Baby boomers have been accumulating assets for decades, building nest eggs so they can enjoy their retirement years. But benefits advisors have to remember that accumulating assets is only one part of a comprehensive retirement plan.
Imagine what would happen if a family’s breadwinner died suddenly. An unexpected death could force the surviving spouse or other family members to dip into retirement savings–assets that took years of diligent saving and sacrifice to build–to pay various expenses. This example emphasizes the need to protect assets and also demonstrates the need for a comprehensive retirement plan to include protection products as well as a savings plan.
With the uncertainty surrounding Social Security, the erratic performance of investment markets, rising medical and prescription drug costs, and more and more companies eliminating defined benefit pension plans, protecting savings so that nest eggs can provide an income stream after retirement is taking on growing urgency.
Life insurance provides an excellent safeguard in these circumstances. Unfortunately, many people enter retirement without any life insurance coverage. LIMRA International, Windsor, Conn., reports the only life insurance coverage most people have for themselves and their families is the group term and supplemental term they buy at work.
Employees typically lose this coverage at retirement. And purchasing traditional life insurance at retirement age–after workers have lost the insurance obtained through their employers–may be difficult as well as expensive for those employees with health problems.
Voluntary individual life
An increasingly popular solution to extend a safety net and protect savings beyond retirement is voluntary individual universal life or whole life insurance that is purchased at the workplace. This insurance is coverage that is not affected by job status. It can stay with the insured into retirement or when the policyholder changes jobs, as long as the premiums are paid.
Voluntary life is also easier to buy. Because it is sold in the workplace, many insurers often offer “guaranteed issue” underwriting. So, if a set percentage of employees at a company or organization–15%, for example–buy the product, the insurer will guarantee to issue individual policies up to a specified amount of coverage if the employee is actively working. No health questions are required! Needless to say, this is a huge benefit for people with prior conditions who would otherwise be forced to pay extremely high premiums or may be denied coverage altogether.
Both universal life and whole life are sold as voluntary life insurance. UL provides insurance protection with adjustable premiums, tax-deferred cash value accumulation (according to current tax laws) and partial withdrawal privileges. WL insurance products provide a fixed death benefit to meet long-term insurance needs. It includes fixed premiums and cash value accumulation.
A variety of riders
Coverage amounts available through voluntary programs typically range from $10,000 to $500,000. And coverage at lesser amounts can be purchased for the employee’s spouse or domestic partner and children. In addition, a variety of riders may be available:
–Long term care riders provide a benefit for anyone confined to a long term care facility or who is receiving home health care.
–Accidental death riders pay an additional benefit equal to the base policy face amount if the insured dies in a covered accident.
–Disability income riders pay a monthly benefit in the event of total disability.
–Accelerated benefit riders offer to pay a portion of the eligible benefit to policyholders who are diagnosed with a terminal illness while they are still living.
–Payroll deduction makes it convenient and affordable.
Voluntary life also offers the convenience of payroll deduction. After retirement, the insurance company bills the customer directly each month. People often are inclined to purchase a larger amount of coverage through payroll deduction than they would paying a single annual premium.
Making life insurance more affordable for baby boomers who are now in their 40s, 50s and 60s is a huge benefit, because price is probably the most common obstacle to purchasing any life insurance coverage at that age. While it’s going to be more expensive than if they’d bought it at age 25, coverage is going to cost less than it would at retirement, in five or 10 years. And if the employee suffers a serious illness such as a heart attack, stroke or cancer during that time, individual life insurance coverage may not be available at all.
More and more brokers and advisors today are examining the value voluntary benefits can bring to their business and to their clients. Voluntary life can be an excellent way to make many sales in an efficient manner, because voluntary benefits are becoming increasingly popular with employers–they are the fastest-growing segment of the employee benefits market–and a single employer can deliver many prospective clients.
Almost any employer is a good prospect for voluntary benefits, especially if it has a reasonable number of lower- to middle-income employees. That’s because this segment of the market is commonly overlooked by the traditional life insurance distribution system, despite its members’ unique financial planning needs.
Moreover, because of guaranteed issue underwriting, people who can’t buy life insurance in the retail market because of health issues now can qualify for coverage.
Start with current clients
This is a relationship business, and advisors who are interested in selling voluntary UL and WL insurance should look first to their current business clients and evaluate which would be the best prospects.
The advisor knows these companies, the management and employees, and can determine in each case whether voluntary life is a good fit. Some insurers offer advisors a “profiler” that can help prioritize the best voluntary prospects.
Many times, the most important sale in the employer’s eyes is the insurance company. The employees are going to hold life insurance for many years, so the employer is looking for a well-known provider with a solid reputation. And it’s important that the insurer, and firms it works with, have extensive experience in employee communications and the enrollment process.
–Look at current clients. This is a relationship business.
–Try employers with large numbers of lower- and middle-income employees.
- Use a life insurance company “profiler” to prioritize prospects.