The first baby boomers have reached their 60th birthday. Coincident with this, they are thinking more and more about retirement and post-retirement concerns.
The resulting 20-year-plus wave of retiring boomers will lead to huge opportunities for financial services providers and advisory professionals.
Insurance companies certainly have an interest in this ultra-large market segment, from the perspective of either retaining assets that boomers have been accumulating or getting their fair share of assets that boomers have accumulated elsewhere (and there certainly are more of those).
Where insurers have an undisputed competitive advantage is not in accumulation vehicles but in protection vehicles. Therefore, it seems maximum advantage will occur when and where insurers exploit the protection side of the retirement need.
This advantage can occur in different ways and at different times.
Consider term insurance. These offerings frequently are used to provide life insurance coverage for mortgages directly or indirectly. One popular coverage feature of today’s term life policies is a return of premium (ROP) feature, which provides that all premiums paid by the buyer will be returned at the end of the term period (typically, 15 to 30 years). ROP is an extremely attractive payment that very frequently occurs around retirement age. Such a payment need not, and perhaps should not, be viewed as part of a retirement plan. However, there is no question that when paid at this time, it is an attractive supplement to an insured’s financial situation.
One insurer now has added an additional financial amount payable. That is, both the basic ROP amount and the extra amount are received as an annuity over a payout period–with interest. Because much of the payment results from basis, the tax impact is likely to be very modest.