Life insurance might be the most misunderstood of all the products available in the financial marketplace. Nearly half (42%) of all Americans believe they need more life insurance coverage than they currently have while nearly three-quarters (72%) overestimate the cost of life insurance, according to the Life Insurance Marketing and Research Association 2024 Insurance Barometer Study.
In fact, healthy individuals between 18 and 30 years old have overestimated the cost by up to 10 times. These misunderstandings have resulted in a “coverage gap” that leaves many families under-protected from financial emergencies.
Workplace Policies Usually Aren’t Enough
Another common life insurance misconception is that a workplace policy will provide enough coverage for the insured’s family. However, these are typically low-cost group policies offering limited benefits (such as a $50,000 death benefit) that aren’t nearly enough to cover an average family’s financial needs should the husband or wife pass away.
According to the 2025 Annual Workplace Benefits Study conducted by the Guardian Life Insurance Company, nearly two-thirds of current life insurance policyholders are relying solely on an employer-provided group policy. Half of these policyholders have a death benefit of only one or two times their annual salary, which is significantly less coverage than what’s generally recommend for most families.
The Versatility of Life Insurance
Perhaps the biggest life insurance misconception is that only primary breadwinners or parents need to purchase life insurance. However, life insurance products today offer more than just a death benefit: They are sophisticated financial products that can help clients meet a wide range of financial and wealth planning objectives. Here are 5 ways advisors and agents can use life insurance strategically to help their clients achieve financial goals:
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Estate planning
Permanent life insurance is a good way for clients to leverage liquidity that can be used to prepay estate taxes. Using life insurance to gift assets to heirs removes assets from their taxable estate, which lowers estate taxes for their heirs. In 2025, individuals can give their heirs up to $19,000 while married couples can give heirs up to $38,000 estate-tax free.
Another option is for clients to utilize an Irrevocable Life Insurance Trust (ILIT). Gifts would be made to the trust each year and the funds used to purchase a life insurance policy payable to heirs after the insured’s death. The heirs would then use these proceeds to pay any estate taxes or other expenses due upon death.
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Charitable giving
Permanent life insurance also makes it possible for clients to realize tax and estate planning benefits when giving away assets using a Charitable Remainder Trust (CRT). Instead of giving assets directly to a charity, donors will place assets in the trust. Donors receive a tax deduction for the charitable contribution along with income generated by the assets while they’re alive. Assets left in the trust go to a designated charity upon death.
Here’s where the life insurance comes in: When a policy is bought with income generated by the trust, the family receives the death benefit upon the insured’s death. This kills two birds with one stone by providing for the family and donating to the charity at the same time.
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Business succession
Many business owners use buy-sell agreements to facilitate a business transfer should they unexpectedly die or become disabled. Permanent life insurance is commonly used as the funding vehicle for buy-sell agreements, providing liquidity for successors to purchase the business.
Here’s how it works: A successor will purchase a life insurance policy that pays out upon an owner’s death or permanent disability, using the death benefit to acquire the deceased owner’s shares at a pre-determined value. The deceased owner’s heirs would receive the proceeds from the sale, which they can use to meet their ongoing living expenses.
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Supplemental retirement savings
Indexed Universal Life (IUL) insurance is an advanced life insurance product clients can use to generate additional retirement income to supplement IRA or 401(k) savings. The policy offers a death benefit along with cash value clients can tap to help cover living expenses during retirement.
IUL provides a permanent death benefit that doesn’t lapse at the end of the policy’s term. A portion of the premium pays for the cost of insurance while the rest accumulates as cash value that will reflect the value of a chosen market index, such as the S&P 500. Since the policy is funded with after-tax dollars, withdrawals made via policy loans are tax-free.
Tarkenton Financial offers advisors a proprietary comparison tool that shows how IUL can be used to supplement a tax-deferred retirement saving account such as a 401(k). With marginal tax rates currently near historic lows but likely to rise in the future as federal expenditures and debt continue to grow, this strategy can provide clients with a source of tax-free income in retirement.
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Premium financing
This advanced life insurance strategy enables high-net-worth clients (especially business owners and professionals) to leverage a portion of their assets and the insurance policy’s cash value to pay insurance premiums and generate more wealth. By financing premiums during the policy’s early years, clients use less of their own capital, which boosts the long-term internal rate of return (IRR).
To qualify for premium financing, clients need a minimum net worth of $5 million and annual income of at least $250,000. Tarkenton Financial’s Perpetual Wealth System is an exclusive financial planning tool that can help you manage premium financing for your clients. It includes a five-step process that guides clients through setup and implementation of the strategy.
Life Insurance Awareness Month
September has been designated Life Insurance Awareness Month. The goal is to help raise awareness and correct some of the common misunderstandings people have about life insurance, which can be a highly profitable product for financial advisors.
Click here to book a meeting with me to talk more about the role that life insurance can play in your clients’ financial plans and how you can add life insurance solutions to your product offerings.
Tyler Schmidt
Director of Life Insurance
404.504.3109