Let’s say you have a client who is in the peak of earnings potential, and you have discussed life insurance with them. You have determined how much insurance the client needs and how long the client should keep it.
You have settled upon a term insurance policy to cover the current value of their future income over their remaining working years (let’s say it’s 20 years), although early retirement has not been ruled out.
In a perfect world, over the next 20 years, your client will amass a savings great enough to support a dream retirement: maybe some travel, golf, and spending time with family - we all know the dream!
The house will be paid off and, maybe, a vacation home added. The kids, who are young right now, will eventually go to college, which will be fully funded with a college savings account with no debt. Your client will have a successful financial flight plan, and it all has been mapped out in the software. All your client needs now is a successful, smooth landing.
This is the ultimate dream scenario that you want to create with all your clients. However, we know that life doesn’t always work out as we plan. As the years go on, your client spends a bit more and saves less than anticipated. The market doesn’t always play along with the outlook. More debt is taken on as the lifestyle grows to meet the income. Unfortunately, we’ve hit turbulence and the flight plan has changed.
This is where we start making the adjustments. Retirement gets pushed out a few years. One of the homes is remortgaged or sold off. Travel is reduced. The kids take on some college debt, but mom and dad will help with the payments. There are so many things to consider when the inputs are changed.
From an insurance perspective, we have to consider how the financial plan has changed. This includes the client working for a longer number of years, having more debt than anticipated and having the kids still relying on them financially. Therefore, having an income is still very important.
That life insurance that was designated to cover the loss of income, though, is just about out of its premium guarantee years, and will become very expensive - too much to keep. What should be done? Well, your client could reapply for life insurance and, if healthy enough, qualify for a new term policy.
But how much will that cost and how long can it last? What if the client’s health doesn’t allow for qualification or causes a significantly higher premium? These are all questions that will lead to even tougher decisions that need to be made.
How can we help to avoid a situation like this from happening? Just as we should with all things in our financial plans, we have to prepare early and have built-in contingencies. This is why it is so important that from the start of a client meeting, we should introduce the idea of permanent life insurance.
Unlike term insurance, permanent insurance offers your clients the ability to keep some level of life insurance forever. Permanent life insurance may have a fixed premium that can be fully paid up in client chosen intervals. We can add to the policy riders that can turn the death benefit into long-term care benefits (something typically bought later in life at a high cost) just in case the client needs health care down the road.
Also, certain policies can accumulate cash inside that is tax advantaged, so there is an exit strategy if retirement goes according to the original plan. These same cash values may have saved the plan before things went wrong, as it can be used to offset some of those additional costs that were taken on such as college debt. The cash value is an asset that can be used for so many reasons.
Permanent life insurance products can strengthen your client relationships, secure their plans and insulate your clients from hearing about options from another advisor.
Jason DeMeo, ChFC, LUTCF, FLMI, is a business development specialist with Crump Life Insurance Services. He may be contacted at [email protected].
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