Clean Up Your Clients Life Insurance Portfolio Before They Retire
Prior to actual retirement, an individual should “clean up” his or her life insurance needs. Sooner, rather than later, is the best time to take an inventory of term insurance policies, old permanent life insurance policies, policies that endow at age 65, or policies that were purchased for business needs that will no longer exist at retirement.
An assessment of current life insurance holdings and how they could be better structured is important to your clients financial future. With proper planning, using life insurance, clients could provide for the protection of a spouse in the senior years and also provide for tax liquidity.
Furthermore, they can begin to consider utilizing excess assets most efficiently to provide additional retirement income today, while leveraging gifts to create an inheritance for loved ones tomorrow.
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Term life insurance plays an important role in your clients lives for temporary protection at relatively little cost. Many people use term to cover their lives during the years when their children are young all the way through college. Other people use term insurance to fund a business succession plan, fully intending that the insurance will not be needed after retirement.
Many term policies purchased are what are known as “convertible term.” Convertible term allows the insured to convert the term insurance to permanent insurance without further evidence of insurability. Most term policies provide a window of years prior to the expiration of the term contract for this option. But many term contracts only have a limited conversion period–for a specified number of years, to a set attained age, or a combination of both. For example, some contracts may only be convertible for the earlier of five years or attained age 65. Thus, the closer one gets to retirement age, the more risk one takes that he or she will not be within the conversion window. This may be extremely important to your client, depending on whether he or she is currently insurable.
Some policies have long-term conversion privileges, in some cases up to 20 years. As a rule of thumb, it might be wise to consider converting a clients term insurance five or more years before retirement age (or the end of the term). Also, it is more advantageous to make this conversion at a younger age, since future premium payments will usually be based upon the insureds age at the time of conversion. Perhaps at the same time a client is considering long term care insurance–which would typically be around age 55–they should consider converting their term insurance.