According to the 2019 Insurance Barometer Study from Life Happens and LIMRA, most people believe it is important to have life insurance. Yet, those same people don't buy life insurance either because they believe it is too expensive or they have other financial priorities.
Do those life insurance beliefs hold any water? Take a closer look and walk your clients through these two common misconceptions.
Myth #1: “Life insurance is too expensive.”
According to the Life Happens study, affordability and value are two obstacles that stop Americans from buying life insurance. But when asked to guess how much a $250,000 20-year level term life insurance policy would be for a healthy 30-year-old, more than half of Americans overestimate the true cost by three times or more.
Even though permanent insurance typically costs more than term, it can provide cost-effective savings in the long run if your client’s budget will allow for the extra expense to get a policy started early. Remember, a term policy is temporary, and the coverage and low premiums your client pays now will come to an end once the term expires. And because life insurance premiums are based on age, health and other factors, your client could be looking at paying substantially more if they decide to purchase additional insurance once their term policy ends.
Discuss the true cost of life insurance for your clients and help them see that purchasing life insurance is possible if they make it a priority. Which brings us to the next myth that makes clients hesitant to purchase life insurance.
Myth #2: “I have other financial priorities.”
In 2018, the Life Insurance Barometer Study found that 61% of people don’t buy life insurance or more of it because they say they have other financial priorities. These priorities may include basic living expenses or extras like internet and cable, paying off consumer debt and saving for retirement.
These are the priorities of fiscally responsible adults. Who can argue with them? However, rather than dispute the priority ranking, consider how these priorities would be met if your client or another wage earner in their family died prematurely. Life insurance can help replace lost income, pay off a mortgage, leave an inheritance, and of course, cover final expenses and burial costs.
When clients think about loved ones struggling to maintain their standard of living, suddenly the expense for life insurance seems pretty doable.
Discuss these 3 benefits of permanent life insurance
While permanent life insurance may be more expensive compared to term life insurance, it also provides financial protection when the insured becomes deceased and it can gain a cash value that could be used during their lifetime.
Discuss the following three benefits of a permanent life insurance policy with your clients.
1. Permanent life insurance provides lifelong coverage.
Let clients know that as long as the required premium is paid, a permanent policy only terminates when the insured dies or if the owner surrenders the policy. Some permanent policies mature at a stipulated age, commonly 100 or 121. If the insured is alive at 100, for example, premiums are no longer required but the death benefit will still be distributed when the insured dies. Some policies, however, simply disburse the cash value or pay out the death benefit if the insured lives to maturity.
2. Permanent life insurance has the potential to earn cash value.
All types of life insurance policies provide a death benefit to the beneficiaries; most of which are tax-free. Make sure your clients know, however, that permanent life insurance policies earn cash value in addition to the death benefit protection. Explain that the potential cash value accumulated over time depends on the type of policy purchased, and that the cash value can be borrowed from the policy as a policy loan, giving a liquidity characteristic to a permanent policy. Be sure clients understand that loans will reduce both the cash value and death benefit by the amount borrowed until repaid.
3. Whole life insurance premiums never change.
If clients are considering whole life insurance, explain that the premium is guaranteed to never change. The declared premium when the policy is issued remains the same, regardless of the insured's age. A policy originally issued for $50,000 with a $500 annual premium, provides a $50,000 death benefit when the insured dies. As long as no withdrawals have been made, it doesn't matter if the insured is 40 or 100; the death benefit doesn't change. Neither does the premium. The $500 premium stays the same as long as the policy is in force.
If your clients are starting out with a tight budget, they may be drawn toward an inexpensive term life insurance policy. If their budget is flexible and they would like a policy that can earn cash value, explain that a permanent policy might be the better option. They may also want to consider the option of two policies: a term life insurance policy that protects loved ones with a higher death benefit at a lower cost, and a smaller permanent life insurance policy that could accrue cash value and provide lifelong coverage.
Want more helpful resources to aid discussions about life insurance with your clients? Register or log in to myprotective.com to download a Life Check Up Kit.
