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.