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To Age 100 — and Beyond! Life Insurance for a Lifetime

Although there are plenty of news reports about the growing number of centenarians in America, few people believe they will be among them. The fact is, the chances of reaching age 100 are greater for all of us, as the World Health Organization projects the global number of centenarians to increase tenfold between 2010 and 2050.


At the same time, data from LIMRA show that nearly six in 10 Americans have life insurance, and many of them bought it more than 15 years ago — when policies looked very different from ones on the market today. Before 2004, a majority of permanent life insurance policies were designed to endow (or mature) when the policyholder reached age 95 or 100, versus more recent policies that mature at age 121.


In many cases, when a policy reaches maturation, the owner receives the cash value, and there is no longer a death benefit — an outcome no one wants or expects.


Financial professionals need to talk with their clients about longevity to ensure clients are covered in their later years and even beyond age 100. Although some older policies offered riders to extend the maturity age, replacing or adding coverage might offer a better solution.


In addition to life insurance coverage, planning for potential long-term care expenses becomes even more important as people live longer. All these issues can be covered in an annual policy review. This is a good place to start understanding a client’s broader goals and the role life insurance can play in meeting them.


Starting the Conversation

Asking the right questions in the right way can make all the difference in ensuring a client has the best policy for their needs. There are many elements to consider, but it’s most important for financial professionals to determine whether clients have an existing policy and to consider how their financial situation has changed since they obtained coverage.


Additionally, life events such as the birth of a child or a divorce might affect the amount of life coverage required.


Here are five checkpoints to cover in the conversation.


[1] Understand your client. Start with your client’s long-term goals and objectives. Ask about their current financial picture and their plans for the future. Also explore their eligibility for life insurance, such as whether any health considerations might affect their ability to obtain coverage or the price of it. 


Family considerations are, of course, front and center in understanding your client. For example, as a family’s situation changes, the policy beneficiaries may need to change too. In one case I was involved with, an ex-spouse sought to collect — and ultimately received — the death benefit from a life insurance policy, because the contract’s beneficiary designations had not been updated. Another example would be life insurance purchased to cover college expenses for children who have since graduated and no longer need this type of protection.


[2] Determine the appropriate amount of insurance for your client's needs today. Ask clients about paying off debts, covering final expenses, replacing income, sending children to college, funding long-term care needs and expectations for wealth transfer, to determine whether they currently are carrying the right amount of insurance for their situation.


When identifying the appropriate amount of coverage, many insurers and financial firms now offer tools to conduct a comprehensive needs analysis, including income replacement, debt protection and funding for children’s education in the event of a primary wage-earner’s death. In other cases — funding a buy-sell agreement between business owners or equalizing an estate with illiquid properties among heirs — a different analysis should be used to determine the appropriate face amount.


[3] Identify the best type of life insurance for the client. Each type of life insurance is designed to meet different client needs. Generally, term insurance is a good choice for income replacement or short-term needs and is typically a good fit for those in the middle market.


Meanwhile, permanent insurance (whole life, universal life or variable universal life) may be most appropriate for longer-term needs or for wealth transfer to maximize the assets clients pass on to the next generation.


Sometimes, a blend of term and permanent insurance can adequately cover both income replacement and wealth transfer objectives.


Many permanent life insurance policies may also offer benefits that can be utilized while the client is still living, such as using the cash value to provide supplemental retirement income on a tax-advantaged basis and optional riders that cover long-term care or chronic illness expenses.

As for the type of permanent policy — whole life, UL, VUL or indexed UL — the advisor will have to gauge the client’s risk tolerance to help find the most suitable design.


[4] Evaluate the existing policy. Conduct a “stress test” on existing policies by examining the terms and conditions and in-force illustrations to assess performance and premium funding. Look at the policy’s projected performance using the same assumptions used when the policy was purchased. Also consider the minimum premium that would be required to fund the policy to maturity and how long the policy would last should the client stop paying premiums entirely. If the policy is a VUL, make sure the assumed rate of return is reasonable and aligns with your client’s risk tolerance.


Review how long the policy is projected to stay in force, looking especially at older policies to understand what happens to the contract if the client reaches age 100. For permanent policies issued prior to 2004 that are designed to endow at age 100, it’s important to understand what happens to the policy when it reaches maturity. Consider a UL policy that has a $500,000 death benefit but only $30,000 in cash value on the policyholder’s 100th birthday. At that time, the policy endows and the policyholder will — absent a maturity rider providing for payout of the death benefit — typically receive only the cash value, as the policy coverage will cease.


[5] Explore whether a new policy would be appropriate. After reviewing the existing policy, consider what a new policy would do for the client, especially in light of their current health or any surrender changes that might come into play. It might be the right time to obtain a policy with optional riders to cover long-term care or chronic illness expenses.


The most important day for clients to have their life insurance in force is the day that they die. Proper care and diligence during policy reviews can make sure that happens no matter how long they live.


Palmer Williams is national sales director, Saybrus Partners. Palmer may be contacted at [email protected]

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