Steve plays the banjo in a blue-grass band. During a festival performance on a Saturday night, Steve's right hand suddenly fell into his lap. He pitched forward off the stool on which he had been sitting and fell to the stage floor.
Life is a series of moments that are opportunities for living. A moment is an opportunity to invest in building relationships or to enjoy solitude. A person can choose to spend money in that moment or work to earn money. All people enter the world with a finite number of moments they will be able to turn into opportunities. Most people do not have an innate awareness of this limitation, but the person with a significant health issue does.
Barbara's weight gain happened gradually and never seemed to threaten her ability to perform everyday tasks. Then suddenly she began to experience blurred vision, numbness, and increased thirst.
Life is about planning. Plans require the investment of effort, time, and resources. Health impairments heighten the appreciation of the limitation of time but do not necessarily restrict a person's effort or ability to plan successfully.
A plan remains a good intention until the person who made the plan begins to implement it. Again, the person with health impairments sees a heightened urgency in getting plans off the ground.
Have you ever been asked, "If this were your last day, how would you spend it?"
Well, the problem is, if it were in fact your last day, you would not be at liberty to spend it as you would like because most things in life simply require time and planning. For instance, you could not throw a party for all of your friends. They would need time to travel. What would they eat and drink? Where would the party take place?
When the neighbor came over and asked for help lifting his new gas grill off of the pick-up bed, Dmitri immediately consented. Afterward, however, he began sweating, felt nauseated, felt a sharp pain radiating to his neck and arm, and wondered why he was so dizzy.
Life is expensive. Work therefore is required to afford life. Many people plan to work, save, invest, and manage their resources to accumulate the means by which they can continue to enjoy life's finer gifts -- without having to continue to work indefinitely. The compensation for a lifetime spent working is wealth. Wealth is accumulated through hard work and wise investing. Both require time.
Life insurance is remarkable simply because it alone, among all financial instruments, completes wealth accumulation plans even if time runs out. Steve, Barbara, and Dmitri all have plans for their children's education and their retirement years. If they die, they want their spouses and children to enjoy what they would have provided for them while living. What happens if Steve had waited to buy life insurance until after he had his stroke or if Barbara did not consider life insurance until after she was diagnosed with diabetes? What will Dmitri do after his heart attack because he has no life insurance?
Economists study the concept of scarcity. Inflation is caused when too much money chases scarce goods. An asset appreciates in direct proportion to the demand for it. The smaller the quantity of something, the greater its value -- and the greater the cost.
Life insurance usually costs more the older we get or the more medical impairments we have. Scarcity again. Because someone who is older or has a health impairment is perceived to have a shorter life expectancy, life insurance companies have fewer years in which to collect premiums -- so the premium per year is higher.
Steve, Barbara, and Dmitri will be viewed unfavorably by many life insurance companies because of their increased risk of mortality. (At least one life insurance company will investigate the extent to which these individuals follow up with their doctors and manage their disease process through diet, exercie, weight loss, and medications, and might consider them to be standard or even preferred risks.) Regardless of the cost, these three people need to consider buying life insurance to complete their plans in the event of their death.
Financial professionals and agents present life insurance as a strategy to address several financial problems associated with the death of the insured. Life insurance is uniquely suited to provide the exact amount at the critical time. Life insurance replaces the lost income should the insured die during the child-rearing years.
Life insurance owned by a Special Needs Trust established by the insured can ensure the ongoing care for a special-needs child. Life insurance completes the funding of hte retirement account if the insured dies before retirement age and before the account sufficiently has been built through IRAs, Section 401(k) plans, or other vehicles.
The life agent working with a medically impaired client must revise the standard recommendations, but only slightly. First, the kind of insurance most often recommended for people raising children is term life. It is inexpensive, the rates might be guaranteed not to increase for the stated level period, and there usually is a conversion privilege. The conversion privilege is a way of locking in future insurability. When working with a health-impaired client, the agent must remember that the client's health most certainly will not improve over time. Therefore, the proper recommendation frequently is for the client to purchase permanent protection now. The permanent product available for conversions is not always as good a product as other permanent products currently available for new sales.
Second, financial professionals and agents working with health-impaired clients must recommend strategies that will help mitigate the additional premium caused by their elevated mortality risk. An excellent option is to purchase the insurance through a qualified pension or profit-sharing plan. Ins uch situations, the employer contributes to the plan an amount that can be used to pay the premium for the life insurance. If the policy is rated (surcharged for the additional mortality risk), the additional cost is paid from the employer's contribution. The employer deducts the total contribution. The employee is not taxed on the imputed value of the life insurance protection based on the substandard rating. Instead, the standard Table 2001 cost (or the insurer's standard term rates) are used to determine taxable income. Hence, for income tax purposes, the client essentially acquires life insurance at standard rates even though the substandard premium is paid entirely by the employer. The life insurance in the qualified plan can be used to pay estate taxes, meet family protection objectives, or help complete the client's wealth accumulation goals after his or her death.
Thirds, perhaps it is the client's spouse who has the health impairments. In this case, wealth accumulation adn retirement benefit planning must be viewed from a different perspective. An important example is the need to make an election to receive retirement payouts from a qualified plan. Usually, married couples elect the joint-and-survivor annuity option. In the event of the client's death, the surviving spouse continues to receive monthly annuity income. If the spouse is unhealthy, however, the client might want to elect the single life benefit, which provides for a substantially higher annuity payment. Life insurance can be purchased on the client's life to fund the ongoing annuity that was sacrificed for the higher single life annuity -- in the unlikely event that the client predeceases the health-impaired spouse.
Financial professionals and agents working with health-impaired clients have the opportunity to use the client's heightened awareness of life's finality and the client's increased urgency to make and implement plans. Life insurance is the best tool for copmleting wealth accumulation plans when time runs out. An adjustment is required in thinking through the options. The health-impaired client carefully must consider which kind of product to purchase and should be encouraged to take advantage of leverage that is available through qualified plans, pension maximization, and other strategies.
Last, financial professionals and agents would do well to contact the brokerage general agent (BGA) of their choice -- one who offers expertise in securing the best rating available for health-impaired clients. Not all companies table-rate persons with health impairments. The BGA who specializes in substandard cases usually has access to this kind of company. A complete listing of these agencies is presented each year by LIFE INSURANCE SELLING in its "Review and Outlook" edition.
Please be advised that this article is not intended as legal or tax advice. Accordingly, any tax information provided in this document is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding penalties that might be imposed on the taxpayer. The tax information was written to support the promotion or marketing of the transaction(s) or matter(s) addressed, and you should seek adviced based on your particular circumstances from an independent tax adviser.
David J. Murphy, CLU, ChFC, FLMI, is sales vice president for U.S. Financial Life, an AXA Financial company. Mr. Murphy is responsible for sales from the BGAs representing U.S. Financial in the Northeast. Neither AXA Financial, Inc., nor any of its subsidiaries or affiliates provide tax or legal advice.
