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Life Insurance Basics Work For Retirement Purposes

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Does life insurance have a role in the retirement planning process?

“We do see it in the retirement plan market,” said Cheryl A. Jorgenson in a presentation here outlining several areas where it is advantageous for such use.

But it doesn’t have to be a highly complicated product, she indicated during a session of the Life Insurance Conference, which was co-sponsored by LOMA, Atlanta; LIMRA International, Windsor, Conn.; the Society of Actuaries, Schaumburg, Ill.; and American Counsel of Life Insurers, Washington, D.C.

The insurance industry has been trying to get away from the basics of why people buy life insurance, contended Jorgenson, who is assistant vice president-retirement services at Lafayette Life Insurance Company, Lafayette, Ind.

Some companies have spent a lot of time trying to jazz it up, so it doesn’t even look like life insurance, she explained, noting the intent is often to make for an easier sale.

But both she and co-speaker Meridee J. Maynard, senior vice president-life product development of Northwestern Mutual Life Insurance Company, Milwaukee, Wis., made a strong case for moving back to basics–and for the reason that this suits today’s retirement planning needs.

Cash value life insurance works especially well in the retirement market, Jorgenson noted. To make the point, she compared using the product inside and outside a pension plan.

“We don’t advocate either way,” she noted, but she said it is worth considering that, when life insurance is provided inside the plan, the dollars used to buy the premium are tax deductible to the business.

Offering life insurance inside the plan also provides market risk protection, self-completing funding from day one (“no waiting”), and portability, Jorgenson said.

Plan participants who are covered by this insurance do pay a small tax on the premium, but this continues only until distribution, she noted.

(The distribution options she named include: participant buys policy from the pension plan; the ownership changes from the plan to the participant or another trust; or a maximum loan is made from the policy.)

Upon death, the policy proceeds may be paid immediately to a designated beneficiary. This avoids probate court, she said, and it helps out the beneficiary until the retirement plan benefits kick in. The proceeds in excess of cash value are tax-free to the beneficiary, too.

Another consideration is that the assets have bankruptcy protection, Jorgenson said. This protection applies to all pension assets covered under the Employee Retirement Income Security Act of 1974.

Also, life insurance can satisfy the conservative portion of the portfolio, she said.

People traditionally want protection, guarantees and peace of mind when they buy life insurance, pointed out Maynard in her presentation.

But times are changing, she said. People now have longer life expectancies. With living benefit options, they can use the product to fund future expenses.

Today, as people approach retirement, they don’t want to be locked into anything, Maynard continued, so the flexibility of the living benefit is important.

Life insurance is also important for the emerging market segments of Generations X and Y, she said. Together, the 2 generations number roughly 132 million. Although that’s bigger than the boomer market, these generations may be a bit underserved for life insurance, she said.

The life insurance industry needs to get the X and Y generations started on a financial security approach, Maynard maintained. It should help them get started on the “basic things,” like life insurance, disability income and a monthly savings program.

The younger generations don’t need a lot of complexity, she said. What they do need and want is honesty, integrity and generosity in the companies and people with whom they deal, she said.

To keep things simple, her company has done things like narrowing down the client fact-finder to just 10 questions–”so it’s not more complicated than it needs to be.”

Some industry professionals keep focusing on the “big case,” she pointed out. They want “the big client, the woo-woo.”

The industry can be its own worst enemy this way, she continued. “We need to start going back to basics. Start with life, disability income, and savings. Then move on to other things.”


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