Life insurance is something that is often times not kept during retirement years. With the opportunity to presumably self insure at that point, many people will drop their term or let it expire. While this is a strategy of many, it is not always the best one to pursue. You may assume you don’t need or want life insurance after retirement, but how do you truly know how you will feel when you reach that age.
We speak to clients everyday that are looking to qualify for coverage that are 60 years old and over. They consistently say that they wish they had bought when they were younger or planned for some coverage into retirement. With that being said, it is certainly very possible to still qualify for coverage and the premiums will be determined by health. Premiums have become more and more affordable due to life expectancy increasing.
The amount of coverage and reason for coverage may be totally different than when the client was 35. At 35, they might have had a primary focus of replacing income if a premature death occurred. At 65, income replacement might be less important and it might be about estate planning, mortgage protection, and final expenses. When you are looking at your financial plan it is important to consider changing items of importance in your life. It is always a good idea to look at your plan every year or two, to make sure nothing has changed. If something has changed it may be something to address, or it may simply be something to keep in mind going forward.
We speak with a lot of clients that are considered by most companies to be uninsurable and they are looking for other affordable life insurance options. While not nearly as cost effective as a traditionally underwritten policy, there are guaranteed issue companies. These companies will write policies that are guaranteed to be issued, even if you are not insurable by traditional standards. These companies will charge a cost per thousand rate based upon your age. These per thousand costs will be significantly higher than and underwritten per thousand rate. If you are not insurable, you really don’t have any other choice than to pay it or not buy it. The other big drawback of this type of policy is the limitation on the death benefit amount. Usually the most that can be purchased is $50,000 of face amount.
Another great option is to try and get more coverage at your place of employment. Group life insurance is guaranteed issue and is usually going to be better terms than an individual guaranteed issue plan on the open market. On top of potential guaranteed issue plans, there are survivorship policies that can be issued with one unhealth spouse. If either the husband or wife are sick they may be able to buy a survivorship/second to die plan. This type of plan unfortunately doesn’t pay until the death of the second spouse, but it may be a good option if a client is not insurable. Survivorship is used heavily in estate planning and it is less expensive typically than other permanent plans.
Often times when we talk to clients they will be able to get all of the benefits that they are seeking, but they simply need to move around the money on their model. For example, they want to optimize their life insurance protection, but don’t have a lot of additional money to spend. We can often find lost dollars that can be moved towards the protection with no additional out of pocket costs.
One of our clients recently was in need of additional life insurance protection, but didn’t want to change their monthly outlay. On top of that, they were very concerned about asset protection. They had been sued in the past and wanted to make sure that they were as protected as they possibly could be. We recommended that they visit with a good estate planning/asset protection attorney, but also to move part of a non exempt asset into life insurance. They had over 200,000 in a money market and we suggested that they simply move a small amount of that money each month into a whole life insurance policy. Not only was it going to purchase them permanent death benefit, but the policy would be overfunded. Overfunding the policy would create immediate cash value and money that was into an exempt asset from creditors. Obviously, if they were to be sued that 200k in the money market would be susceptible. I asked them why they had that much in a money market and they said they wanted to have good liquidity. Liquidity is a great thing and we explained that they would have that inside the life insurance cash value too.
If you are a male age 65 or older and you have a term policy with at least 3 years left on the level period, you may be able to settle the policy. When I say settle the policy you may be able to sell the policy to investors who will pay you a percentage of the face amount. This may be a great option for a lot of people as most term policies never get collected on by the beneficiaries. On top of that, when the premiums go up astronomically at the end of the level period, most clients drop those policies.
The face amount to qualify for this program needs to fall in the 1 million to 5 million dollar range. The typical offer is 3 to 7 percent of the face amount. The offer is determined by the age of the policyholder and other factors. For example, a 5% offer on a 5 million dollar level term with 4 years left on it, would be $250,000. This can be pretty attractive and can even be used to buy a new policy in some instances. While the term policy may have been used initially for income replacement, the insurance need might be for estate planning now. For more information on this program, you can contact Vince at Vince@paramountlifeinsurance.com and to see if you are eligible.
If you are married, you must take into consideration the rights your spouse has under statelaw before you can decide who should inherit your assets. Each state has laws designed toprotect surviving spouses. These laws dictate the minimum amount of property that mustpass to a spouse unless otherwise agreed to by the spouses. If your estate plan provides lessfor your spouse than state law deems appropriate, the law permits the spouse to elect to receive a greater amount. Once you’ve considered the amount you want to leave your spouse, other questions to consider include.
If you have children, do you want all of them to receive some share of your assets?
If a child should predecease you, do you want his or her children — your grandchildren
— to receive that child’s share of your assets?
Do you wish to include other individuals as beneficiaries?
Do you have philanthropic goals?
WHAT A S S E T S S H O U L D T H E Y I N H E R I T ?
This may depend on the type of asset and the ability of each recipient.Do you want a recipient to receive a specific asset? For example, if you own a business, do you want your interest to pass only to the children active in the business? If so, how are other children to be compensated? Do you want a recipient to receive a percentage of the estate value or an interest in your assets? For example, do you want your children to receive an equal share of your estate, or an interest based on need, such as for education or health?
Do you own assets that require skill in managing, such as rental properties or an
investment portfolio? Is it appropriate for all your beneficiaries to inherit these assets?
Have you considered each beneficiary’s ability to manage the assets inherited?
One effective tool to help protect your net worth is a survivorship life insurance policy. Without proper estate planning, a chunk of your money could go to the IRS at your death. While estate taxes may be inevitable, there are ways to conserve — or at least replace — a portion of your estate.
Survivorship Life is a great policy to have if you have significant net worth as estate taxes can be as high as 55%. Survivorship / “Second to Die” policy’s cover you and your spouse’s lives and it is paid out on the second death. It serves as a great estate planning tool as it can be purchased by an irrevocable trust, with your heirs as the beneficiary and the insurance proceeds are kept out of the estate for tax purposes. The death benefit can replace a portion or all of the estate that was eaten up by paying Uncle Sam. Survivorship life has other benefits too as it is generally less expensive than individual polies as two lives are insured. It also has more lenient underwriting generally as two lives are insured. It is not uncommon for a client to be denied coverage individually and then be able to qualify with their spouse for a “Second To Die” policy.
The estate tax future is up in the air and may have a shake up with this new administration. Currently, the exemption for 2009 is 3.5 million and the estate tax rate is 45%. In 2010, the estate tax goes away for the year and it is unclear where it goes from there. According to the Economic Growth and Tax Relief Reconciliation Act of 2001, in 2011 a single person will have an exemption of 1 million dollars and the amount above that will be estate taxed at a rate between 41%-55%. Something to consider as well is if you have state death or inheritance taxes in your state. Also, your heirs may need to pay capital gains taxes when selling inherited assets. Talk to your advisor about your estate plan and see if survivorship life may be right for you.