Aging America Still Needs Permanent Life Insurance
“The kids are on their own, the house is paid for, and Ive got plenty of money to retire on. What do I need permanent life insurance for?”
Everyones situation is different, but there are lots of reasons why permanent life insurance makes sense for retirees.
Lets first acknowledge that researchers have found “cost” to be the biggest objection to buying life insurance coverage. However, some of todays low-cost universal life products have become quite reasonable. In fact, this next generation of guaranteed products provides a lifetime of guaranteed protection for a fraction of the expense of a whole life policy. Hence, the cost objection may become less important as time goes on.
Now, for the reasons to buy life insurance.
Legacy planning. How do the people you speak with every day want to be remembered? Most parents, if you ask them, would like to leave a legacy for their children and especially their grandchildren. As a result, many retirees continue to save the money they spent a lifetime accumulating just to pass it on to the next generation.
The issue to keep in mind is that the ultimate inheritance can vary greatly, depending on type of asset being transferred, investment returns prior to death, living expenses and the continued saving discipline of the retired couple. Furthermore, these assets may be subject to probate and a variety of taxes, which can cost heirs time and money before they see any inheritance.
Permanent life insurance provides a solution to this uncertainty. At death, permanent coverage creates an assured legacy for heirs. Your clients will know exactly what their children will receive, without having to worry about saving any of their existing assets to pass on. They now have the opportunity to maximize their retirement income and spend their assets while knowing they have taken steps to guarantee a legacy for their childrens family.
In addition, since a life insurance policy is a contract between your client and the insurance carrier, the proceeds go directly to the beneficiaries named in the policywithout going through probate court.
For the wealthy retiree, there remains the threat of estate taxes. Under current tax law, the estate tax is repealed in 2010, only to return in 2011. Does your client feel “lucky” enough to die the one year estate taxes are repealed? Prudent planning for these retirees includes the use of permanent life insurance to address this uncertain estate tax environment.
Supporting adult children. Many families do have adult children that continue to rely on their parents for financial support, whether a surgical resident or an aspiring actress whos moved back in with mom and dad. Such parents need to make some conscious, deliberate decisions about the future of those depending on them, rather than leaving the future to chance and good luck. With permanent life insurance, they can be assured that their adult children will be taken care of.
College planning for the grandkids. If your clients are like most retirees, they like to do a lot for their grandchildren. With the cost of a college education climbing every year, some grandparents may be motivated to help pay for their grandchildrens education.
The death benefit provided in a permanent life insurance policy provides a named amount for the benefit of their grandchildren. In the event the retiree lives through a grandchilds college years, there may be enough value in the policy to help pay for college through policy loans and withdrawals. These dollars also may be used for other purposesto pay for a wedding, to help a grandchild buy a first home, or even to help finance a grandchilds new business venture.
Long term care needs. Retirees who are in good health are prime candidates for an LTC policy. But many seniors fail to believe they are at risk of needing such careeven though least 6.4 million people aged 65 and up need some form of LTC, according to a recent study by the United Seniors Health Council, Washington, D.C.
One objection that healthy retirees have to buying LTC insurance is that they will be able to take care of each other should the need arise. That is an honorable goal, but such plans fail when one individual dies. For example, a husband is caring for his wife who has become ill. In the event he predeceases her, who will care for his widow? In this situation, permanent life insurance can provide the funds to pay for a professional caregiver or an assisted living facility at the husbands death. This type of approach may motivate seniors to buy either permanent insurance to satisfy this need, or LTC coverage to provide funds for LTC services.
Optimizing pension income benefits. Pre-retirees who are participating in the employers pension plan will have to make some serious decisions about how they will receive benefits. Many plans offer several different income options, but most are usually in the form of an individual benefit or a reduced joint and survivor benefit.
Depending on the terms of the employers pension plan, it may make sense for a retiree to select the higher individual life income option rather than a joint and survivor option. Under the single life option, income is maximized for your client while the life insurance protects the surviving spouse at the retirees death. A guaranteed universal life insurance policy can provide a guaranteed death benefit to replace the guaranteed income benefit that would have been available through the pension plan. Some of the more innovative products entering the market may even allow choice, at issue, of a guaranteed income stream for beneficiaries in lieu of a lump sum death benefit.
Charitable giving and charitable estate planning. Philanthropic retirees who would like to make a gift to an organization can leverage their gift by purchasing a permanent life insurance policy and naming a charity as beneficiary. Permanent insurance guarantees that the gift will be made upon the retirees death. In one popular planning strategy, individuals who have highly appreciated assets may gift those assets to a charitable remainder trust (CRT). While alive, the donor(s) receives income generated from the sale of the assets without having to pay capital gains taxes. At death of the donor(s), the CRTs assets go to the charity. Permanent life insurance replaces the wealth donated to charityproviding the heirs with a legacy free from income taxes.
These are all good reasons for senior clients to purchase permanent life insuranceor convert their term coverage. But early planning pays, too. For instance, by positioning these benefits with younger clients, advisors will sell more permanent protection to this market today.
Marc Levy is founder of MBL Financial Group, a New York office of MetLife Financial Services that provides financial and estate planning for business owners and corporate executives.
Reproduced from National Underwriter Edition, October 14, 2004. Copyright 2004 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.