The True Cost of Insurance

Policies cost less than people think and provide more value than they expectNovember 2015

Half of American families don’t have enough savings to last a year if a primary breadwinner dies, according to the results of a survey fielded by the nonprofit Life Happens and LIMRA, a worldwide research and consulting organization.1 In fact, 43% would feel the impact within 6 months, including nearly 40% of households with an annual income of $100,000 or more.

Even more troubling, just under a third of survey respondents report that their dependents would have trouble making ends meet in less than a month.

Despite this worrisome financial instability, many Americans — more than 100 million, says LIMRA — don’t own any kind of life insurance to protect their loved ones. The number one reason? They think it is too expensive. Yet most consumers overestimate the cost of coverage, with an average guess that is twice as high as the actual price.2

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How much is peace of mind worth?

While actual costs depend on a number of factors, the reality is that for a relatively modest amount you can help provide your family with financial security. A life insurance policy can:

  • Help your dependents cover the mortgage and other bills, as well as save for college or pay for extra childcare.
  • Make it easier for dependents to pay inheritance taxes, which can affect estates worth less than $1 million in some states.
  • Enable ongoing support for a special-needs child or other dependent adult.
  • Provide a surviving spouse with an extra source of retirement income — especially important if you will miss out on your prime years of retirement savings or if you are relying on a pension that does not include a death benefit for the survivor.

The value of all that protection becomes even more apparent when you consider the range of tax advantages various policies can offer. Some examples:

  • Your beneficiaries generally will not pay income tax on the pay out from a life insurance policy.
  • If you buy a permanent life insurance policy, it can build tax-deferred cash value based on the performance of the insurer’s investments.

You also can tap that cash value for emergency income in several tax-smart ways. For example, you can withdraw it tax free up to the amount you paid in premiums over the years. (Of course, any withdrawals do reduce your death benefit.)

Alternatively, you can borrow against the cash value. You’ll rack up interest on the loan, but you won’t have to pay taxes as long as you repay the balance or keep the policy for the rest of your life. When you die, any outstanding loan balance is subtracted from the death benefit. What happens if you drop the policy before you die? Loan balances you haven’t repaid — above the amount paid in premiums — will be treated as a withdrawal.

Finally, there’s one more way a life insurance policy can provide value: rewarding you for taking steps to improve your health.

Increasing the value proposition with the John Hancock Vitality solution

John Hancock — in an exclusive partnership with Vitality, the global leader in integrating wellness benefits with life insurance products — has created a new solution that combines traditional life insurance protection with a program that rewards people for living a healthier life.

Policyholders can earn points by completing simple, everyday activities to stay healthy. These include things such as going to the gym, getting annual health screenings or staying tobacco free. Every new policyholder even receives a free Fitbit® device as one way to track progress.

Points add up and can result in lower premium costs — as much as 15% lower3 — as well as rewards and discounts from Hyatt, Royal Caribbean International, Whole Foods, REI and others. The more healthy steps a policyholder takes, the greater their potential savings.

“We want to help policyholders connect their financial well-being to their long-term health,” says Michael Doughty, president, John Hancock Insurance. “Most Americans know they need more life insurance, and our research shows that nearly all consumers feel they could be living a healthier life. John Hancock Vitality can help them to achieve both of those goals.”

John Hancock continues to link more types of life insurance to the Vitality program. Learn more about this first-to-market program at

12015 Insurance Barometer Study. Life Happens and LIMRA.

2LIMRA’s Facts About Life, Life Insurance Awareness Month, 2015.

3Premium savings based on a comparison between a policy with Vitality at Platinum Status and a policy without Vitality (will vary by product type and other factors, including nonguaranteed elements).

Life insurance death benefit proceeds are generally excludable from the beneficiary’s gross income for income tax purposes. There are a few exceptions, however, such as when a life insurance policy has been transferred for valuable consideration. Comments on taxation are based on John Hancock’s understanding of current tax law, which is subject to change. No legal, tax or accounting advice can be given by John Hancock, its agents, employees or registered representatives. Prospective purchasers should consult their professional tax advisor for details.

Loans and withdrawals will reduce the death benefit, cash surrender value, and may cause the policy to lapse. Lapse or surrender of a policy with a loan may cause the recognition of taxable income. Policies classified as modified endowment contracts may be subject to tax when a loan and withdrawal is made, and a federal tax penalty of 10% may also apply if the loan or withdrawal is taken prior to age 59½.

Vitality is the provider of the John Hancock Vitality Program in connection with policies issued by John Hancock. Insurance policies and/or associated riders and features may not be available in all states.

Rewards and discounts are subject to change and are not guaranteed to remain the same for the life of the policy.

The John Hancock Vitality Program is available with select John Hancock policies. Please consult your financial representative as to product availability and how premium savings may affect the policy you purchase. John Hancock Vitality Program rewards and discounts are only available to the person insured under the eligible life insurance policy. Rewards may vary based on the type of insurance policy purchased for the insured (Vitality Program Member), the ownership and inforce status of the insurance policy, and the state where the insurance policy was issued.

Insurance products are issued by John Hancock Life Insurance Company (U.S.A.), Boston, MA 02117 (not licensed in New York) and John Hancock Life Insurance Company of New York, Valhalla, NY 10595. MLINY112315132

This content was provided by John Hancock. Kiplinger is not affiliated with and does not endorse the company or products mentioned above.