Many times when we think of the most common reasons why someone might purchase life insurance, we think of some of the major financial risks our clients face if they die before they retire. These common risks include lost income, the ability to pay off a mortgage and the ability to fund a college education for children. Typically because all of these risks prior to retirement are temporary, they are protected with term life insurance. As your client gets closer to retirement these risks are greatly reduced. With term life insurance your clients can typically purchase a large death benefit for pennies on the dollar, and they can choose not to continue coverage after the level term period expires.
So as a life insurance agent or financial advisor, why would I ever recommend purchasing permanent life insurance to my clients? To answer that question you should consider another question first. Why do my clients need life insurance after they retire? There are several risks that clients face after they retire that are not as commonly discussed but can have a major impact on your client’s retirement plans. These include unknowns like the potential of increasing tax rates, stock market volatility, underestimating how much they’ll spend in retirement, lost social security income due to either the death of the spouse or changes to the program and many others that we could spend more time on.
Today I want to highlight a particular risk that can have a devastating impact not only on your client’s financial situation, but on their children’s and grandchildren’s future as well. This is the risk of long term health care expenses that arise as our client’s age. Long term care is more expensive than most think and many will be responsible for covering their expenses. According to a 2017 AARP fact sheet, 52% of people turning 65 will need long term care services in their lifetime. Because these services cost several thousand dollars a month and can last for years, this is a risk that must be addressed.
Life Insurance with living benefits is becoming more common as a way to protect against this risk. The flexibility of these policies make them a very attractive option for those worried about paying for expensive long term care insurance and never using it. These policies come in all shapes and sizes in terms of guarantees, how interest is credited, how to access the benefits, etc. So what should you recommend to your clients? Well we certainly have our favorites here at Financial Brokerage that we’d love to discuss with you, but I’ll share a brief hypothetical example using a product that’s currently on the market to highlight some features available that we favor.
• 45 year old male at preferred non-tobacco
• $309.84 per month in premium for 20 years (paid up at age 65)
• $250,000 face amount/ $5,000 per month true LTC benefit
• At age 65
• Guaranteed option to surrender policy for return of 100% of premiums paid
• $92,855 of cash value
• No lapse guarantee death benefit of $250,000/ $5,000 per month LTC coverage to age 85
• Cash value expected to grow and death benefit/ LTC coverage projected to run to age 120
With 1 policy you cover part of your client’s pre-retirement death benefit need; you protect against their health care expense need throughout retirement, and they also accumulate cash value in reserve to hedge against other unexpected financial risks in retirement.