Life insurance with living benefits may help women counter financial risk

By Shefali Desai, head of worksite at MassMutual

Open enrollment is an important opportunity for all eligible employees to elect new benefits for the coming year, but it presents an even bigger potential win for women who choose protection products that can help them secure their financial future.

Take permanent life insurance. Such policies not only provide a death benefit to your heirs, but may also accumulate cash value that can be used during your lifetime for any reason. That may include supplementing your retirement, paying college tuition or covering the cost of assisted living if needed.1

For women—married, single or somewhere in between—access to cash value can help to mitigate some of the significant financial challenges they still face on the road to retirement readiness.

  • Longevity risk: Women are at greater risk of outliving their savings, in part because they live an average of five years longer than men.2
  • Smaller paychecks: Women still earn 84 percent of what men earned, even after controlling for the same level of education and experience.3
  • Less savings: Apart from the gender pay gap, women are far more likely to take time off work to care for children or aging relatives, which further reduces their savings. The median retirement account balance for women aged 65 or older is $204,304, compared with $491,621 for men.4
  • Increased need for assisted living services: As they age, women are more likely to develop a disability or chronic condition such as cancer, a stroke or Alzheimer’s disease that requires long term care services, especially after their spouses pass away.5 Such services have median monthly costs of $1,700 for adult day care (based on five days per week), $5,000 for a home health aide (based on 44 hours per week) and up to $9,000 for a private room at a nursing home facility.6
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The benefits of buying young

For those with limited income, the purchase of life insurance coverage can seem extraneous against a backdrop of competing financial priorities. But the potential upside for those who educate themselves about the tax benefits and flexibility of permanent life insurance can be great.

Younger women in their 20s and 30s arguably have the most to gain from purchasing life insurance coverage because they generally pay the lowest age-based premiums and have the longest time horizon to build cash value. 

Yet, women still lag far behind their male counterparts in the purchase of life insurance products. 47 percent of women have life insurance coverage, compared with 58 percent of men.7

A financial professional can offer valuable guidance, but it’s also important to educate yourself about the different types of insurance that exist, what your employer offers and how much coverage you may need. 

Term life insurance may not be enough

Many employers offer group term life insurance as part of their benefits package, paying for all or part of the monthly premiums. Employees may also be permitted to purchase additional coverage at reduced group rates through regular payroll deductions, making enrollment easy. 

But it is important to understand the potential limitations of term life insurance, such as:

  •  Term life insurance only provides a death benefit to your beneficiaries only if you die during a certain period of time.
  • Term life insurance does not include a cash value component. The death benefit under a group term life policy may not be sufficient to protect your family if you were to die prematurely. The coverage is typically equivalent to 12 months of an employee’s salary.

Types of permanent life insurance

For those reasons, many households find that a combination of employer-provided group term life insurance and permanent life insurance offers the most comprehensive protection at the most affordable price. There are two primary types of permanent life insurance:

  • Whole life insurance is the most straightforward, offering a guaranteed death benefit for life and cash value growth. Some are also eligible to earn dividends that can be used to help pay the premium, add to the cash value or increase the size of the death benefit. Dividends are not guaranteed.
  • Universal life insurance offers death benefit coverage and the accumulation of account value, based on the type of policy purchased and the amount of premium paid. Your premiums are generally flexible, within certain limits, allowing you to adjust the amount you pay each year or even month-to-month, as long as you have enough account value. You may also choose a policy with a guaranteed death benefit, which ensures your loved ones receive a lump sum of money when you pass away. 

Tax breaks and living benefits

Some employers include permanent life insurance as part of their benefits offering, giving employees the opportunity to purchase through voluntary payroll deductions, for example, group whole life coverage, which helps take the guesswork out of the process.

If your benefits package does not include a permanent life insurance option and you believe such coverage may meet your needs, you would need to purchase a policy independently.

Any permanent life insurance policy you receive through work would be portable, meaning yours to keep regardless of your employment status.

When shopping for permanent life insurance, here are the basics you need to know:

  • Whole life insurance and some universal life insurance, depending on the coverage you purchase, provide a guaranteed death benefit to your beneficiaries no matter how old you are when you die, as long as your premiums are paid.
  • Death benefits are generally paid out income tax free.
  • Whole and universal life insurance policies build cash value that grow tax deferred.  
  • Cash value can be used during your lifetime for any reason without penalty.

Money borrowed or withdrawn from the cash value of a life insurance policy is not subject to taxes up to the cost basis, the amount of money you pay into the policy through premiums.8 The ability to borrow from your cash value provides an added layer of financial freedom, but policyowners should be aware that access to cash value through borrowing or partial surrenders reduces its cash value and death benefit. It also increases the chance that the policy will lapse and may trigger a tax bill if the policy terminates before the insured passes away.

There’s no denying that permanent life insurance with living benefits presents a unique opportunity for women to help protect their financial interests. Open enrollment is an opportune time to review your coverage, ask questions and educate yourself about the tools you can use to help you manage risk.

1Be aware that access to cash value through borrowing or partial surrenders reduces its cash value and death benefit. It also increases the chance that the policy will lapse and may trigger a tax bill if the policy terminates before the insured passes away.

2According to the National Center for Health Statistics, a female born in 2020 can expect to live to an average age of 80.5, compared with men who live to an average age of 75.1. 

3Pew Research Center, “Gender pay gap in U.S. held steady in 2020,” May 25, 2021.

4 TIAA, ““TIAA 2022 Financial Wellness Survey,” January 2022.

5Office on Women’s Health, “Increasing women’s lifespan,” Dec. 17, 2020.

6Genworth, “Cost of Care Survey: Monthly Median Costs,” (2021).

7Life Happens and LIMRA, “2021 Life Insurance Barometer Study.”

8If the policy is a Modified Endowment Contract, policy loans and/or distributions are taxable to the extent of gain and are subject to a 10% tax penalty if the policyowner is under 59 ½.

The information provided is not written or intended as specific tax or legal advice. MassMutual and its subsidiaries, employees and representatives are not authorized to give tax or legal advice. You are encouraged to seek advice from your own tax or legal counsel. Opinions expressed by those interviewed are their own and do not necessarily represent the views of MassMutual. MM202509-302790

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