Iowa Fiduciary

Understanding Life Insurance in Retirement for Iowans

The gap between those who have life insurance and those who still need it is significant, emphasizing the ongoing challenge for the industry to address misconceptions about cost and educate consumers on the value and potential affordability of life insurance. 

If you are one of the 39% of consumers planning to purchase life insurance within the next year, here’s how to help ensure you’re making the right choices.

Iowa Life Insurance

A study by the LIMRA and Life Happens shows that in 2023, the percentage of people who reported having life insurance increased to 52%, up from 50% in the previous year. However, over the past 12 years, there has been a decrease in overall life insurance ownership, dropping from 63% in 2011.

According to the Federation of Iowa Insurers, Iowa has long been recognized as a world insurance leader across the industry’s life, health, property and casualty, and financial services sectors. The Center for Disease Control and Prevention (CDC) has reported the average life expectancy in Iowa is approximately 77.5 years, which is lower than the national average life expectancy, which is currently around 79.05 years in the United States. 

Life insurance can be an important part of your family’s long-term financial planning. Home to 7,000 finance and insurance companies and a workforce of nearly 95,000 talented professionals, Iowa is one of the nation’s top headquarters for the finance and insurance industries. Iowa is well-known for its abundant cornfields, strong work ethic, and spirited caucuses that launch the presidential primary process every four years. But in the last 15 years, the state also experienced a boom in its business sector — boasting GDP growth of 57% in the insurance and financial services sectors alone. By attracting some of the largest companies in those industries, Iowa has become the nation’s insurance capital, ranking first among the 50 states in insurance industry output as a percent of GDP.

Why Life Insurance is Important in RetirementIowa Fiduciary

  1. Income Replacement and Debt Repayment: Although retirees might not have a traditional income to replace, life insurance can still help provide financial support for a surviving spouse or dependents. It can help cover outstanding debts, such as mortgages or loans, helping ensure that these financial burdens do not fall on loved ones.
  2. Final Expenses: Funeral costs, medical bills, and other end-of-life expenses can add up quickly. Life insurance can help cover these costs, alleviating the financial stress on family members during an already difficult time.
  3. Estate Planning and Wealth Transfer: Life insurance can be a strategic tool in estate planning. It allows individuals to transfer wealth efficiently and tax-free to heirs. This can be particularly beneficial in mitigating estate taxes and helping ensure that beneficiaries receive the intended inheritance.
  4. Supplementing Retirement Income: Certain types of life insurance policies, such as permanent life insurance, can accumulate cash value over time. This cash value can be accessed during retirement to supplement income, providing an additional financial cushion.
  5. Charitable Contributions: Life insurance can also be used to make charitable contributions. Policyholders can name a charity as a beneficiary, helping ensure that their philanthropic goals are met even after they pass away.

Life Insurance Trends

According to LIMRA, U.S. life insurance ownership has remained relatively steady since 2021, with about half of adults reporting having coverage. The latest study, now in its 14th year, finds a record-high number of American adults (42%) — representing 102 million adults — saying they need (or need more) life insurance. Importantly, 37% of consumers say they intend to purchase coverage within the next 12 months.

The 2024 Insurance Barometer Study, conducted jointly by nonprofit industry trade associations LIMRA and Life Happens, reveals middle-income Americans (those with a household income of $50,000 – $149,999) represent the largest market opportunity for the industry. Four in 10 middle-income Americans, or 50 million adults, acknowledge they live with a life insurance coverage gap. This group also expressed a greater intent to buy life insurance (54%) than the general population.

In 2024, women were less likely than men (46% versus 57%) to report having life insurance. This 11-point difference is the largest it has ever been over the 14 years of the study. This is not due to lack of awareness about their need for life insurance. Forty-five percent, or 54 million women, say they live with a coverage gap, and more than a third (36%) — and nearly half of younger women — say they plan to purchase life insurance in 2024.

However, half of the women surveyed (50%) noted cost as a deterrent to purchasing life insurance and were less likely to say they are knowledgeable about life insurance (21%).

From having enough money saved for retirement or building an emergency fund to protecting their dependents from financial hardship or the burden of paying final expenses, it’s important for Iowans – both male and female – to understand that life insurance is in reach.

Types of Life Insurance for Retirees

There are several types of life insurance policies, each with unique features and benefits. Understanding these options can help retirees choose the right policy to meet their needs.

  1. Term Life Insurance: Provides coverage for a specified term, typically 10, 20, or 30 years. If the insured passes away during the term, the death benefit is paid to the beneficiaries.
    1. Pros: This type usually has lower premiums compared to permanent life insurance. Ideal for covering specific financial obligations like a mortgage.
    2. Cons: No cash value accumulation. Coverage ends when the term expires, and renewing the policy can be costly.
  2. Whole Life Insurance: A type of permanent life insurance that provides coverage for the insured’s entire life, as long as premiums are paid. It includes a savings component that builds cash value.
    1. Pros: Lifetime coverage with a guaranteed death benefit. The cash value can be borrowed against or withdrawn.
    2. Cons: It can have higher premiums compared to term life insurance. Limited investment options for the cash value component.
  3. Universal Life Insurance: Another type of permanent life insurance with flexible premiums and death benefits. It also accumulates cash value based on market performance or interest rates.
    1. Pros: Flexibility in premium payments and death benefits. Potential for higher cash value growth compared to whole life insurance.
    2. Cons: The investment component comes with risks. Higher fees and complexity compared to other types of life insurance.
  4. Variable Life Insurance: A permanent life insurance policy that allows policyholders to invest the cash value in various sub-accounts, similar to mutual funds.
    1. Pros: Potential for significant cash value growth based on investment performance. Lifetime coverage.
    2. Cons: Investment risk can lead to loss of cash value. Higher fees and complex management.
  5. Guaranteed Universal Life Insurance: A hybrid policy that combines elements of term and universal life insurance, providing lifetime coverage with fixed premiums and a guaranteed death benefit.
    1. Pros: Lifetime coverage with lower premiums compared to other permanent policies. Predictable and stable.
    2. Cons: Limited cash value accumulation. Less flexibility compared to other universal life policies.

How Much Life Insurance Do You Need in Iowa?

As of June 2024, ZipRecruiter reports that the 90th percentile salary in Iowa is $75,983. Salaries above this amount are considered outliers. As mentioned, most financial advisors recommend that you purchase a life insurance policy that will cover your beneficiary for at least 10X – 20X your average annual income. In Iowa that works out to around $759,830 – $1,519,660. This amount will ensure that your loved ones can continue to pay their bills, settle your debts, and cover the cost of your final expenses.

You may also want to purchase additional life insurance to cover:

  • Your mortgage (if you want your spouse and kids to be able to live in the home without worrying about mortgage payments)
  • Children’s education costs (if you want your child’s education to be covered without any additional stress to your spouse)
  • Bereavement therapy costs for your spouse and children (if you want them to spend time with a therapist after your unexpected death)
  • Any other expenses that may be unique to your family or lifestyle

Choosing the Right Life Insurance Policy in Retirement

Selecting the right life insurance policy in retirement requires careful consideration of several factors:

  • Financial Goals and Needs: Assess your financial objectives, such as covering final expenses, providing for a spouse, or leaving a legacy. Determine how much coverage is needed to meet these goals.
  • Budget and Affordability: Consider your budget and how much you can afford to pay in premiums. Permanent policies like whole life and universal life tend to have higher premiums compared to term life insurance.
  • Health and Age: Health and age significantly impact life insurance premiums and eligibility. It’s generally advisable to secure life insurance while in good health to lock in lower premiums.
  • Policy Features and Flexibility: Evaluate the features of each policy type, such as premium flexibility, cash value accumulation, and investment options. You want to be sure that the policy aligns with your financial situation and preferences.
  • Professional Guidance: Consulting with a financial advisor can provide valuable insights and help you navigate the complexities of life insurance. They can assist in identifying the most suitable policy based on your unique circumstances.

How Johnson Wealth and Income Management Can Help Iowa Fiduciary

At Johnson Wealth and Income Management, our financial advisors possess extensive experience in crafting robust insurance strategies designed to help safeguard your family’s financial future. With a comprehensive approach that encompasses personal insurance, liability insurance, and life insurance, we help ensure that every aspect of your financial security is meticulously planned. Our knowledge helps protect your family from the potential financial consequences of unforeseen events, providing peace of mind and stability. 

Contact our team today to begin building a sound insurance strategy tailored to your unique needs and goals.

Final Thoughts

Life insurance remains an important consideration in retirement, offering financial security, peace of mind, and strategic benefits for estate planning and wealth transfer. Understanding the different types of life insurance and how they fit into your overall financial plan can help ensure that you and your loved ones are protected. By carefully evaluating your needs, budget, and available policy options, you can make informed decisions that help provide lasting benefits throughout your retirement years and beyond.

All written content on this site is for informational purposes only. Opinions expressed herein are solely those of Johnson Wealth & Income Management and our editorial staff. Material presented is believed to be from reliable sources; however, we make no representations as to its accuracy or completeness. Investing involves risk. There is always the potential of losing money when you invest in securities. Asset allocation, diversification and rebalancing do not ensure a profit or help protect against loss in declining markets. All information and ideas should be discussed in detail with your individual advisor prior to implementation. The presence of this website, and the material contained within, shall in no way be construed or interpreted as a solicitation or recommendation for the purchase or sale of any security or investment strategy. In addition, the presence of this website should not be interpreted as a solicitation for Investment Advisory Services to any residents of states where otherwise legally permitted to conduct business. Fee-based financial planning and Investment Advisory Services are offered by Sound Income Strategies, LLC, an SEC Registered Investment Advisory firm. Johnson Wealth & Income Management and Sound Income Strategies LLC are not associated entities. Johnson Wealth & Income Management is a franchisee of the Retirement Income Source. The Retirement Income Source and Sound Income Strategies LLC are associated entities. © 2023 Sound Income Strategies.