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Myth-Defying Insurance - Separating myth from reality is the first step in finding a life insurance solution that fits you just right.
By Jack Gordon
Illustrations by Carl Wiens
 You know how a one-size-fits-all T-shirt never really fits all? It’s the same with insurance. What’s good for one is rarely good for all—despite what some would have you believe.
Still, we often fall prey to commonly held myths and generalizations like this when it comes to assessing the role life insurance plays in our broader financial outlook. The bad news: these myths can steer you in the wrong direction. The good news: armed with the right guidance and a bit of “myth-detection” know-how, you can take advantage of this critical tool and make good long-term choices for you and your family.
Insurance Hearsay
If you’re like many who have made the leap to the next stage of life, either a new chapter in your career or full-fledged retirement, you may have noticed that some of the things you’ve heard or thought you knew about life insurance aren’t necessarily so. Some people will suggest life insurance is a thing of the past for you. Others will tell you that despite what you’ve heard, you need to steer clear of life insurance as a way to save additional money. Life insurance myths like this are “nothing more than vast generalizations,” says Bruce Fear, vice president of protection products and solutions for Thrivent Financial. “They have no place in solving individual problems.”
In reality, life insurance solutions are unique to each individual situation. The only intelligent decisions you can make are those based on your family, your financial situation, your discipline, and, above all, your goals. A good financial professional is one who asks a lot of questions before making recommendations about the types and amount of coverage you might require. Think twice about anyone who has the answers before the questions have been asked.
So, if you find yourself wondering if you still need life insurance, consider this: How secure will you or your spouse be if one of you dies years before the other? Even if you feel like you’ve already accounted for that in your long-term savings strategy, there may be some additional savings options to consider, not to mention the tax implications of leaving legacies behind for your children, your grandchildren, your church or your favorite charitable causes.
Believe it or not, despite the myths you’ve heard, life insurance might be the estate planning tool you need.
New Found Need
For instance, “There is a popular myth that all life insurance needs are temporary,” says Todd Yeiter, director of insurance product marketing for Thrivent Financial for Lutherans. “You’ll only need it until the kids are through college, or only until the house is paid off, or only until you find someone to buy your business, or only until you accumulate enough assets to ensure a comfortable retirement.”
The truth is that needs for life insurance change as you age, but they don’t go away. “There’s always another reason why life insurance makes sense,” Yeiter says. Maybe the mortgage isn’t paid off after all. Maybe your retirement savings are coming up short. Or you just realized how your death will affect your spouse’s income. Perhaps in the course of your estate planning, you discover the tremendous advantages of bequeathing insurance money as opposed to other assets.
Kevin Ruebesam, a Thrivent Financial representative in Longmont, Colorado, recommends that you think of life insurance as a tool that has different uses at different stages of life. “I originally had life insurance to care for my kids,” says Ruebesam, 43. “That’s still true. But later I can use it to supplement retirement income, transfer wealth income tax free or multiply a gift to my church or a charity.”
First Things First
Thrivent Financial representatives see a wide range of issues that come up among retired members. One is income replacement for a surviving spouse. If a couple is drawing two Social Security checks, one check goes away when the first partner dies. Pension payments often are reduced similarly. It’s surprising how many retired people don’t realize that or haven’t accounted for it in their planning, says Marlin Pruismann, a Thrivent Financial representative in Blairsburg, Iowa.
Among Pruismann’s clients is a retired couple, both 70 years old. “The wife will lose $24,000 in annual income if he dies first, because of cuts to his Social Security payments and his pension check from the state of Iowa,” Pruismann says. But the husband also has $170,000 in an IRA account that they don’t expect to need, and he has to start taking money out of it at age 70½. A solution that worked in this case was to use some of the IRA money to pay the premiums on a life insurance policy that will make up the income gap for the wife if the husband should die first. Meanwhile, the cash value builds up in the policy.
Looking Ahead
Insurance also can play a role as you consider how to pass on your assets. “There is no better transfer vehicle out there than life insurance,” says Pruismann. The multiplier effect on the amount you pass along is one great virtue of life insurance as an estate-planning tool. Suppose you’ve set aside $300,000 to pass on to your heirs or a charity upon your death. “If you’re healthy enough to get an insurance contract, why not turn that into $600,000 or $700,000 instantly?” he asks. You can use the $300,000 to pay the premiums.
Another important feature of life insurance is that the death benefits on policies are income tax free. Suppose your IRA or 401(k) account contains more money than you will need, and you want to leave the bulk of your assets to your heirs and also make a gift to your church. Reubesam points out that if you leave the IRA account to your kids, “you’re passing on a taxable asset; the kids will lose roughly a third of it to income taxes.” An alternative is to bequeath the remaining IRA assets to your church upon death—since the IRA is being paid to a nonprofit organization, the church will not have to pay income taxes on the proceeds. For the kids, Reubesam suggests, replace or increase the value of the IRA money with a life insurance policy that pays immediately to your heirs when you’re gone, income tax free. You may be able to use the money from your IRA to help you pay the premiums on the life insurance policy, although keep in mind that any distributions from the IRA will be subject to income taxes, and if you’re under age 59½ you would be subject to a 10 percent premature withdrawal penalty.
Far from what you may have been led to believe, life insurance has a whole new role to play in this new stage in your life and can be a key ingredient in helping you realize your dreams, protect your family and lay the foundation for your ongoing legacy.
Jack Gordon is a writer and editor in Eden Prairie, Minnesota.
Act Now
Your Thrivent Financial representative can help you tailor an insurance strategy that meets your needs.
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