Today, more Americans are getting their life insurance through their employer rather than purchasing a policy on the individual market, according to LIMRA, an industry market research firm. At the same time, fewer employers are offering life insurance as a benefit. LIMRA research showed 23 percent fewer employers offered life insurance in 2017 compared with 2006.
Life insurance is important to protect a family from the loss of income should a household provider pass away. Even if policy proceeds aren’t enough to sustain a family for life, they can offset some initial expenses that otherwise might create a financial burden. For example, immediate expenses like funeral costs, mortgage/rent, car payments, loans and everyday bills. From a longer-term perspective, a healthy payout could pay off a mortgage balance, current/future college expenses, student loans or credit card balances. Life insurance proceeds also can be used to help fund the means for future income, such as helping a surviving spouse get the education or certifications needed to obtain a good-paying job, or to pay for child/elder care.
We are happy to help you evaluate your circumstances to determine your insurance needs, whether you currently have sufficient coverage for your situation or may need to bolster your coverage.
If you do receive coverage through your employer, make sure you have enough. The standard benefit is typically one to three times your annual salary. If your employer offers supplemental coverage on a voluntary basis, buying it at your employer’s group discount rate may be the least expensive route.
Bear in mind that there are no tax consequences on employer-provided life insurance coverage up to $50,000. However, the portion of premiums paid that represents any amount over $50,000 in coverage is taxable, regardless of whether the amount is paid for by you or your employer, because it’s considered a benefit that’s comparable to additional income.
Most employers offer term life insurance, which typically locks in the premium rate for a period of time, ranging from 10 to 30 years – available in five-year increments. Also note that a policy you get from work is generally a guaranteed issue, whereas if you purchase life insurance on your own you’ll be subject to medical underwriting. Underwriting can trigger a higher premium or even cause you to be turned down altogether.
Many employers do not offer whole life insurance, which may be more appropriate depending on your situation. As the name implies, whole life is designed to last your entire lifetime, plus it has a cash value. That means that if at any point you decide you no longer want or need the policy, you can get out some of the money you put into it. However, be aware that whole life generally costs three to five times more than term life insurance.
Also note that a whole life insurance policy is an asset. Many of these policies pay dividends, which can be used to pay the premiums. Over time, some policies grow significantly in value and you may be able to borrow money from the cash value account if needed.
Raymond C. Lantz, Jr. is the president and founder of USA Wealth Group, Inc. Ray has many years of experience advising clients in retirement and sophisticated tax planning strategies, multi-family and commercial real estate projects, and legacy planning. Ray is a graduate of Clark University, holds a law degree from Boston College, and a master of laws in taxation from Boston University. You can hear him every Sunday on Money Wise with Ray Lantz on WBSM 1420AM or on the Radio Pup app.
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Life insurance policies are contracts between the client and an insurance company. Life insurance product guarantees rely on the financial strength and claims-paying ability of the issuing insurer.
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