Although most Americans have a strong understanding of the primary need for life insurance within their financial strategy – particularly the death benefit that provides monies to family/loved ones upon death of the insured – many are unaware of the additional living and tax benefits available through permanent life insurance.
According to the 2018 Life Insurance Needs Survey* released March 20 from Allianz Life Insurance Company of North America (Allianz Life®), nearly nine in 10 people (88%) understand the death benefit component of permanent life insurance, yet more than half (51%) are unsure or don’t believe cash value from permanent life insurance can be used to help fund college education, supplement retirement income or assist with other financial needs. Furthermore, a full two-thirds (66%) are unsure or don’t believe benefits paid from life insurance are not taxable.
These misconceptions exist despite the fact that consumers place high value on financial products that can provide these very benefits. When asked what they find most valuable in financial products, 85% of respondents said one that “provides a source of tax-free income in retirement,” followed by 78% who value one that “provides tax-free money for family/loved ones” and 68% who want a product that “provides the ability to use the funds to pay for college.”
While life insurance is not a college funding vehicle and does not provide a source of guaranteed income in retirement, it does provide the opportunity to accumulate cash value. Any cash value in a life insurance policy can be accessed through policy loans and withdrawals income-tax-free1 that can help supplement retirement income or complement a college funding strategy.
“There is a tremendous opportunity for financial professionals to bridge this education gap about permanent life insurance, particularly for financial professionals who are just beginning to embrace a holistic planning model that addresses all aspects of their client’s financial life,” said Jason Wellmann, senior vice president of Life Insurance Sales for Allianz Life. “Too many Americans with significant retirement assets are not optimizing their financial strategy because they simply don’t know all of their options.”
The survey, which questioned Americans between the ages of 35-60 with an annual household income of $100,000 or more, also found that three-quarters of people who work with a financial professional are discussing sources of tax-free retirement income with their professional. Additionally, a full 70% discuss ways to fund their child’s college education and more than half (52%) talk about financial products that offer low/no interest loans against its cash value.
Permanent life insurance is an option that could help meet all of these needs; however, fewer than half of those with a financial professional have permanent life insurance and one-quarter don’t currently have it, but would like to learn more about it.
“Nearly 95% of respondents in our survey said the ability to save enough to retire comfortably was a top priority when planning for their financial future. Americans need a diverse mix of financial products to help them achieve that goal,” added Wellmann. “It’s imperative that all financial professionals have access to a variety of innovative options that can help their clients add both protection and opportunity to their long-term financial strategy.”
Key findings snapshot
85% of Americans find value in financial products that provide a source of tax-free income in retirement.
66% are unsure or don’t believe benefits paid from life insurance are not taxable.
51% are unsure or don’t believe cash value from permanent life insurance can be used to fund college education, supplement retirement income or assist with other financial needs.
1 Policy loans and withdrawals will reduce available cash values and death benefits, and may cause the policy to lapse or affect any guarantees against lapse. Additional premium payments may be required to keep the policy in force. In the event of a lapse, outstanding policy loans in excess of unrecovered cost basis will be subject to ordinary income tax. If a policy is a modified endowment contract (MEC), policy loans and withdrawals will be taxable as ordinary income to the extent there are earnings in the policy. If any of these features are exercised prior to age 59½ on a MEC, a 10% federal additional tax may be imposed. Tax laws are subject to change. You should consult a tax professionals.
About Allianz Life: Minneapolis-based Allianz Life Insurance Company of North America, one of FORTUNE’s 100 Best Companies to Work For® in 2018, has been keeping its promises since 1896. Today, it carries on that tradition, helping Americans achieve their retirement income and protection goals with a variety of annuities and life insurance products. In 2017, Allianz Life provided a total of $2.7 billion in benefit payments that supported policyholders’ financial objectives. As a leading provider of fixed index annuities, Allianz Life is part of Allianz SE, a global leader in the financial services industry with 142,000 employees in more than 70 countries worldwide.
Allianz Life Insurance Company of North America offers insurance and annuities in all states except New York. In New York, products are issued by Allianz Life Insurance Company of New York.
* Allianz Life Insurance Company of North America conducted an online survey, the 2018 Life Insurance Needs Survey, in January 2018 with 803 respondents age 35-60, having an annual household income of $100K+.