C3 Financial Partners

Woe is Me! Life Insurance as an Often Unmanaged, Least Understood Asset Class

Life insurance is a financial product that is typically thought of when it comes to addressing a liability such as having liquidity to pay estate taxes, meeting business obligations, or offering individuals a way to protect their loved ones financially in the event of their untimely demise.  However, life insurance is often underestimated and misunderstood, with its position as a large asset class overlooked.   The planning specialists at C3 Financial Partners work with clients and their advisors in shedding light on the true value of life insurance and highlighting how industry advances and improvements have further enhanced its versatility and its policyholder benefits.

Clarity

Purchasing life insurance is often perceived as a necessary evil to meet family wealth and/or business protection needs.  This seems counter-intuitive when considering how, in return for paying premiums, policyholders receive the unique benefits of tax-free cash value growth, an income tax-free death benefit, and the ability for tax-free distributions from the cash value.¹   No other asset has all three of these attributes.

Given its tax-preferred status, why is buying life insurance sometimes seen as a chore and not an opportunity?  At C3 Financial Partners, we can frequently be heard telling our community of clients and advisors how the life insurance industry can be its own worst enemy when it comes to explaining how life insurance products work and how to position them in a financial plan to obtain the best outcome.

Life insurance is often misjudged as the largest misunderstood asset for several reasons:

Complexity: The terminology and technicalities involved can be overwhelming for individuals who are not familiar with insurance concepts, leading to confusion and misunderstandings.

Lack of awareness: People may not fully understand the purpose and scope of life insurance, which can lead to misconceptions and underestimation of its value as an asset.

Perception as an expense: Life insurance is sometimes seen as an expense rather than an asset and some fail to recognize its potential for income-tax free financial protection, cash accumulation and wealth creation.

Focus on immediate needs: Prioritizing short-term financial goals and immediate needs over long-term planning, individuals may not fully grasp the long-term benefits of life insurance.

Investment component: The investment aspect of certain types of life insurance is not well understood by many individuals, and they may not fully comprehend the potential for tax-deferred growth and additional financial opportunities.

Misconceptions about affordability: Some people assume that life insurance is too expensive or unaffordable and may not be aware that there are different policy and premium payment options available to suit various budgets.

Lack of expert guidance: The complexity and variety of life insurance products make it crucial for individuals to seek advice from qualified insurance professionals or financial advisors.

Confidence

Recognizing the need for advocacy, the team at C3 Financial Partners has made it a priority to educate others about life insurance – its benefits, how it fits into financial plans, and how it can be a valuable asset in terms of protection, wealth accumulation, and legacy planning.

Perhaps one of the greatest faults of the life insurance industry is not promoting the advances and improvements the industry has made in processes, products, and features that benefit the consumer.

    • Among these are:

    • Accelerated Underwriting: Leveraging technology and data analytics, insurers can expedite the underwriting process and make quicker underwriting decisions, making it faster and more convenient for applicants to obtain life insurance coverage, sometimes without the need for a medical examination.
    • Digital Applications and E-Signatures:  This reduces paperwork and enables individuals to apply for life insurance from the comfort of their homes.
    • Customizable Policies:  Insurers are increasingly offering customizable life insurance policies with options such as flexible premium payment periods, the ability to increase or decrease coverage amounts, and the inclusion of riders or additional benefits to enhance the policy’s functionality.
    • Hybrid and Combination Policies:  The life insurance industry has seen the emergence of hybrid and combination policies that combine life insurance protection with other types of coverage, such as long-term care or critical illness coverage.
    • Living Benefits and Policy Riders:  These optional add-ons to life insurance policies provide policyholders with the ability to access a portion of the death benefit or accelerate the death benefit payout while still alive, under certain circumstances.
    • Digital Tools and Customer Experience:  Insurance companies have invested in digital tools and platforms allowing for easier access to policy information and improving customer engagement with personalized recommendations and more efficient policy management.
    • Large Coverage Amounts:  By understanding and navigating the complexity of the reinsurance marketplace, life insurance amounts of over $100 million can be obtained, providing affluent families and qualified businesses to purchase the death benefit they need and eliminate any gaps in coverage.

     

    Coordination

    As Thomas Jefferson wrote in 1817, “Knowledge is power….” and this certainly applies to the purchase and positioning of life insurance.  C3

    Financial Partners can support you and your other advisors by serving as a knowledgeable resource and a valuable part of a planning team.  We look forward to helping our clients and their advisors gain clarity in their goals and objectives, confidence that they are making the right decisions, and coordination with other advisors.

    ¹ Income tax-free loans available if policy is structured as a non-Modified Endowment Contract. Access to cash values through borrowing or partial surrenders will reduce the policy’s cash value and death benefit, increase the chance the policy will lapse, and may result in a tax liability if the policy terminates before the death of the insured.

Individuals and businesses, even nonprofits, engage us to identify, prepare for, and manage some of the risks they can't control.
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