Calming Client Fears: The Role of Life Policies in Retirement Planning

Calming Client Fears: The Role of Life Policies in Retirement Planning

I have some advice to share: if you’re afraid of dentists, and feel a twinge in tooth or gum, go to the dentist.

Delay born of dread means more pain in the chair, slower healing, and worst of all, a bigger bill – cavities quickly turn into root canals. If you think dentistry is an uncomfortable way to launch a conversation, hang on, because we’re about to discuss life insurance.

My father, gone now 20 years, still often manages to get in a word. As a kid in the 60s, I feared dentists. It made sense: needles resembled carpentry nails and the drill’s rumbling made a young mind wonder if the building was earthquake-proof. Kids today, the don’t know what it was like.

That’s just what dad said: in his time – well, you don’t want to know. A single fact: no novacain. I had nothing to fear except fear itself, words he heard live via radio in 1933. Retirement planning – and the attendant discussions of life insurance options and their features – is similar, believe it or not, because plenty of clients, current and potential, are wracked with fear.

It’s all about outliving their retirement incomes. One old-fashioned virtue remains: we don’t want to become burdens; we want to fend for ourselves. There was a time when people trusted their company pension, Social Security and a few dollars socked away to see them through, but now, that doesn’t even resemble a plan, even a poor one.

People today carry a heavy load of post-modern burdens. First, increased longevity: in 1930, a man could expect to live until 60, women a few years more; they planned accordingly. In 2020, we must add at least 20 years to our scenario. Long-term healthcare costs are concerning for everyone. Company pensions are rare, and cash, which once could earn 3% or more just sitting in a bank account, now must be productively invested in IRA, 401(k) and other accounts that benefit from securities investments.

Finally, inflation is enough to keep one awake at night. Earlier generations experienced it, but the financial and insurance industries kept ahead of the scourge by developing new products. Customers today fear a nibbling death in retirement from insatiable inflation, based on experiences real or simply dreaded.

Allianz Life published its Retirement Risk Readiness Study for 2020. It’s an eye-opener: 60% of not-yet retired respondents said running out of money in their senior years is among their greatest worries, but most have never discussed these fears with their financial advisor – only 27% have done so. Creating a financial plan that prevents a retirement shortfall seems logical, but only 6% of those polled consider this a priority.

Market risk is on people’s minds. It could hardly be otherwise, due to the pandemic’s disruption, but also because the dread memory of 2008 is still with us. Optimism has taken a sound beating and many habitually fear the worst. Inflation concerns were quantified: nearly half of respondents rated it as a danger to their ability to survive comfortably in retirement.

Allianz states the obvious for us: financial planners are missing opportunities resting virtually at nose-end. Negotiations should be opened with clients, immediately and aggressively, to address their fears and offer retirement strategies that counter inflation and market volatility. All clients, no matter their age or income level, should also be taught the benefits of life insurance in their retirement planning.

Most clients can be well served by a simple term life policy. The coverage is affordable, surprisingly so for young customers, who often think they must manage without it. When the protection available becomes clear – a healthy man or woman in their 20s can get a $1 million death benefit for little more than $1,000 per year – they usually become interested, particularly if there are children to protect. ‘Peace of mind’ is often touted as term life’s main draw, but the real-world benefits run much deeper.

One advantage of term is sometimes overlooked: because it’s so cheap, young earners gain protection without a major investment. This leaves disposable cash in hand for mortgage payments and investments. Term life is often criticized, because if you neglect to die during the insured period, you lose your investment. In fact, the economy of these policies suggests a virtual cash benefit, which can be invested for retirement or other life projects.

We’re dancing around a subject that needs revelation: permanent life policies, which carry far more appealing features than vanilla-flavored term, can be very expensive. Permanent life is not advantageous for most of our middle-class clientele. But for high net worth customers, and those approaching or aspiring to elevated earnings and assets, permanent life is an exceptionally strong tool for building a flexible retirement plan.

As with term life, permanent carries a death benefit that provides a tax-free legacy to heirs. The key differentiating element comes from permanent’s cash component, which offers tax-deferred growth and flexibility in both the working years and retirement. Withdrawals can be made from the cash portion and loans taken on its value. These actions reduce the death benefit until the funds are returned, but in demanding circumstances can provide invaluable relief and opportunity.

Clients should be warned that the cash component does not pass on to heirs when the policyholder dies – it simply disappears. If a client feels they won’t need to access the cash via loans or withdrawals, they can use it to increase the death benefit or simply pay the regular monthly premium.

Whatever the case, don’t let the money just sit there. If nothing else, a fine set of reasonably priced dental implants can be had as part of a Far East vacation, with hardly any discomfort. If we are fated to live long, the least we can ask is the easy enjoyment of a good meal.

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