” they face might be just a gap in employment or the need for a new car. Whatever emergency they experience, permanent life insurance provides access to cash value that can be used for a multitude of reasons. In addition, many products today offer riders that are triggered should a disability or serious illness occur. These riders pay out benefits that may include premium waivers or advancing a portion of the death benefit to cover expenses associated with a critical or chronic illness.
The life insurance industry has a number of catchy sayings, clichés and sales strategies to promote the need for permanent life insurance. If you’re looking for ways to help grow your business, remember to discuss the lifetime benefits of permanent life insurance—now’s the T-I-M-E.
Global Atlantic Financial Group, in addition to retirement, reinsurance and funeral planning product lines, offers a full range of traditional life insurance products with a focus on indexed universal life. Learn more at www.globalatlanticlife.com.