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July 06, 2009 at 08:00 PM
In these unsettling times, clients are looking for guaranteed ways to meet retirement and legacy 
planning needs more than ever. Fortunately, products exist that can be used to customize a strategy to meet client goals as well as their desire for safety. Issues facing retirees–the need for long-term care, the fear of inflation and living too long–could severely affect their way of living in their final years and deplete what may be left for heirs to inherit.
First, let’s take a look at the dilemma retirees are facing:
? Sources estimate 50% of Americans will need long-term care during their lifetimes.
? For couples over age 65, there is a 70% chance one partner will need LTC.
? According to the Social Security Administration, 50% of all Americans sign up for Social Security benefits at age 62.
Studies also show that if both spouses are still alive at age 65, one of them has a 50% chance of living to age 92.
Put these statistics together and it may mean a retiring couple will face the prospect of at least one spouse needing LTC and enough income to last through 30 years of retirement.
What products are available?
Today, both life insurance and annuity contracts offer living benefits with guarantees, based on the claims-paying ability of the company. For clients who desire to leave a legacy to heirs, a combination of these products may fit the bill.
Life insurance contracts, including guaranteed no-lapse universal life insurance policies, can be offered with a LTC rider– usually at an additional cost–that will allow the contract owner to access a death benefit, income-tax free, to pay for qualifying LTC needs. Any benefit not used by the insured would then pass to the beneficiary as an income tax-free death benefit (although estate taxes may apply). And, if all the funds are used for LTC needs, many contracts offer a minimum death benefit guarantee that will pay the beneficiary 10% of the original specified amount. Note that this feature may not be available on all products or in all states.
Annuities are also available today that offer riders that can guarantee growth of an income benefit base (not growth of cash value), and provide a guaranteed minimum income benefit. It’s important to remember that riders are optional and cost extra, in addition to the variable annuity cost.
For example, a client purchases an annuity for $100,000. There are two “accounts.” One is the actual contract value that can go up or down with the market and are the funds the contract owner would receive if surrendering the contract.
The other account is the “income benefit base.” The insurance company will usually offer a guaranteed growth rate of this account, for example 10% simple interest for 10 years. This guaranteed rate usually lasts for the lesser of 10 years or until the first time money is taken from the contract. The income benefit base will always be the greater of actual contract value or the guaranteed income base value and resets at least on an annual basis. At the end of 10 years, the income benefit base will rise if the contract value exceeds the benefit base, and will reset at least annually. While the contract value can go down, the income benefit base cannot.
Using our example of $100,000, the client is guaranteed that at the end of 10 years the income benefit base will be worth $200,000. If the market goes up, the benefit base could potentially be higher, but it’s guaranteed to reach $200,000 at the end of 10 years as long as no money is withdrawn from the contract. Income is usually paid as a percentage of the income benefit base. With some contracts, the older you are, the higher the payout percentage.
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