In this Section:

4 Ways To Open Clients' Eyes To The Power Of Cash Value

Financial professionals who want to deepen their relationships with clients may be overlooking an opportunity that’s hidden in plain sight: cash-value life insurance. That is because most clients probably have no idea that life insurance may help solve some of their most daunting financial challenges, from tending to aging parents, to sending a kid to college, to taking control of when and how they retire.

A recent study by ING U.S., Insurance Revealed, found that the most common reason to purchase life insurance – cited by half of the survey respondents – is to replace income or pay off debts. In other words, they are focused solely on the death benefit feature of a life policy. A far lower percentage – as low as 1 percent – saw life insurance as a means to achieve other financial goals.

This blind spot is an opportunity for financial professionals to step up and show how life insurance can meet a range of financial needs – while still providing the more obvious death benefit. And, take note: This ING U.S. survey data reflects the views of adults over 25 with an annual household income of $50,000 or more, which means they are probably in a category where life insurance can complement their financial portfolio.

Cash value in life insurance policies can be used in many ways, but it’s important to focus on a few key strategies that can address top-of-mind concerns – or secret dreams – of your clients. Here are four distinct opportunities to discuss with them.

OPPORTUNITY NO. 1: Providing Flexibility in Retirement

For many people, a retirement date signifies something that is chosen for them, rather than a flexible decision that they control. The cash value of a life insurance policy can be used for an early retirement to provide a bridge to the point where payouts from qualified plans and Social Security begin. It may also be used to provide a supplement during retirement to boost monthly income. Most importantly, life insurance can provide protection for the family in the event of premature death, with the death benefit proceeds helping to fund a spouse’s retirement.

The cash value in a life insurance policy is under the control of the owner. There are no pressures or timelines dictating how long money must be kept in or when it can be taken out. With a substantial amount of cash value built up over decades in a life policy alongside well-funded retirement savings, an owner can have more flexibility in terms of when to retire and ready cash to do it, on a tax-favored basis.

OPPORTUNITY NO. 2: Launching a Business

Many people long to start their own businesses, either because they have a great idea or because they want the ex-citement of controlling their own destiny. A major roadblock is the capital to get started. Many take out bank loans, only to struggle with the immediate financial strain of meeting their repayment obligations. Others try to “bootstrap” by starting small and re-investing what they earn, only to become frustrated by slow progress.

A life insurance policy’s cash value can help with a startup business. The owner has complete control over the money, and can use it to pay for startup expenses and life expenses like medical and other insurance, while the business gains its footing. Visionaries like Walt Disney and Ray Kroc used life insurance policy loans to launch Disneyland and McDonald’s fast food.

OPPORTUNITY NO. 3: Paying College Tuition

Life insurance can play two roles in helping pay for a child’s college education. One scenario, which most people would rather avoid discussing, applies when the policy owner dies. In such an unfortunate event, the death benefit – presuming it’s high enough – can be a resource to cover a child’s college education. A second and less drastic scenario can apply when a policy owner puts enough money in the policy over time to build up cash value to pay for one or more years of a college bills.

A little-known fact about the cash value in life policies is that it does not get counted in federal financial aid calculations. This can be a very important advantage that potentially lowers the actual out-of-pocket costs of college tuition.

OPPORTUNITY NO. 4: Supporting Aging Parents

It’s an all-too-common scenario: an aging parent is suddenly in failing health and calling for a lifeline. In some cases, parents may rely on adult children for financial help if medical costs become unmanageable. In other cases, the children may need to take significant time off from work to assist their parent.

Here, too, the cash value in a life insurance policy can play an important role. A withdrawal of cash value can ease the financial pressure of big medical bills – without resorting to tapping into savings or retirement accounts. Also, by using the cash value to supplement employment income, a son or daughter can ease their work schedule to spend time when their parents need them most.

The Time to Engage is Now!

The key to unlocking these benefits is for the policy owner to start planning and putting money into their policy early on. For financial professionals, this means engaging your clients, particularly the younger ones who might not be thinking about life insurance at all. It can take a decade or more to generate significant cash value, so it’s important for the owner to start building the cash value of the policy early on. Starting early has another important advantage: it locks in the cost of insurance at a time when age and medical condition typically deserve the best possible prices. The ING U.S. survey found that 23 percent of respondents age 25 to 34 said they were too young to worry about life insurance.

Clients who use life insurance in this way must be careful to stay on top of how their policy is evolving. Interest rates will vary from year to year, as will the performance of various sub-accounts if it is a variable life policy. So, a projection of future cash value made in one year might be dramatically different when calculated just a few years later. To ease this process, some carriers offer a concierge-style service that illustrates how the policy is performing based on interest rates and the actions the policyholder has made, such as premiums paid in or account values taken out through loans and withdrawals. Financial professionals can help open their clients’ eyes to the opportunities that life insurance offers beyond its essential death benefit protection. Unbeknown to many, life insurance can actually play a key role in retirement and college planning, supporting aging parents or even launching a business.

More from InsuranceNewsNet