Growing up, I knew very little about life insurance. This had not been a topic taught in school, nor discussed at home.
Starting my first job out of school, life insurance was offered as a company benefit included in all the papers we filled out when hired. There was not an educational briefing about the benefit and I didn’t know enough to ask 🤷🏻♀️ Reading those papers, it said that if I died, a benefit would be paid out. That was the extent of my knowledge.
Ignorance is not bliss! September is Life Insurance Awareness Month. Learning more about life insurance over the years, I’d like to share what this layperson has learned and share resources available for you that could be of help to your understanding.
History of Insurance in the US
Overview
- The first insurance company in the U.S. dates back to colonial days: the Philadelphia Contributionship, co-founded by Ben Franklin in 1752
- Throughout U.S. history, new types of insurance have evolved as new risks (such as the automobile) have emerged
- In the late 19th century, scandals and shady practices rocked the young insurance industry
- Under the McCarran-Ferguson Act of 1945, insurance companies became exempt from most federal regulation and are instead subject to state law
- In recent years, the internet has had a major impact on how insurance is sold and how insurance companies evaluate risk
Life Insurance Statistics for 2022
Forbes Advisor cited numerous statistics pertaining to life insurance this month. Will recap below and for the link to the entire article https://www.forbes.com/advisor/life-insurance/life-insurance-statistics/
- According to results from a Forbes Advisor survey on life insurance, at least three in four American adults have some form of life insurance
- Women (22%) are twice as likely as men (11%) to lack life insurance
- Forbes Advisor survey respondents were commonly unaware that certain aspects of personal history—unrelated to health—are considered by insurers when determining an individual’s life insurance quote:
- Only 35% of respondents knew that driving records are usually considered
- 33% knew criminal history could be considered
- 29% knew credit history could be considered
- 23% knew a current bankruptcy is often considered
- Almost 60% of respondents to a Forbes Advisor survey on marijuana and life insurance indicated they’d have reservations about applying for life insurance if they legally used marijuana
- More than half (56%) of respondents indicated they would not respond honestly to questions about marijuana use in order to sidestep higher life insurance quotes
- Many Americans view life insurance as a means of protecting their families from unpaid debt. White respondents (64%) to a Forbes Advisor survey were much more likely to indicate this view than Black respondents (37%)
- A relatively small number of Americans view life insurance as a means of passing down generational wealth. Black respondents (22%) were nearly three times as likely as white respondents (8%) to indicate this view
- Eight out of 10 consumers overestimate the expense of getting a life insurance policy, according to a study by LIMRA and Life Happens
- Fewer than half of people without life insurance surveyed in this study say they feel financially secure. The same survey found that 68% of life insurance owners say they do feel financially secure
- This feeling of financial security rises to 78% when a consumer has both employer-based and individual life insurance policies, according to the Insurance Information Institute
- The number of Americans who believe they don’t have enough life insurance has more than doubled since 2010
- 44% of American households would encounter significant financial difficulties within half a year if they lost the primary wage earner in the family, and 28% would reach this point in only a month
- The percentage of Americans with life insurance is about 52%, including individual and workplace life insurance, according to LIMRA
- 106 million American adults do not believe they have adequate life insurance coverage, according to the 2022 Insurance Barometer Study conducted by LIMRA and Life Happens
- Fewer than one in five adults surveyed by Forbes Advisor are covered by both employer-based life insurance and a personal life insurance policy, with little difference between men and women within this category
- About one in four American adults surveyed is covered solely by an employer-based life insurance policy. This describes about one in three American men but only about one in five American women
- Approximately one in three American adults surveyed are covered solely by an individual policy unrelated to their employer, with little difference between men and women within this category
- Nearly one in five (17%) American adults surveyed have neither employer-based nor individual life insurance
- The percentage of American adults without life insurance varies considerably by demographic. For example:
- 22% of American women surveyed lack life insurance, compared to only 11% of American men.
- 64% of Americans aged 58 and older surveyed lack life insurance, compared to only 9% of Americans aged 18 to 25
- The percentage of Americans who have term life insurance decreased to 48% in 2019 from 52% in 1998. But the median face value rose to $110,000 from $60,000 during the same period
- The percentage of Americans who have cash value life insurance policies dropped to 20% in 2019 from 30% in 1998. At the same time, the median face value increased from $45,000 to $50,000
Life Insurance Tax Benefits
When the insured person on a life insurance policy dies, a lump sum death benefit is typically paid out to the beneficiary(ies) who are named in the policy. Insurance and Estates.com https://www.insuranceandestates.com/life-insurance-taxation/ provides information for you to learn. These funds are generally received income tax free. But this doesn’t mean that money that comes out of a life insurance policy will never be subject to taxation.
The most common methods for receiving funds from a life insurance policy include:
- Death benefit proceeds
- Cash value withdrawals
- Policy loans
- Living Benefits / Accelerated Death Benefits
It is important to note that while the lump sum death benefit from a life insurance policy is received free of income taxation, it could be subject to estate tax if the funds are included as part of your taxable estate. According to the IRS, the value of life insurance proceeds will be included in your gross estate if the proceeds are payable to:
- Your estate – either directly or indirectly, or
- A named beneficiary (or beneficiaries), if you possessed any incidence of ownership of the policy at the time of your passing
- Each year, however, the IRS mandates an amount of estate tax exemption, below which a decedent’s estate may not be taxable
Estate Tax Exemption Amounts Over Time in the U.S.
| Period | Amount of Exemption |
| 1977 (Quarters 1 and 2) | $30,000 |
| 1977 (Quarters 3 and 4) | $120,667 |
| 1978 | $134,000 |
| 1979 | $147,333 |
| 1980 | $161,563 |
| 1981 | $175,625 |
| 1982 | $225,000 |
| 1983 | $275,000 |
| 1984 | $325,000 |
| 1985 | $400,000 |
| 1986 | $500,000 |
| 1987 – 1997 | $600,000 |
| 1998 | $625,000 |
| 1999 | $650,000 |
| 2000 – 2001 | $675,000 |
| 2002 – 2010 | $1,000,000 |
| 2011 | $5,000,000 |
| 2012 | $5,120,000 |
| 2013 | $5,250,000 |
| 2014 | $5,340,000 |
| 2015 | $5,430,000 |
| 2016 | $5,450,000 |
| 2017 | $5,490,000 |
| 2018 | $11,180,000 |
| 2019 | $11,400,000 |
| 2020 | $11,580,000 |
| 2021 | $11,700,000 |
| 2022 | $12,060,000 |
Source: Estate Tax Exemption Amount Goes Up for 2022. Kiplinger. November 10, 2021. https://www.kiplinger.com/taxes/601639/estate-tax-exemption-2022
Depending on where you reside, it is possible that your estate – including the value of any life insurance proceeds that are included in it – may also be subject to state estate tax, too. In addition to the District of Columbia, the following states impose estate and/or inheritance taxes (in 2022):
- Connecticut
- Hawaii
- Illinois
- Maine
- Maryland
- Massachusetts
- Minnesota
- New York
- Oregon
- Rhode Island
- Vermont
- Washington
If you do have an estate that is valued at $12.06 million or more (in 2022), and you are not passing your assets along to a spouse (because you are single or your spouse has pre-deceased you), then your assets – and essentially, your loved ones – could face a federal estate tax of up to 40%.
Pay Attention to the Type of Policy
To get you started on your search, here’s an overview from Forbes https://www.forbes.com/advisor/life-insurance/types/ of types of life insurance and the main points to know for each.
- Term life insurance
- Whole life insurance
- Universal life insurance
- Variable life insurance
- Burial insurance/funeral insurance
- Survivorship life insurance/joint life insurance
- Mortgage life insurance
- Credit life insurance
- Supplemental insurance
Recap
Life Insurance is deeply personal decision. It is also a tool in your toolkit for planning “in case” and retirement planning. For those who have policies with work, are you able to take the policy with you if you no longer work there? If not, would you feel more prepared having a policy?
The nuances of each policy type and provisions involved can feel overwhelming. While I don’t sell policies, I have met people over the years throughout the country with expertise in this area.
Reach out if you’d like to discuss. You can send me a note: Lynn@thelivingplanner.com or call/text my office +1951.400.5966.
If you’d like general information about what I do and why I do it, my website is: https://thelivingplanner.com and my online courses/resources will give you an idea of what I offer to assist people, pets and businesses here: https://courses.thelivingplanner.com
This quote spoke to me this week, by Leonardo da Vinci “Simplicity is the ultimate sophistication.” ~ 💗 –Lynn
LifeHacks #CareForPeopleCareForBusiness