Life Insurance An Important Piece Of Investment Strategy, But Many Missing Out

American consumers still struggle with certain aspects of life insurance, though total premiums paid for individual policies set a record for the fourth consecutive year in 2024.

Life insurance premiums in the United States totaled $16.2 billion last year, according to financial services research firm LIMRA. Life insurance represents a sound security blanket, even if it can feel confusing and intimidating to some consumers.

Still, the overall number of life insurance policies issued saw positive growth in 2024, and there were roughly 134.2 million individual policies and 118 million group policies active in 2023, the American Council of Life Insurers states.

Fifty-two percent of respondents to LIMRA’s Insurance Barometer Study reported having life insurance, either their own policy or a group policy through their employer, while ACLI reported that 57 percent of Americans employed in private industry had access to life insurance through their employers.

There remains some confusion among consumers about life insurance, however. A 2024 Corebridge Financial survey found that just 20 percent of respondents knew that a term life policy typically ends with no refund if the policyholder outlives the term, and a mere 6 percent could correctly define life insurance rider. (Correct answer: an add-on to a policy that provides extra coverage or features.)

It is no wonder, then, that more Americans are not up to speed: LIMRA’s research found that an estimated 102 million Americans were uninsured and underinsured when it comes to life insurance in 2024. That is about 42 percent of adults.

Jason Prather, managing principal at Legacy Capital in Little Rock, specializes in estate planning among other areas, and life insurance represents a major component to his work. Prather said consumers should look at life insurance as an important part of their wealth management.

Jason Prather

“Properly designed life insurance planning plays an extremely vital role in comprehensive wealth management,” he said. “The income-tax-free nature of a life insurance benefit, in addition to its critical function of protecting families and their income in the event of an unexpected tragedy, can also be used for many other strategic planning purposes.”

Prather said life insurance helps his clients preserve their estates by offsetting estate tax exposure and allowing for the fluid transfer of wealth to children, grandchildren and even future generations. He added that life insurance policies can be designed to help supplement other retirement assets by providing a tax-free income stream.

“Life insurance is also frequently used for estate equalization in the event a family is transferring its business and not all of the children desire to be involved in the ongoing operation of that business,” he said.

Life insurance policies are also used as a component of philanthropic giving.

“Life insurance is not only used as a safety net to protect against an unforeseen event such as the unforeseen death of an individual; it is a strategic asset class that simply performs differently than all other asset classes and is always a great complement to a diversified wealth management plan,” Prather said.

Many Americans these days are forced to prioritize expenses and may see life insurance as one with which they can live without. The Corebridge survey found that among respondents who did not purchase life insurance, the No. 1 reason — cited by 22 percent of respondents — was “more important financial obligations.”

Other reasons included no dependents/don’t like to think about death, 20 percent; can always buy it later, 15 percent; good health/too complex, 11 percent; already have enough to provide for loved ones, 7 percent; and complicated process/previous bad experience, 4 percent.

Consumers would be well served to reevaluate their finances and where life insurance fits, Prather said. He noted a current economic climate that includes potential inflationary pressures, volatile markets, unpredictable interest rates and uncertain tax policies.

“We advise our clients and the various other advisors we work together with to consider using permanent life insurance as a key component of their overall asset allocation strategy,” he said. “Unlike traditional investments, permanent life insurance functions as its own distinct asset class largely uncorrelated to the performance of stocks and bonds. That, combined with the very favorable tax treatment of life insurance, makes it a powerful tool for reducing overall portfolio volatility, as well as protecting family assets and wealth in the event of an untimely death.”

Investing in life insurance provides dividends that may not be obvious at first glance. Prather said allocating a portion of a client’s wealth to a properly designed life insurance policy provides both security and stability “that no other asset class can provide.”

“Numerous studies have shown that integrating permanent life insurance into a diversified portfolio will enhance the long-term performance and reduce overall risk exposure to that portfolio,” he said. “The unique benefits provided by permanent life insurance, such as guaranteed growth, downside protection, tax-deferred accumulation, tax-free access to policy values and the tax-free death benefit, make permanent life insurance a valuable and versatile addition to a client’s overall asset allocation and financial plan.

“Now more than ever, life insurance should be viewed not only as a means to protect one’s family, but as a strategic and stabilizing addition to a thoughtful diversified asset allocation.”

Term vs. Whole

Term

• Premiums locked in for a fixed period

• Can usually be renewed at the end of the term

• The most affordable option in most cases

• Holds no cash value

• Includes a guaranteed death benefit

• Has no surrender value if policy is dropped

Whole

• Fixed premiums locked in for life

• Coverage lasts for life of policyholder as long as premiums paid

• More expensive than term

• Builds cash value, which can be accessed during life of policyholder

• Includes a guaranteed death benefit, but amount is reduced if cash drawn out

• Surrender value possible when policy is dropped

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