First time around, love and marriage may go together like a horse and carriage. But for the second time around, the saying should probably be “love and remarriage go together like advice and life insurance.”
That’s not poetic, but it gets to the point–i.e., boomers who remarry usually have many life insurance decisions to make and their financial advisors need to help.
The client discussions can get pretty dicey at this juncture in life, say experts. After all, although the remarrying couple is eagerly anticipating their shared life, they must now also plan for children from previous marriages, blended family issues, ex-spouse implications, and sometimes, divorce documents.
Still, for financial advisors, it’s is not an insignificant opportunity.
Boomers in the marrying way do want life insurance, according to 9,700+ baby boomers surveyed by Experian Research Services, New York, N.Y. In particular, “65% of presently married boomers and 65% of boomers who are engaged or married-but-not-for-the-first-time feel it’s important to be well insured for life insurance,” says Angelika Kaprelian, ERS national consumer survey brand manager.
“By comparison, only 50% of people who are divorced, separated or widowed feel that way.” The survey was conducted from May 2006 through June 2007 as part of the Simmons National Consumer Study.
What’s more, Kaprelian says, “43% of boomers in the first two groups said they are willing to buy $500,000 or more of life insurance while divorced; separated or widowed boomers had no significant response to this question at all.”
So, how do advisors help remarrying boomers take care of this? A lot of agents have not considered these issues, nor have they been proactive about educating domestic lawyers about using life insurance in remarriage situations, says Kathleen Bilderback, an estate planning and executive benefits attorney with Affinity Law Group LLC, St. Louis, Mo.
She and other experts are hoping this will change. Boomers, now age 42-62, include many people who remarry following divorce or widowhood, so advisors encounter them frequently.
If a boomer client is divorced, the advisor should ask to see the divorce decree, says Bilderback. Frequently, if the ex-spouse (ex) is not working, the decree requires the working-ex to keep existing life insurance and/or to purchase term life insurance, and to keep the coverage in force until the kids reach majority or finish college, she explains.
Or, if an ex is not working, the decree might require the boomer who is working to get permanent life insurance for the benefit of the non-working ex, she continues.
On the other hand, some boomers remarry after children get out of college, points out Michael Weisman, president-wealth products group of Enterprise Bank & Trust, a St. Louis comprehensive financial planning firm.
If the divorce decree had required that permanent life insurance be kept until that time, there is now an opportunity to change the policy’s beneficiary, he says. The boomer often doesn’t remember, he continues, so the agent should bring it up.
Amazingly, says Bilderback, some decrees have very sophisticated life insurance requirements. Her take: “Attorneys today are obviously consulting with someone who has knowledge of life insurance; they didn’t come up with this on their own.”
In any case, a decree’s requirements do need to be factored into any life insurance planning for remarrying boomers, stresses Bilderback, who formerly worked for two national life insurers.
What if the decree does not address life insurance or if the boomer is a widow/er? For one thing, there would then be no legal reason for the boomer not to make changes to the existing life insurance, says Mandell S. Winter, insurance educator and life insurance agent in Denver, Colo.
There would also be no reason for the agent not to implement any changes the boomer may request, he continues.
What if the agent doesn’t ever see the decree and doesn’t know whether it contains life insurance requirements? The agent can’t stop a requested change if the agent doesn’t know there is a court order prohibiting it, says Winter.
What if the agent knows that a court order prohibits changes to the life insurance, but the boomer insists on making the change anyway? “It is incumbent on the agent to let the client know that the client will likely be held in contempt of court for making the change. But the agent’s job is to give the forms to the client anyhow.”
As for purchasing brand new life insurance, boomers need to decide who they want to protect, and how, say experts.
Do a comprehensive needs analysis and find out what it will take, suggests Winter. “Sometimes, when boomers see it will take one or two million dollars, it blows their minds,” he explains. “So, if they are planning to remarry, ask ‘what do you want for these new people in your life? You need to step up and take care of it.’”
Most people seem to afford what they really want, Winter observes. “Life insurance usually isn’t it–at least, not until the agent and the needs analysis help them decide that what they really want is to take care of the family.”
He recommends positioning life insurance as “just one tool” that will help them do that. “It is the answer to the question: How do I provide?”
Emotions can get stirred up when considering life insurance at time of remarriage, agree experts. But that’s not a reason to avoid the issues, says Weisman. “I don’t see any cold feet among my clients when discussing these things.”
Bilderback agrees, adding “this is on the business side of remarriage, and it needs to be discussed.”
The second time around, boomers spend a lot of time thinking about it, she observes. “But the issues can be very difficult and very emotional, especially if children are involved. What happens to them? They are stakeholders too. For example, the new couple needs to look at the blended family and possible complications from an ex. How will the older children be supported, and the children they will have together?”
Another issue is whether and how well the new spouses have bonded with the new blended family, adds Weisman. “We need to ask thought-provoking questions, make them think it all through.”
If the agent is still in contact with both ex spouses, Winter suggests the agent not let either one know what the other has said about life insurance or anything else. That stirs up emotions, he says, “and you don’t want to be in the middle.”
Weisman advises using a planning approach, talking about how the change will affect lifestyle as well as relationships. For instance, he asks: “Are you prepared to take on the responsibilities for the kids?” The answer opens up discussion about how to provide for his, her and their kids, in event of a spouse’s death, with life insurance.
Ideally, this should occur before the remarriage, Weisman says, so as to avoid serious problems. “For instance, a father who has not planned may just decide to leave all assets to the new wife. But he may be disinheriting his kids as a result.” But if the father does advance planning, say as part of a prenuptial, the advisor could urge the father to see an estate-planning attorney about perhaps setting up a trust for benefit of the minor children.
Younger boomers often have younger kids, observes Winter. If they only have $50,000 in life insurance, though, and if they will be adding a second family upon remarriage, they need to sit down and talk about getting more life insurance–”maybe term insurance to get the kids through college if something happens to the parent.”
Unfortunately, he says, younger boomers often blow this off. “They’ll spend hundreds of dollars a month on gourmet coffee and then say they don’t have enough money to pay for more life insurance.”
In such cases, Winter says the agent needs to help the boomer think about the family, “not just for today but for tomorrow.
“Ask, ‘how much do you care about your kids and your new spouse?’ Say, ‘if it’s taking 2 incomes now to pay for the house, taxes, mortgage and other expenses, what will you do if one spouse dies?’ At the least, it’s good to have enough life insurance to pay off the mortgage.”
To iron out potential problems, Bilderback recommends using life insurance to create “estate equalization.”
For instance, the “moneyed spouse” can leave the bulk of assets to the kids from the previous marriage and then buy a $1 million life policy on self, naming the “less moneyed” spouse as beneficiary, she says. Or, if the remarriage will cause the kids to be disinherited from a key asset such as the family home (which in Florida goes to the surviving spouse automatically), the boomer can buy life insurance, with the proceeds going to the kids to replace that lost asset.
The newlyweds could consider buying separate policies, per each child as beneficiary, she concedes. “But that is not simple to do, and most boomers want simplicity. A clear, well-written life insurance trust could handle this better.”