The COVID pandemic changed the way that Americans think about both money and life insurance. According to a 2021 LIMRA study, 31 percent of respondents said that the pandemic has increased their likelihood of buying life insurance. The study further found that the concern surrounding life insurance coverage grew faster than other financial concerns over the past 2 years.
As the general public begins to prioritize their life insurance purchases, it’s a good time to review the portfolios of your clients who are also key employees in their businesses to see if they would be better served by adding a second insurance policy to their financial plan.
Supplementing Inadequate Employer Coverage
The aforementioned LIMRA survey found that close to 30 percent of workers believe their employer-sponsored life insurance policy offers them enough coverage. Yet according to the US Bureau of Labor Statistics, the median workplace coverage is either $20,000 or a single year’s salary. This may explain why 42 percent of families would experience financial hardships within 6 months of losing the primary breadwinner.
One way to ensure your key-employee clients have enough coverage might be to consider a life insurance premium financed policy to supplement their employer-sponsored policy. This could allow your key-person clients to get the coverage they need to keep their families safe and comfortable without having to liquidate other assets.
Securing Mortgage Coverage
Clients with little debt may have lower life insurance needs than others. Those with a mortgage, however, may want to secure their family home with a separate insurance policy with the death benefit intended for direct repayment of the mortgage. In December 2021, the median US home price was $358,000. Having a second policy to repay a mortgage lender means more peace of mind for your client’s family.
For those clients with multiple homes, investment properties and vacation rentals, life insurance premium financing could cover both outstanding mortgages after death and help fund various succession plans for the property.
Laddering Life Policies
Just as they do with CDs, your clients may want to consider laddering their life insurance policies. This strategy involves securing several term life insurance policies with staggered maturity dates timed with the repayment dates of specific debts, such as mortgages or big ticket obligations such as college tuition payments.
By purchasing policies with staggered start and end dates, your clients total death benefit lessens over the years, right along with their debt obligations and other financial commitments. For example, by the time your client reaches their 75th or 80th birthday, college tuition may no longer be something they need coverage for now that their children have graduated and live on their own.
By stacking life insurance policies early on in adulthood – ideally before their late 40s – your clients can take advantage of more affordable premiums than they would by laddering in their 50s or 60s. Further, they can use life insurance premium financing to help manage premium costs on those larger life policies they want to maintain throughout their lives.
To determine the right plan for your clients, reach out to a GFD Financial Services Manager today.
