Retirement Guys: Life insurance strategies start with savingWritten by Nolan Baker Mark Clair | | firstname.lastname@example.org
More than 20 years ago, a month after I turned 18, I, Nolan, got licensed to sell life insurance. I knew I wanted to get into the financial services business after my parents taught me to start investing at the early age of 12. My parents also had some friends that were in the financial services business, so I had the opportunity to job shadow them.
Mike Johnson and Mick Poncsak were my first two mentors when I joined Franklin Life Insurance. I can still remember the 100 men story. As the story goes, the average person will start to earn their first paycheck in their early 20s and their income will usually go up till retirement time. Over the course of their working career they will earn almost $1 million, even more if they have special training. What is interesting about the average person at age 65 is, only four will be well off financially. Forty-nine will struggle financially in retirement time, 22 will live in poverty, and 25 will die before retirement.
Ninety-six out of the original 100 will either be dead or dead broke. Maybe these people didn’t understand they need to have a written plan, a plan to automatically save every month.
Twenty years later, what is interesting is most of those facts, in my opinion, still apply today. The one thing that has changed over the last 20 years is the cost and strategies that are available today when incorporating life insurance into a well thought out written plan.
Term insurance can still be a great option to cover the needs for a set number of years. Costs have generally decreased and new options are available. In 1994 when I started selling life insurance it was mainly done face to face with an agent who represented one or a limited number of companies and a family. Today, independent agents, the Internet and longer life expectancy all have made insurance cheaper. Plus, some policies now even offer terminal, critical and chronic care riders to protect policy owners while they are alive and not just benefits for others at death. I recommend in term insurance to purchase a policy that has an option to convert to a permanent policy without a new medical review in case the insured’s health changes.
Asset-based policies are another change that I have seen over the years. Do you have an emergency or rainy day fund? In a lot of cases, people we talk with say yes. When we ask what the purpose of that money is, often times we hear it is in case of an unexpected health care crisis. An asset-based longterm care policy may be a better option. Instead of just having the money in the rainy day fund, if a person who qualifies for coverage and repositions the money, it can be leveraged into tax free life insurance benefits as well as longterm care coverage.
Let me give you an example. Sara, aged 64, in good health, had $100,000 in an emergency account. If she took and repositioned $50,000 she could get three benefits. One, if she ever needed the money back, guaranteed in writing she could have all of the money back. Two, if she never needed the money and never had a health care crisis, her beneficiary will receive up to 200 percent of her deposit paid in the form of life insurance. Three, if she had a health crisis, her deposit could be leveraged up to 400 percent for long term care benefits. The amount of coverage depends upon several factors, including Sara’s health, age and type of benefits and company she selects. Yet, bottom line is her $50,000 deposit could provide substantially more benefits than her current fixed account.
Other people don’t have a lump sum money available for asset based longterm care. Thus, another option is what we call a Life Leverage Plan. This policy can provide many of the same benefits as asset-based longterm care, except instead of making a single deposit the owner usually makes payments over time, say, 10 years or over their entire lifetime. Yet, since it is insurance, their money is immediately leveraged in the event of a premature death as well as for long-term care coverage.
Our recommendation is to review insurance policies every few years. This gives the account owner the ability to review costs, like with term insurance, as well as other benefits like we mentioned with policies that include long term care coverage. Before making any changes, be sure to get educated the on the pros and cons of any recommended changes.
For more information about The Retirement Guys, tune in every Saturday at 1 p.m. on 1370 WSPD or visit www.retirementguyradio.com. Securities and Investment Advisory Services are offered through NEXT Financial Group Inc., Member FINRA / SIPC. NEXT Financial Group, Inc. does not provide tax or legal advice. The Retirement Guys are not an affiliate of NEXT Financial Group. The office is at 1700 Woodlands Drive, Suite 100, Maumee, OH 43537. (419) 842-0550. Insurance guarantees are based upon the claims paying ability of is insurance company.