Four questions, one answer: life insurance

Financial professionals often find themselves across the table from clients who are grappling with large life questions. Some of these questions are urgent, such as how to deal with a parent in failing health, while others involve longer-term goals, such as funding college, starting a business or retiring early.

In many cases, the answer to these questions involves a cash value life insurance policy. Yet, few people are aware of how such an approach can work for them. This knowledge gap represents an opportunity for financial professionals to deepen relationships with clients by uncovering a new approach to some of life's biggest questions.

The most common reason to purchase life insurance — cited by more than half of the respondents to the recent ING U.S. Insurance Revealed study — is to pay off debts or replace income. This appreciation for a life policy's death benefit feature is reassuring and not surprising.

However, far fewer respondents — as low as 1 percent — saw life insurance as a way to address other financial needs. These results provide a chance for financial professionals to educate clients about the abundant ways life insurance can help them answer important financial questions while also providing traditional death benefit protections. (It's important to note that the ING U.S. survey data reflects perspectives of adults over age 25 with annual household incomes of $50,000 or more — a group that's likely to be able to complement their financial portfolios with life insurance.)

While a life insurance policy's cash value can fund many things, financial professionals would be wise to focus on a few strategies that address major issues on clients' minds. Here are four questions clients might have that offer you the ability to provide insights about life insurance.

1. How can I help my kids afford a college education?

Most parents dream of a college education for their children but are unsure of how to prepare for it financially. With life insurance, they get two financial tools in one. The first is, of course, the death benefit from a policy, which could help provide college funding if the owner were to die. The second tool is the cash value in a life insurance policy. In this situation, the alive-and-well policy owner could draw on the value to fund one or more years of a college education, depending on the level of cash value.

Most parents don't know that federal financial aid calculations do not count the cash value in life policies. This advantageous treatment may allow parents to reduce how much they pay out of pocket for a child's college tuition.

2. How can I help my parents — with money and time — as they age?

Too often, sons and daughters are caught without a clear plan when aging parents suddenly need help. Parents might need financial assistance due to unmanageable medical bills. Or they may need greater personal attention, which could require their children to take time off from work, shift to a part-time schedule, or even take a leave of absence if the situation escalates.

A life insurance policy's cash value can help ease these pressures. The son or daughter can withdraw policy cash value to help pay large medical bills without having to dip into retirement or savings accounts. He or she may also be able to spend extra time with parents by working fewer hours, making up the pay gap by tapping into the life policy's cash value.

3. How can I get funding to start my own business?

The dream of running a business calls to many people, whether they have a novel idea or just a desire to be their own boss. But finding funding for a new venture can be tough. Some entrepreneurs start small and reinvest their profits, but they often become impatient at the slow growth such bootstrapping delivers. Others take out bank loans, only to be crushed by the strain of immediate repayments.

With enough cash value in a life insurance policy, the policy owner can quickly access startup capital for a new business. The cash can help with basic business expenses or even personal necessities, such as medical or disability insurance. Few people are aware that two famous entrepreneurs — Walt Disney and Ray Kroc — relied on life insurance policy loans to fund their bold visions for Disneyland and McDonald's, respectively.

4. How can I retire when I want — and on my own terms?

Few people are in complete control of the timing of their retirement. Those with significant cash value in a life insurance policy, however, can exert greater control over the age at which they retire.

Policy owners who diligently build up their cash value over decades can enjoy more flexibility when it comes to the timing of retirement, and they can have the cash to do it, on a tax-favored basis. Cash value can be tapped to allow for early retirement, providing a bridge until qualified plans or Social Security begin to pay out. Or cash value can supplement monthly income when the owner is in retirement. Importantly, there are no rules dictating how long money in a policy must be kept in or when it must be taken out.

Naturally, if the policy owner dies before retirement, the life insurance proceeds can protect his or her family, perhaps helping the surviving spouse during the retirement years.

It's never too soon to start

Ideally, a client should get cash value life insurance at a young age. It can take decades to build significant cash value, so an early start can be critical to gleaning major benefits later on. Also, by locking in the cost of a death benefit at a younger age, the client can typically enjoy a lower price due to better health.

Among younger clients, however, financial professionals often run into an "I've got all the time in world" misconception. The ING U.S. survey found that 23 percent of respondents aged 25 to 34 said they were too young to worry about getting life insurance.

It's important that clients who want to use cash value life insurance in the ways already discussed stay on top of how their policies evolve over time. From year to year, interest rates change, and in the case of variable life policies, the performance of sub-accounts will vary as well. As such, projections of future cash value can shift year to year. To help clients maintain a more realistic perspective on their policies, some carriers are offering a type of concierge service that illustrates the policy's performance based on variables such as interest rates and policyholder actions, including loans or withdrawals taken out or premiums paid into the policy.

Financial professionals are in an ideal position to demonstrate how an array of financial challenges and opportunities can be addressed by cash value life insurance, beyond the well-known death benefit protection. Whether it's funding college, helping older parents, launching a business, or securing retirement, a life insurance policy can provide practical, efficient answers to some of life's most important questions.

For more on life insurance, see:

Life insurance: An overlooked asset class

Expanding the whole life conversation

Whole Life Policies: Tapping Cash Value as Alternative to Equity Investing

ING U.S. Insurance Revealed findings are from an online survey conducted by Praxis Research Partners in July 2012. Respondents were 1,006 adults over the age of 25 with an annual household income of $50,000 or greater. Data were weighted to make the results representative of the U.S. population.

Four questions, one answer: life insurance

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Four questions, one answer: life insurance

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