According to a recent Gallup survey, most Americans now believe they will have to work longer and put off retirement until age 67. Even then, few expect to enjoy a financially secure retirement.
The loss of retirement funds during the recent recession, coupled with a rising life expectancy, is forcing many employees to change the way they save for and think about retirement—going beyond the traditional 401(k) and savings accounts.
Typically, life insurance is purchased as a way to protect and provide for a spouse and/or child after death. However, more employees are considering life insurance for its financial benefits leading up to, during and after retirement, to ensure a more secure financial future for themselves and their families.
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Cash value life insurance options, such as whole, universal or variable, can appreciate three to five percent each year, with all growth tax-deferred. They can be withdrawn tax-free under specific IRS guidelines, and the policy doesn't need to be sold, as with stocks. They are also not subjected to capital gains or income taxes. Additionally, a life insurance withdrawal does not have to be repaid although it does reduce the death benefit.
Certain term life voluntary benefit insurance products even have unique features designed to provide benefits for long term care. These include accelerated death benefits or extension of benefits for long term care or critical illness, which are important tools for safeguarding plan participants from disastrous costs that can throw off their preparation for retirement. A 2011 Milliman study found that 12 life insurers have riders for chronic illness, and another 12 companies are strongly interested in creating products to include them.
Here are five ways life insurance products can help employees reach their retirement and financial goals:
- Market volatility – The weak economy may have affected 401k and pension plans, and employees may look to life insurance for additional financial security.
- Large, Illiquid Estate –Expenses such as remodeling a home or taking a large vacation, for which one may have taken out equity lines of credit, often can be covered by life insurance.
- Paying down debt – Large credit card debt left behind for families can often be covered by life insurance payouts.
- Loss of family income – Often when a spouse dies, life insurance can be used to replace that spouse's income and maintain the surviving spouse's quality of life.
- Medical Expenses – Medical expenses not covered by Medicare can be paid off using life insurance payouts.
Before making any financial decisions, it is vital that agents/brokers educate their customers on how life insurance products can provide financial protection for their employees and loved ones. Confusion and information overload are undoubtedly two of the main issues faced when trying to determine whether to purchase life insurance, and then, which type of program to select.
Communication between employees and providers is instrumental in eliminating this confusion, and it is essential that providers educate consumers on exactly how life insurance products can help provide financial protection for their families. It is no longer accurate to assume that consumers understand the need for life insurance and the value it can provide.
In the end, it will come down to how employees are planning for their future and how providers are educating them.
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