We're all aware that a thundering herd of baby boomers is stampeding toward retirement. Because many are our clients, we need to help them understand that the life insurance they own, or are considering purchasing, can be important to their retirement objectives.
Here is a sample conversation that compares universal life favorably with Roth IRAs:
"Your analysis has been thorough and accurate," my client said, "and I see I need more life insurance protection. So tell me, what would six figures worth of term insurance cost me for 20 years?"
"Why do you want term insurance?" I asked. "And why for only 20 years?"
"Well, in 20 years or so I'll be approaching retirement, and I've read that buying term insurance and investing the rest of my money is the best way to save for retirement," he said.
"If you buy term insurance, where would you save or invest the rest of your money?" I asked.
"In a Roth IRA," he replied.
"What is it that you like about a Roth IRA?" I asked.
"Well, even though I can't deduct my contributions, I don't pay any tax on the gain or earnings in the account. Also, when I get to retirement age, I can take it all out tax free," he replied.
I asked, "What don't you like about a Roth IRA?"
"I guess the only drawback," he said, "is that I'm limited to a $4,000 annual contribution. That's a pretty substantial amount, but I know I need to save like crazy if I want to have enough for retirement."
"If there were no limitation, how much would you like to contribute to a Roth IRA?" I asked.
My client didn't hesitate. "As much as I could afford -- every year," he said.
"If that's the way you feel," I continued, "let me show you how you can buy the life insurance protection you need using some features similar to those of the Roth IRA you like so much.
"Premiums paid for a universal life insurance policy are not tax deductible. It is likewise with Roth IRA contributions. And the cash values that accumulate in the universal life policy usually are not subject to current income tax while they remain in the policy, as with the earnings in the Roth IRA.
"At retirement, through a combination of loans and withdrawals, a universal life policy can provide you generally tax-free retirement income from the policy cash value, as long as the policy is structured correctly and stays in force. Of course, the fact that the policy stays in force means that your family, heirs, or charitable interests would be provided a death benefit that will not expire at the end of 20 years, like it does with term life insurance. Speaking of term insurance, you won't have to buy any, because the coverage you desire is obtained through the universal life policy. The cost of insurance in the universal life policy may even be lower than the costs in a separate term policy premium.
"Finally, a universal life policy enables you to adjust your premium up or down, within limits, every year. Unlike the Roth IRA, you aren't limited to a specific amount per year. So," I concluded, "if you're serious about saving like crazy for your retirement and you like some features of a Roth IRA, we can provide life insurance protection and the features of the Roth IRA you like in a single universal life policy."
While we don't describe permanent life insurance as a retirement plan, some of the desirable characteristics of retirement plans (Roth IRAs, in this example) also may be found in life insurance. Often, of course, clients don't want to own life insurance. They do, however, want the things that life insurance will provide: guaranteed death benefits, accessible cash values, flexible, virtually unrestricted premiums, and income tax-free inside buildup. These are the attributes we must convince our pre-retirement boomer clients to address.
Jeffrey L. Cassat, CLU, ChFC, LLIF, is assistant vice president, marketing, of Midland National Life Insurance Company. A 33-year veteran of the life insurance business, Mr. Cassat has been an agent, registered rep, general agent, training and field development officer, and marketing officer. He is a member of the National Association of Insurance and Financial Advisors, the Society of Financial Service Professionals, and Sales & Marketing Executives International, Inc.
