Is life insurance the secret to financial security?

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There is no shortcut to financial security: It takes a lot of hard work for your money to return the favor. But amid rising costs of living, a weakened dollar and back-breaking inflation at levels not seen since the late 1970s and early 1980s, more Americans are finding that their efforts aren't paying off, presenting a serious predicament for their loved ones in the event of an unexpected loss.

Life insurance provides the financial security families need when hardships happen.

During the lockdown, millions of Americans were able to save, putting themselves in much more stable financial positions. In fact, the deposit-to-GDP ratio in 2020 rose to more than 75%, according to the Federal Reserve. That compares to 40% in the early 1990s and 35% in the early 2000s. Economists and financial analysts attribute the deposit growth, in part, to COVID-19 mitigation measures that prevented people from going about many of their day-to-day activities, especially non-essential spending. Even though millions of Americans lost their jobs in 2020 because of coronavirus mitigation measures — including an estimated 200,000 business establishments nationwide that closed permanently, according to Fed data obtained by The Wall Street Journal — close to 60% of Americans that year said they were in a better financial situation compared to 2019, per a Gallup poll. That marked a record high in the history of this particular poll, which Gallup has conducted since 1976.

But with life getting back to some semblance of normalcy, many Americans aren't making as much financial headway as they may have anticipated. In that same survey, only 41% of respondents said they're in better financial shape today than they were in 2021 — an 18% decline.

Inflation is crushing budgets
Much of their financial frustrations derive from inflation: The costs of goods and services are up considerably even from 2021, including groceries, gasoline and energy, as well as big-ticket items like vehicles. Generally speaking, the inflation rate from one year to the next averages around 2%. But for the entirety of 2022, the Consumer Price Index, which tracks what everything from food to fuel costs people to buy, has risen. In May, for example, the CPI increased 8.6%, according to the Labor Department. This represents the largest year-over-year increase in prices since 1981. In April, the measure rose 8.3% from 12 months earlier.  

It's little wonder why close to 1 in 3 Americans consider inflation the most pressing financial problem for their family, according to a separate Gallup poll. Between 1990 and 2021, an average of only 1% cited inflation as their biggest financial pain point.

With the Federal Reserve playing catchup to get inflation under control — which includes raising interest rates by three-quarters of a percentage point, the highest rate hike since 1994, according to Axios — many economists are forecasting a recession perhaps as soon as this year. The economy shrank in the first quarter of 2022, and it takes only two consecutive quarters of GDP contraction to create an official recession. 

It's with these economic realities as a backdrop that families find themselves struggling to get ahead, the financial winds seemingly no longer at their backs after saving as much as they did in 2020. According to a study jointly conducted and commissioned by the trade groups Life Happens and LIMRA, which involved some 8,500 adults charged with making their family's financial decisions, 40% of parents acknowledge being either not at all financially secure or barely so. In the event of a scenario that prevented them from earning a living — like a debilitating illness, serious injury or untimely death — 44% said they would be at risk of running out of money in six months or less.

Life insurance owners feels more secure
Among those with a life insurance policy in place, the Life Happens-LIMRA poll found over two-thirds of respondents (68%) are confident they'd be okay financially if their household's primary wage earner died or fell grievously ill. Less than half (47%) of respondents said they would feel secure if the head of household suddenly passed away but did not have coverage. Life insurance undeniably helps provide some sense of financial stability in an uncertain world.

Faisa Stafford, president and CEO of Life Happens, said policyholders know life insurance is something they can fall back on in their time of need, making it fundamental to financial stability.

"Life insurance is the foundation of any strong financial plan, and our results show it provides people with a sense of security that many are looking for, especially after the last two years," Stafford explained. "The lasting impact of COVID remains at the forefront for many, with the pandemic leading almost a third, or 31% of people, to say they are more likely to buy life insurance in 2022."

It may also explain why life insurance sales soared in 2021, especially in the first half of the year. Within the first six months of last year, insurers sold 8% more policies nationwide than they did during the corresponding period in 2020, according to LIMRA. That marks the largest year-over-year sales growth for the industry in nearly 40 years.

Life insurance in any form — including the most common types, like whole and term — is important to have for robust financial security. But indexed universal life insurance can provide additional support, because it has a cash value component to it in addition to the death benefit. This means that your policy can accrue value since it's tied to an interest rate guarantee.

Life insurance premium financing can provide a way to purchase a life insurance policy while taking advantage of additional benefits that premium financing has to offer you or your employees. For more information on premium financing and how Leveraged Planning® works, please contact Global Financial Distributors today.