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Taking Death Out of Life Insurance Two features offer a multitude of strategies to deal with clients’ challenges. By Michael Smith


ooking ahead to the New Year, advisors are scanning the horizon for the next development in life insurance products to drive sales. There they see some things that address not only sales but clients’ growing challenges. Legacy income planning and living benefits help families deal with uncertainty, one of the most critical challenges today. Legacy income planning helps with sustained financial security for beneficiaries. Living benefits help beneficiaries deal with illness and injury.

Legacy Income Planning

A growing number of carriers have developed an income strategy on life insurance policies with regard to the beneficiary. Instead of beneficiaries receiving a large lump sum, they receive a smaller sum and an income stream from the remaining death benefit over a period of predetermined years. Here is an example of when this strat30

egy may be a good idea – and when it is wrong. Assume a 45-year-old male with a $1 million death benefit chooses an income rider option for his beneficiary. At death, the beneficiary receives a $100,000 lump sum payout and then income of $100,000 for the next 10 years. Total death benefit payout is actually $1.1 million. The carrier also provides a premium discount making the coverage less premium than if a traditional lump sum is paid to the beneficiary. So where does this make sense? When seniors are the insureds. Here are a couple of examples: With spouse as beneficiary: Let’s say one spouse has been making most of the financial decisions over the years and the surviving spouse has little experience in managing money or income. The income rider can provide an income stream on auto pilot so the insured does not have to worry and the widow/widower won’t be overwhelmed. With adult children as beneficiary: An insured knows that between her three adult children, one is going to blow

InsuranceNewsNet Magazine » December 2012

any inheritance within weeks of receiving the funds. Using the income rider, she can choose that the “black sheep” of the family will receive the proceeds as a monthly income instead of a lump sum. The other two can receive their shares in a lump sum or as an income stream. The insured can customize the payout. With grandchildren as beneficiary: The current environment in Washington has created these certainties: taxes will go up and/or entitlements will be cut. Today’s youth will find it more difficult to live beyond paycheck to paycheck. Imagine the legacy grandparents can provide knowing that their grandchildren are receiving an extra $200, $500 or $1,000 per month from Grandma and Grandpa. If you are a money manager, you may not like the idea of the insurance company holding on to the lump sum death benefit. Perhaps you feel taking the lump sum and reinvesting for disbursement over time in annuities, stocks, or bonds would provide more income. Valid point. However, can you be certain the relationship with the beneficiary will

December 2012  

2013 Outlook

December 2012  

2013 Outlook