As an advisor in the Nashville area, I have a front-row seat for some of the economic trends and concerns that will have a major impact on Americans over the coming years.
Nashville attracts a diverse mix of residents as a university city with more than 20 four-year colleges in the area, low cost of living and no state income tax. As a result, my client base represents a cross-section of young and late-career professionals as well as retirees. Each generation has its own unique needs and challenges through the financial planning process. The following are key issues and developments that have shifted the role of life insurance in a financial plan.
A 2015 study by The Institute for College Access and Success found that more than six in 10 college graduates leave school with some level of debt. It is commonplace to meet clients in the medical field who owe more than $300,000 in student loans. Advisors must provide strategies for debt repayment and how this high-level debt will be handled at death. Federal student loans and some private loans are discharged upon the death of the borrower, while others are left as a burden to the estate.
If you understand the terms of a student loan, you can put together a strategy that protects all parties involved. For example, if a couple has two sets of student loans that die with them, it might be worthwhile to put insurance on each spouse in the amount of the survivor’s loans. That way, should the loans die with the husband or wife, the surviving spouse can use the proceeds to pay off their loans as well.
The Sandwich Generation
The decreasing number of companies that offer traditional long-term care insurance has come at a time when the cost of care is higher than it has ever been. It’s particularly challenging for individuals in their peak earning years, as many have been forced to pay for their parents’ care while they also plan for their own futures. To top it off, members of this “sandwich generation” also may need to support their children financially. A 2012 Pew Research Center survey found that 48 percent of respondents ages 40-59 provided financial assistance to an adult child in the previous 12 months, while 21 percent also provided assistance to a parent over the age of 65.
These unique circumstances change how insurance plans are structured. In the past, the extent of someone’s inclination on subject matters such as the term versus permanent debate might have been a matter of preference. Today, individuals with this level of responsibility find their needs can’t be met entirely by either category. Instead, a mix of different life insurance vehicles might be needed to mitigate their risk.
These clients might purchase a larger term policy to cover the increasing college costs for their children and long-term care costs for their parents should the clients die prematurely. To reduce the risks of paying for their own care, permanent products with additions such as long-term and critical care riders could provide more peace of mind for their own futures.
If clients are responsible for some or all of the financial obligations mentioned previously, it could be tough for them to stay on track for retirement. As a result, I’ve seen an increased level of interest in the role of permanent life insurance in retirement planning from clients who were unable to save the amount they had planned and now want to make up for lost time.
Use strategies such as overfunded permanent life insurance and leverage the ability to take withdrawals from and loans against the cash value. This is a subtle but substantial difference when you compare the longevity of their cash value to that of a 401(k) or individual retirement account — to give clients the opportunity to quickly establish an income strategy for retirement.
An advisor who is knowledgeable about products uniquely positioned for retirement planning, such as an indexed universal life policy’s ability to participate in some market gains and avoid market losses, can help clients maximize the use of every dollar they’ve saved before and during retirement.
It’s clear that as circumstances change, we must be willing to change with them. If we as advisors take it upon ourselves to listen intently to our clients’ concerns and stay abreast of changes in our industry, we might find a host of new uses for life insurance that suit their needs. When we are passionate about life insurance’s role in proper planning, there is no limit to the value we can provide.
Brenton Harrison is a financial advisor with Henderson Financial Group, a wealth management firm in the Nashville area. He is a four-year member of the Million Dollar Round Table. Brenton may be contacted at [email protected]