The long and short of it

Advisors who work with seniors long enough are bound to encounter a certain unique species of client: the kind who at some point in his 60s finally comes to the realization he should start planning for retirement, only to discover that with retirement just around the corner or already upon him, it’s almost too late to make up for lost time.

Certified Financial Planner Gilberto Gra??a, principal at the Wealth Solutions Group in Coral Gables, Fla., has a name for that kind of client: Lotus Floridianus. Since this term is not found in any dictionary, Gra??a describes a member of the species as “someone who procrastinates planning for retirement. He waits until near retirement to start accumulating funds, or to supplement his low account contribution rate, to be used after he is finished actively working. At that point, the new retiree would have to win the Florida Lottery (Lotus Floridianus) to be able to retire in a style he is accustomed to living.”

What happens when a member of that species shows up at your doorstep? The tools available to advisors tasked with helping seniors who find themselves in such a hole are relatively limited, one which Gra??a says he tends to recommend in such a situation is term life insurance.

In fact, according to Gra??a and other advisors with insurance expertise, helping the procrastinating Lotus Floridianus hastily assemble some semblance of a retirement plan is one of several viable uses for term insurance in both a personal and a business context. While simple, straightforward term insurance is neither a sexy sell nor an especially versatile product compared to its permanent insurance cousins, universal life and whole life, it can be an effective planning tool – even for senior clients – in situations such as the following:

? A client needs coverage to pay off a debt due to expire in a certain period of time, such as a mortgage, so the surviving spouse isn’t saddled with that debt.
? A client wants the policy proceeds used by a family member (such as a spouse or offspring) to keep the family business in the family.
? A business partner or owner uses term insurance to underpin a buy-sell agreement that allows surviving partners to maintain control of a business when one partner or owner passes away.
? A senior can add value to his overall insurance portfolio by purchasing a permanent life insurance policy with a term insurance rider that eventually can be converted to permanent insurance.
? It is needed to cover short-term potential tax liability within a trust.

Advisors who, for whatever reason, find themselves shopping for a term policy for a senior client will quickly discover their options are much more limited than if they were shopping for a 40- or 50-something client, Gra??a says. “Your ability to acquire life insurance products may be substantially limited with age. If you don’t have life insurance in play by the age of 58 or 59, the pricing to purchase any type of life insurance policy after that substantially increases.”

Still, he says, term insurance “does have a place [in some senior portfolios], but it always has to fit within the constraints and parameters of a general financial plan.”

Good to have
When an uninsured or underinsured person reaches age 65 or 70, cost and underwriting emerge as major obstacles to obtaining insurance coverage. In situations where a senior needs life insurance but can’t afford or qualify for a permanent policy, then it may be time to look at term insurance.

When faced with such an insurance predicament at that age, even term insurance can get expensive, Gra??a points out. But the need for some kind of life insurance often outweighs the premiums required to obtain coverage, particularly for the Lotus Floridianus type who otherwise has little or no retirement nest egg, yet must protect his surviving spouse or family members from the possibility of him dying and leaving them with nothing but debt.

In these kinds of situations, Gra??a says, it’s incumbent on the advisor to be sure the client understands the limitations of term policies by pointing out that:

? A straightforward term policy has no value once the term expires, unlike with whole life and universal life, which accumulate cash value.
? The policyholder is covered only for the term of the policy.
? Only a small percentage of policies – in the neighborhood of 5 percent – actually results in claims.
? The premiums paid to maintain the policy are now property of the insurance company; there are no refunds (unlike with a return-of- premium policy, which is structured much like a term policy but gives the policyholder the ability to collect all premiums paid into the policy if he outlives the policy’s term, see sidebar).