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The senior market is a large market, and it is set to become a much larger one as baby boomers begin to hit retirement age.

Defined here as those at or beyond normal retirement age (65) or those who have taken early retirement, this market creates a tremendous opportunity for those in the financial planning business. The question is, what products to offer this market segment?

Historically, the great majority of senior sales went to certificates of deposit and annuities. Smaller percentages went to mutual funds, Medicare supplement policies, long term care insurance and life insurance.

Now, however, with the stock market down dramatically for more than three years and interest rates at historically low levels, seniors seem to be stuck.

Consider: Annuity interest rates are at or near the minimum guarantees, with many companies having pulled some products because the guarantee is currently unaffordable to maintain. Mutual fund sales to seniors have slowed because of market declines. While bond and income funds have weathered the economic storm a bit, an increase in interest rates will severely impact those yields in the future. And interest rates are now rising.

Some seniors have told me flat out: “Theres nothing to invest in or buy.” Thats the real concern for many seniors today, especially for seniors who have sufficient assets to care for themselves and are lucky enough to have additional assets they dont need for everyday living

To help these individuals, advisors should ask: What is the number one need of such clients? The answer, in most cases, is this: passing the maximum amount of assets on to beneficiaries. These individuals dont care what product they use for this purpose. For them, the product is a means to an end.

For the advisor who has such clients, the product of choice, if the person is healthy, may well be life insurance–in particular, life insurance that can provide LTC benefits if needed.

To see why, consider the environment in which the clients are living: Most seniors are holding extra assets in CDs, money markets and annuities. But, according to industry estimates, only 1% to 3% of all annuities are actually annuitized. Furthermore, many seniors dont really understand the limitations of the financial products they have already bought. (See Chart 1.)

In comparison to CDs, money markets and annuities, a single-pay integrated life/LTC insurance contract offers seniors important additional benefits.

Take the case of a 65-year-old female customer who is rated standard nonsmoker and who has $250,000 in extra funds. Assume she is in a 28% tax bracket. Should this woman purchase a CD, an annuity or the life policy mentioned earlier?

Here are the factors to consider: The woman doesnt need the income from the $250,000 for living expenses, and her goal is to maximize the amount that will go to her daughter at death. She envisions the $250,000 will pass to her daughter at death–unless she needs the money for some “emergency” such as to pay for LTC expenses. She says she doesnt want to purchase a stand-alone LTC policy because a) she does not want to pay for a benefit she may never receive; and b) she has the $250,000 to fund LTC herself if needed.

Lets assume the CD and annuity will annually return 3% and 4.25%, respectively. If the money goes into a life policy that pays LTC benefits, however, the $250,000 will buy a guaranteed death benefit of $425,168 with guaranteed LTC benefits of at least $8,502 per month for life.

When the facts are laid out like this, who would not buy the life insurance?

With many companies now providing integrated life/LTC product combinations along with easy-to-use comparison software among various financial vehicles, all the financial advisor needs to do is explain the real benefits of life insurance. The customers beneficiaries will thank you.

, CFA, CFP, CLU, ChFC, is vice president, sales and promotion at National Life Insurance Company, Montpelier, Vt., and a registered representative/ registered investment advisor with Equity Services Inc. His e-mail is: Mpinkans@nationallife.com.


Reproduced from National Underwriter Edition, April 28, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved. Copyright in this article as an independent work may be held by the author.