Key Findings Snapshot:
- Only 33% of women believe that cash value from a permanent life insurance policy can be used to provide retirement income while you are still alive versus 52% of men
- Only three in 10 Gen Xers understand benefits paid from life insurance are not taxable versus 38% of baby boomers
- 67% of Americans have discussed financial products that offer sources of tax-free income in retirement, down from 75% in 2018
MINNEAPOLIS, July 16, 2019 – A majority of Americans (82%) continue to 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 – but women and Gen Xers are behind in awareness about additional benefits that permanent life insurance can offer.
According to the 2019 Life Insurance Needs Study* from Allianz Life Insurance Company of North America (Allianz Life®), women lack familiarity with a number of important benefits offered by permanent life insurance that could help build more flexibility in their financial portfolio. Only 34% of women believe that the cash value from a permanent life insurance policy can be used to help fund education, retirement or other financial needs versus 51% of men. Furthermore, only about one- quarter (27%) of women know that benefits paid from life insurance are not taxable versus 38% of men1.
Most concerning, only one-third of women believe that cash value from a permanent life insurance policy can be used to supplement retirement income while you are still alive versus more than half (52%) of men who know it can be used for that purpose.
“Women play a significant role in family finances, so it’s crucial that they have all of the information about ways they can help build a stronger financial future for themselves and their loved ones,” said Jason Wellmann, senior vice president of Life Insurance Sales, Allianz Life. “This is also true for Gen Xers, who can utilize these products to assist with a number of financial strategies, but simply don’t have a complete understanding of all the options that can help them achieve their financial goals.”
This knowledge gap about the benefits of permanent life insurance is echoed by Gen X respondents. Only 31% of Gen Xers understand that benefits paid from life insurance are not taxable versus 38% of boomers. Also, nearly half (47%) of older respondents know that life insurance can be accessed to provide supplemental retirement income while you are still alive versus only 41% of the Gen X cohort.
These misconceptions exist despite the fact that overall, consumers place high value on financial products that can provide similar benefits. When asked what they find most valuable in financial products, 83% of respondents said one that “provides a source of tax-free income in retirement,” followed by 76% who value one that “provides tax-free death benefit for family/loved ones” and 57% of those with kids in the household 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 build accumulation value. Any cash value accumulated in a life insurance policy can be accessed through policy loans and withdrawals income-tax-free2 that can help supplement retirement income or complement a college funding strategy.
Underscoring the need for more education on this topic, the survey also found that fewer people who work with a financial professional are discussing the benefits of permanent life insurance with their professional than they did in 2018.
“It’s clear that the financial planning community has an excellent opportunity to educate their female and Gen X clients about the living and tax benefits of permanent life insurance,” noted Wellmann. “Providing this information can demonstrate a more complete understanding of their clients’ needs and the potential solutions available.”
1 The death benefit is generally paid income tax-free to beneficiaries.
2 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 professional.
Guarantees are backed by the financial strength and claims-paying ability of the issuing company.
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 2019 Life Insurance Needs Study, in March 2019 with 800 respondents age 35-60, having an annual household income of $100K+.