How term life insurance can maximize your client’s retirement stash

By William Scott Page

Term life insurance is commonly perceived as a financial shield, a measure put in place to safeguard a family’s financial future should an untimely event occur. Many agents have underwritten hundreds, if not thousands, of term life insurance policies with the primary objective of protecting their clients’ assets. The premise is simple yet profound: to ensure the beneficiaries or dependents are not left in a financial bind if the family's primary earner dies unexpectedly.

But there's more to term life insurance than meets the eye. Beyond the traditional safety net it provides, term life insurance can play a significant role in retirement planning. It's an aspect often overlooked, even by experienced agents.

Most agents recommend convertible term life insurance because of the opportunities it presents. A convertible policy is essentially a term life insurance policy that can be converted into a permanent product, such as a universal life or whole life insurance policy at the end of the term. The conversion can be done without any additional medical evaluations – which is a huge benefit for policyholders.

Picture this scenario: An agent advises a client to take a convertible term policy for 20 years. After 20 years, the policy can then be converted into a permanent universal or whole life policy. The beauty of this conversion is that it can occur without the client having to undergo a new round of medical underwriting. This eliminates any concerns about a health condition affecting the client’s premiums or eligibility. The transformation provides a continuous safety net, and the conversion feature makes term life insurance a flexible and adaptable tool. This convertibility can, in many cases, offer a better match for clients as they transition into different life stages.

The real hidden gem of term life insurance lies in its potential to become part of a client's retirement stash. We believe senior clients should start viewing term insurance less as an expense and more as an asset.

Here's the rationale: A term life insurance policy can be converted, then sold on the secondary market for a lump sum cash payment. Yes, that's right. That term insurance policy that your client has been diligently paying for over the past 15-20 years can be transformed into a financial asset contributing to their retirement stash.

There are various strategies and guidelines suggested by financial experts for retirement savings. Some advocate a multiple of your annual gross income - ranging from seven time to 13 ½ times. Others propose the "rule of 25," which involves calculating how much money you would need to draw each year from your savings and multiplying that by 25. Another approach recommends saving a certain percentage of your income - often 70%-80% - based on your projected retirement income requirements.

I prefer the term “stash” to describe the money clients are socking away for retirement. This stash is meant to grow untouched, fueling their retirement dreams. Further, I endorse looking for inventive ways to enhance that stash. Here's where the term-to-perm transaction in the life insurance industry comes into play.

A term-to-perm transaction converts a term life insurance policy into a permanent product, which can then be sold as a life insurance settlement. This strategy doesn't apply to everyone. It is mainly executed by seniors who are aware of this option and request a policy appraisal before the conversion period expires.

Any senior with a term policy should consider the conversion option and understand when that option is available. We've observed instances where term policies are converted, and life insurance settlements yield high percentages of the policy’s value. For instance, a $1 million term policy can be converted and then sold as a six-figure life settlement. Such transactions are very common. This means that the policy you sold to your client to protect them in the short term could be converted and dramatically increase the value of their retirement stash.

It's important to note that not every term policy is convertible. However, many insurance agents recommend convertible term policies because they usually don't require an additional medical evaluation and aren't prohibitively expensive. Some agents may not have foreseen the policy's potential for conversion into a life settlement, but having suggested a convertible policy years ago could yield substantial benefits today.

By taking full advantage of all available assets, including term life insurance, you can help your clients build a more robust retirement stash and secure their golden years.

Wm. Scott Page, is a life insurance policy appraisal expert, published author and CEO at policyappraisal.com and WeBuy75.com. He may be contacted at [email protected].