Growth & Jobs | Gen Zers urged to use life insurance as first step to build generational wealth

Hugh Reid, managing director of JN Life Insurance, says young adults should see purchasing life insurance as one of the first steps to building generational wealth, adding that life insurance was not for the terminally ill or when you die, but for the loved ones you leave behind.

Reid was delivering a guest lecture to final year Mona School of Business and Management marketing students at The University of the West Indies, recently. He was presenting on the theme ‘Reimagining Life Insurance for Gen Z consumers’. The term ‘Gen Z’ refers to individuals born roughly between 1997 and 2012.

Reid said culturally, most Jamaicans do not focus on creating generational wealth and called Gen Zs to break this cycle, adding that having life insurance was the first step in this process.

“Life insurance helps to create generational wealth, and this is something that many Jamaicans do not focus on. Our children and grandchildren should not go through the same struggles that we went through. You want to be in a position where you pass on generational wealth and the easiest way to do this is through life insurance because it provides a tax free death benefit,” Reid affirmed.

The JN Life managing director said that one of the misconceptions was that life insurance only offers only protection against death and critical illnesses.

“Life insurance policies can also assist you in accumulating wealth for major purchases, such as buying a home, or to provide funds for unforeseen circumstances. Critical illness insurance policies which cover illnesses, such as cancer, stroke or heart attacks will pay out funds to you to assist with your treatment or with any other expenditure of your choosing. Illnesses can wipe out a family’s savings and leave them vulnerable to other shocks. With insurance, you can reduce that financial impact,” he explained.

He revealed that although inflation may affect the value of an insurance policy, there are life insurance products that protect against inflation.

“If you have an insurance policy with a value of $30 million, the fact is that in 30 years’ time, the coverage amount will be able to do less than it does now because of inflation,” he explained. “However, an insurance product, such as JN Life Vest, which is a term life insurance policy with an investment option, protects very efficiently against inflation,” he pointed out.

Term Life insurance provides coverage for a specific period or “term”, usually 10, 20, or 30 years. If the insured person dies during the term, the policy pays a death benefit to the beneficiaries. If the person outlives the term, the policy typically expires with no payout.

“Some insurance companies have universal life insurance policies which are products that have a death benefit along with a savings and investment component,” Reid affirmed. “However, with universal life, the cost of insurance increases annually which results in the amount of your premium that is invested decreasing. In the case of JN Life Vest, the cost of the insurance remains the same for the term of the policy and the investment portion is maintained and therefore the investment return grows at a faster rate. The idea behind the mutual fund component is to ensure when the policy term ends, you have a lump sum in the form of an investment amount to take care of inflation and provide generational wealth.”

The insurance executive also explained that the amount of insurance that an individual needs is dependent on their stage in life.

“Your need for insurance is not a straight increasing line, it’s more like a bell curve. At the age when you have no dependents, you don’t need a lot of insurance other than critical illness insurance, or to provide funds for unforeseen circumstances. It also means that if you get insurance at a young age, your premiums will be lower because you are likely to be healthier and less vulnerable to most illnesses. As you grow older, however, and have responsibilities, such as a family and mortgage, your need for insurance goes up,” he explained.

“What you don’t want at an older age is a situation where you have a family and something happens to you, and they are left with a large mortgage to repay. Insurance is important because it covers that. However, when you retire, you generally don’t need that same amount of insurance as the mortgage is paid off and the children have completed their education. Term insurance matches your changing needs for insurance because of the curve,” he said.

Reid concluded that life insurance was not only about death; instead, it is about building for the future.

“Life insurance is not about death. It’s about life, freedom and building a legacy. You buy life insurance not because you are going to die, but because those who you love are going to live,” he affirmed.