LIFE INSURANCE: AN IRREPLACEABLE PROTECTION

According to A.M. Best, an insurance rating company, fewer than 50% of U.S. households have Life insurance outside of what's provided by their employer. This statistic begs the question - why have so many individuals abandoned their Life insurance needs? There's not a one-size-fits-all answer to such a question, but there are a couple of common contributing factors.

One factor is the alleged product misrepresentations cited in class-action lawsuits against several Life insurance companies. Another factor is that much of the media focus today is centered on individuals living much longer than previous generations and the resulting need to prepare for the retirement years adequately. This focus has caused many Americans to redirect their attention toward saving for their retirement years and to start placing their money into tax-favored accounts. Consumer trending hasn't gone unnoticed by Life insurance companies. Despite the fact that most individuals don't consider Life insurance a good investment option, many insurers have been heavily marketing the investment side of Life insurance policies instead of the death benefit aspect of it.

The protection Life insurance provides through its death benefit is and always has been the main reason individuals purchase Life insurance policies. The funds a Life insurance policy beneficiary receives can serve as a replacement for the income lost by the death of the policyholder. It can also help to secure the future needs of the policyholder's spouse, children, or other dependents, such as college funding.

Investments can be an important aspect of funding a retirement. That said, investing in the stock market can never be a substitute for a Life insurance policy.

First of all, a Life insurance policyholder has a guaranteed monetary return for the dollars paid in premiums. Since a return on money invested in mutual funds and stocks are never guaranteed, even under the most ideal market conditions, the same can't be said of these types of investments. This is exactly why most brokers warn their clients not to invest more money than they can afford to lose. Even individuals that have a stock portfolio with a good rate of return must wait while it amasses over time and becomes substantial enough to meet their family's long-term financial needs. Obviously, a person can die before their stock portfolio makes enough money to cover their family's long-term needs.

Secondly, stock portfolio values fluctuate; as the market conditions change, as will the value of a stock portfolio. The inconsistency of stocks can create major problems when an individual is trying to ensure that their family's long-term financial needs will be met if they were to die unexpectedly. For example, if the death occurs while the stock market is in a down cycle and the survivors must sell the assets, then they won't net as much money as might have been planned and will also pay capital gains taxes. On the other hand, the beneficiary of a properly planned life insurance policy will receive the death benefit tax-free.

In closing, don't mistakenly underestimate or overlook the value of a Life insurance policy. An insurance agent can help you determine the type and amount of coverage that will best suit your needs.

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