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June 25, 2006 at 04:00 PM
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.
