ADVISOR SPOTLIGHT ARTICLES: INSIGHTS ON BASIC LIFE INSURANCE

Last month, Bryan Taylor was featured in two articles published by MoneyGeek, a website dedicated to personal finance content.

Experts' Insights on Basic Life Insurance
Bryan Taylor, CFP® Vice President and Fiduciary Financial Advisor at Oak Street Advisors

What are the major benefits and potential downsides of purchasing a basic life insurance policy?
Basic life insurance policies, especially term life, offer affordability and simplicity. They are straightforward to purchase and provide essential financial protection for dependents in case of the policyholder's death. However, the downside is that term life insurance only provides coverage for a set period, which might not meet lifelong needs, and it does not build cash value or a savings component; however, if the difference in premiums between whole life and term life is invested with discipline, you'll typically see higher returns and account balances over the long run.

Who should consider purchasing a basic life insurance policy?Young families need to protect against income loss and provide for dependents in the event of untimely death. Those with financial dependents who would face hardship without their support, homeowners with mortgages to ensure the mortgage can be paid off if they pass away, and individuals with debt to cover outstanding obligations and avoid passing financial burdens to family members are all good candidates for basic life insurance.

About hybrid whole life/long-term care policies: a hybrid whole life/long-term care (LTC) insurance policy combines the benefits of traditional whole life insurance with long-term care coverage. This type of policy provides a death benefit like standard whole life insurance and includes a provision for long-term care expenses. If the policyholder requires long-term care, they can access a portion of the death benefit to cover these costs. The policy typically stipulates specific conditions under which LTC benefits can be accessed, such as the inability to perform a certain number of activities of daily living (ADLs) or a severe cognitive impairment.

The primary advantage of a hybrid policy is its dual functionality: it ensures that policyholders have access to funds for long-term care if needed while still providing a death benefit if the LTC benefits are not fully utilized. This can offer peace of mind, knowing that funds are available for both health care needs and beneficiaries. Additionally, hybrid policies often come with level premiums, meaning the cost remains predictable over time, unlike standalone long-term care insurance, which can have variable premiums.
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However, there are also some drawbacks to consider. Hybrid policies are more expensive than standalone whole-life or term life insurance due to the added long-term care coverage. The LTC benefits may also be capped, potentially limiting the amount available for care. Moreover, accessing the LTC benefits reduces the death benefit, which might leave less for beneficiaries. Lastly, the complexity of these policies can make them harder to understand and compare against other options, necessitating careful evaluation and professional advice to determine if they are the right fit for an individual's financial and health care planning needs.