that permanent insurance is a long-term commitment and
must be maintained or the death benefit will be lost.
If the client cannot commit to funding the policy for life,
then look into premiums paid over a term, for example, a 10-
year pay policy. The premiums last for 10 years and the insurance is there for life without any additional premium payments.
This is perfect for a client who will have good current earnings for the next 10 years. Then in retirement, the insurance
stays in effect and the cash value grows without making additional premium payments.
Yes, this costs more, but after that 10–year term, you will
have a very happy client who will know that the promise will
be kept, not to mention cash value in the policy that can be a
source of retirement income.
Another idea is to structure level payments so that premiums cannot increase, as opposed to flexible payments. No one
likes premium increases, especially as they age and tend to
worry more about running out of money.
If clients cannot afford the payments, work out a plan they
can reasonably stick to. They might have to go with less life
insurance, but less insurance is better than no insurance.
Funding for the policy should also be planned ahead of
time. One way to do this is to use existing client funds, if
available. use other less productive investments, including
non-performing stocks and funds that might generate losses
when sold, and even IRAs.
Yes, there would be a tax from an IRA distribution, but that
tax will have to be paid anyway and possibly at higher rates,
especially if the IRA balance grows.
Required minimum distributions begin after age 70 ½ so
IRA funds will begin forced distributions at that time.
Putting those funds into a permanent policy might be a better long-term financial plan: The cash value can be accessed tax-free (up to cost basis, and above this threshold via a policy loan);
the eventual death benefit will also be distributed tax-free.
Think about using staggered-term annuities to ensure the
funds are there when the premiums become due. This way the
client knows the premiums will be paid and the insurance will
Some clients purchase survivorship life insurance that pays
only on the death of the second spouse to die. These policies
are popular because they are less expensive since they are based
on two lives. Survivorship policies are generally not structured
to include a payout at the first death, unless there is cash value
to keep the policy in force without the surviving spouse having
to continue making premium payments. When premiums continue after the first death, the policy can lapse if the surviving
spouse no longer wants to continue the payments.
The surviving spouse will feel a sense of loss and be worried
about having the policy obligation continue, even when ample
funds are available. If there is no payout at the first death, a
solution I use in the pre-planning phase is to couple the survi-
vorship policy with smaller first-to-die policies on each spouse
so that funds are available to pay, and keep in force for life,
premiums on the larger survivorship policy.
Always follow up with clients after the sale. They should never
forget who you are.
Provide regular in-force illustrations so that clients can see
and understand the status of their life insurance investment.
This reassures them that they have a solid investment.
Over time, better options may become available. For
example, a long-term care rider could help alleviate the cash
hemorrhage if funds might be needed for critical care not
covered by Medicare, Medicaid or other health insurance. This
expense could dry up funds needed to keep the policy in force.
A premium waiver in the policy could also help.
Review the cash value build-up to see what options are
now available, using more accurate numbers. Maybe the plan
should be updated using the cash value in the policy to create
a better, more durable and protective plan. Or the client might
want to use some of the policy for retirement income.
You may have discussed this option during the pre-planning
phase, so revisit that now. It might also be the policy fared better than expected and you would want clients to see that as well.
What if clients’ financial situation changes and they cannot
maintain payments? One option is to see how much of the
premium they can continue to pay.
Hopefully, the insurance contract is sufficiently flexible
to allow for changes without causing the loss of the policy.
Maybe the death benefit can be reduced, and the premiums
lowered to where they might be affordable. See if there is cash
value or dividends that could keep the policy going.
You might suggest, like I have done successfully several
times, that the beneficiaries continue the premium payments
because they have the most to gain for the investment they
are making. Their investment will pay off tax-free, unlike most
A more drastic solution if cash is needed, it to sell the policy
via a life settlement arrangement. Hopefully this is a last resort,
but at least some of funds can be salvaged and used if needed.
Proper planning both before and especially after the sale,
can ensure that the life insurance promise is kept. This planning will cement your relationship with your clients, and with
your future clients — the beneficiaries.
Life insurance policies should be built to last.
Ed Slott, a CPA in Rockville Centre, N. Y., is a nationally recognized IRA
distribution expert, professional speaker and author of several books.