Creating A Bridge For Retirement – Providing Liquidity For Life

    As a financial services advisor, you integrate the benefits of life insurance’s death benefit protection into a plan for your clients and help provide financial peace of mind to families and businesses. A life insurance policy is truly a unique product, providing guaranteed death benefits at a difficult time. When you use a permanent life insurance policy that accumulates cash value, you also can provide living benefits to your clients by guaranteeing them liquidity—use and control of these values in the event of an emergency, opportunity or retirement. 

    Recent studies show that nearly half of all Americans (48 percent) admit they aren’t confident in their knowledge of investment and financial products and that they want help with retirement planning.* For four in 10 Americans, household finances are the cause of substantial stress, and one in five admit it’s a source of daily worry.* This is understandable since 60 percent of households say they would have to borrow money to pay a $500 car repair bill** and 40 percent of Americans admit they have no retirement savings.* 

    Features vs. Benefits
    When I first entered the life insurance industry as an agent, my general manager (who also happened to be my Dad!) pointed out to me that I was an expert on the “features” of life insurance products, but that I needed a better understanding of the “benefits” they could provide. It was a distinction that helped shape my focus, approach and understanding about the true value of life insurance to individuals, families and businesses.

    Yes–it’s important to know about the details of the products you sell. However, over the years I’ve had the opportunity to work with the best producers in the business and have learned that a common value they share is that they really embrace (and know how to effectively communicate to potential clients) the true value of life insurance by understanding the benefits too.

    For the purpose of this discussion I will focus on participating whole life. Over the years when I’ve been asked, “What’s the best policy?” I always respond that it’s the one that’s in force when your client or beneficiary needs it. So if you’re recommending one of the other array of products, that’s great too—because you’re serving your clients. 

    The key features of participating whole life insurance are guaranteed premiums, guaranteed cash value, guaranteed death benefit, guaranteed nonforfeiture provisions, and a choice of dividend options. The benefits are that, because of these guarantees, clients have certainty, peace of mind and flexibility throughout life. 

    One of the misconceptions I often hear about whole life insurance is that it’s not flexible. This is a conversation I always enjoy having, because I’m convinced that whole life insurance is very flexible and has contractual provisions that guarantee its flexibility. For example, while dividends are not guaranteed, once an insurance carrier declares and pays them these dividends are guaranteed. So let’s look at some features and benefits about dividends:

    • Feature: Dividends increase cash value.
      Benefit: Your clients have more money for an emergency, opportunity or as a supplement to retirement income.
    • Feature: Dividends buy paid-up additions, which increase the death benefit.
      Benefit: The increase can result in more funds being available for chronic and terminal illness (if an accelerated death benefit rider for chronic and terminal illness is available on the policy). This can help with the impact of inflation.  

    Another feature of most participating whole life products is the contractual nonforfeiture provisions they provide. One provision that can help benefit your clients if and when their needs change is a reduced paid-up (RPU) option. By exercising the option to put their policy on a reduced paid-up status, policyowners could stop paying premiums on their policy but still enjoy:

    • A lifetime guaranteed death benefit;
    • Acceleration of the death benefit for chronic or terminal illness (if the policy provides an accelerated death benefit rider for chronic or terminal illness);
    • Increased cash flow because the policyowner no longer has to pay premiums; and,
    • Access to available cash value through policy loans.

    The benefits of these guaranteed cash values are, well, a big deal! In fact, they can provide life-impacting benefits to your clients as their needs change because they provide them liquidity, use and control of their money and–in essence–their lives! 

    Your clients will have ready access to cash in the event of an emergency or opportunity, or for college planning, or to supplement retirement income. The benefits are as limitless as the needs of your clients. 

    When policyowners borrow against their whole life policy, they aren’t subject to a credit check, they usually get their money in a few days, and there’s no fixed repayment schedule. Loan repayment is highly recommended, though, to ensure cash values continue to grow at the guaranteed rate and are available again for future use. Participating whole life insurance offers all these guaranteed benefits and financial liquidity! 

    Building a Bridge to Retirement
    One area of concern for many people today is planning for retirement. Typical questions include:

    • Will I have enough money to retire?
    • How much will I have to spend for health care?
    • Can I leave a legacy to my children, grandchildren or a charity?

    This is where you can design benefits using the features of whole life insurance. 

    Most agents I work with advise clients that if they can afford to wait to take Social Security benefits, they should defer taking them until age 70. By deferring benefits until age 70, their monthly retirement income will be approximately 76 percent higher than taking benefits at age 62. By waiting, not only will your clients get more income, but their spouses will also get a proportionately higher survivor benefit. So it’s logical that if they can afford to wait, they should wait. Whole life insurance can help you build a bridge to help your clients defer taking Social Security.

    Most whole life products are designed to fulfill specific client needs. For example, some products may build death benefit quickly while others emphasize the fast buildup of cash value. Assume you have a male client in his mid-forties who buys a participating whole life policy designed to produce a fast-growing death benefit. If he selects the dividend option of paid-up additions, the benefits to him are that he has immediately created a legacy for his loved ones and/or charities of his choice and is building death benefit and cash value. 

    If your client pays the premium on his policy until age 65, and then decides to retire early due to job or health situations, he could reduce pay-up (RPU) the policy and change his dividend option to cash. This would increase his cash flow by the amount of the premium. He also could take an income from the policy in the form of withdrawals at ages 65, 66, 67, 68 and 69. And then, at age 70, he could stop the withdrawals and start taking his social security benefits. In this example, his whole life policy could act as a bridge, or in other words his “permission slip,” to defer taking Social Security until age 70 so he could receive the maximum Social Security payouts for himself and his spouse. These withdrawals also could be used to help offset medical care costs, and the policy’s face amount could still provide a legacy. If the policy has an accelerated death benefit rider for chronic and/or terminal illness, it will also provide benefits for him should he need them.

    In fact, it’s never too early to start planning for retirement. Imagine you have a client in his twenties or thirties. If he buys a participating whole life policy designed to provide early, fast-growing guaranteed cash value, in addition to the peace of mind the guaranteed death benefit will provide him and his loved ones, throughout his life he can enjoy access to the cash value in his policy through policy loans. 

    Other benefits may include:

    • The right to put his policy on RPU and change his dividend option to cash at age 65.
    • If he RPUs at age 65, he might be able to create new disposable income in the form of the annual dividend earned and the premium saved.
    • Over the years, his disposable income may continue to grow as the dividends in his policy grow.

    In the book, Words Can Change Your Brain, by Andrew Newberg, M.D., and Mark Robert Waldman, they pose the question, “What do clients want?” Their answer? Clients “want to be listened to and to be heard…with the greatest accuracy and in a manner that generates mutual respect and trust.” Listen to your clients and they will help guide you on how best to advise them.

    Understanding the “benefits” of what a life insurance policy can accomplish will help you address the “why” questions potential clients often ask. It could also help you increase your sales and better serve your community. 

    *LIMRA, MarketFacts Quarterly, No. 3, 2017.
    **Hebeler, Henry K., “6 Reasons Why Young People Must
    Save Much More,” MarketWatch, 2 Dec. 2016.

    Lewis W. Merrow, MBA, CLU, ChFC, LUTCF, joined Mutual Trust Life Insurance Company, a Pan-American Life Insurance Group Stock Company, as regional vice president (RVP), Northeast Region, in 2010. In this position Lew is responsible for helping Mutual Trust achieve its sales goals by building strong relationships and recruiting field partners in 14 northeastern states and the District of Columbia. In 2011, Merrow won Mutual Trust’s Regional Growth Award, and in 2014 and 2015, he won all three regional development awards: The Regional Vice President of the Year Award, the Regional Field Force Development Award, and the Regional Growth Award. In 2016, he again won both the Regional Vice President of the Year Award and the Regional Growth Award.

    Merrow, who is the third generation in his family to serve as a life insurance professional, became a licensed agent under a college recruiting program when he was 18 years old. After earning an undergraduate degree in business and finance, Lew continued his education, receiving an MBA degree and numerous industry designations. In addition to earning a CLU, ChFC, and LUTFC, Lew holds an RHU, REBC, FLMI, CEBS, FSS, RICP, CLF, RPA, and GBA. Lew also has taught CLU classes, written numerous articles for industry publications, and been a featured speaker for industry, academic, company and community groups.

    Merrow can be reached via telephone at 800-486-8887.