We sell life insurance to clients from all walks of life. The majority of our clients seem to be between the ages of 30 and 60. Although we don’t necessarily market to our current clients’ parents, recently we have thought about whether this is a market that our colleagues are leaving untouched.
We sell to baby boomers in their 60s and 70s, and we sell to some clients in the silent generation who are in their 80s. But when we do, it usually is not because of a request from their children.
Many of our colleagues try to sell to their clients’ children and grandchildren, but never to the parents. Could this be an untapped market for you and your practice?
Why should your clients want to buy life insurance on their parents? We sell life insurance to parents of clients if their parents’ demise will affect them financially. Most parents say they actually want to leave something behind for their loved ones if they can afford to do so.
There are many different reasons why a life insurance policy taken out on parents is a good idea. But no matter the reason, if your client is looking for a policy for their parents, it’s essential to help them navigate the process and find the right product for them.
Let’s look at the four most common types of life insurance policies that children purchase for their parents.
1. Simplified issue term. This is also known as no exam or non-medical life insurance. This type of life insurance is purchased without requiring a paramedical exam. The premium rates are comparable to traditional fully underwritten life insurance for below-average-risk clients, such as those in the Table 2-4 range.
Policy amounts typically cap at $350,000. Some carriers have age limits or require an exam due to health or age; however, coverage often is offered for clients up to age 65.
This type of insurance is a great solution for clients with short-term needs — such as paying short-term debt — when a quick turnaround is desired.
2. Fully underwritten term life. This is traditional, fully underwritten life insurance, offered for a specific term – typically between 10 and 30 years but usually 20 years or less for baby boomers.
The premium rates are affordable compared to other types of life insurance because it has a “shelf life” and is fully underwritten. Larger policy amounts — even over $1 million — are offered. A paramedical exam is required.
This type of insurance is a good short-term solution for those who desire affordable pricing.
3. Simplified issue whole life. This is also known as final expense or no-exam whole life.
Because this is a whole life product, the benefits will not expire. Policies typically cap at $50,000.
No paramedical exam is required. Approval usually comes within a few days, after completing a health questionnaire and possibly a telephone interview.
This is a permanent solution that is comparable to a Table 4 range fully underwritten whole life contract. It’s a great solution for those who don’t want to take a medical exam or whose health would not merit a standard or better underwritten rating.
4. Whole life or universal life fully underwritten. This is a permanent life insurance solution. The benefits and premiums can be designed to remain level for life.
A paramedical exam is required for coverage. Larger policy amounts are offered, and the coverage can be illustrated with or without cash value.
This solution is ideal for those who are looking for coverage at the best possible price and are willing to take an exam and qualify for a fully underwritten offer.
We always try to underwrite physically first to establish whether the prospective insured should take an exam, then decide whether their needs are permanent or short-term. If the death of a client’s parents would lead to financial burden, there is a direct need to secure permanent life insurance on the parents unless that solution is unaffordable. In that case, term insurance is a backup plan.
In order to purchase life insurance on a parent, or anyone for that matter, the owner must have consent and an insurable interest. They need to have an interest in their surviving, where a financial burden would occur if their parents were to die. The right product for a client depends upon their needs and budget, so discussing assets and liabilities is very important. There possibly could be a need for long-term care benefits or a limit to what their needs are.
A great example of using life insurance for parents is a policy my wife and I own on my father.
My father wanted to help start an education fund for our children. Because he didn’t have assets of any substance to give us, he advised us he would like to start a life insurance policy where I am the beneficiary and my wife owns the policy on my father’s life. The death benefit will fund our children’s college education expenses.
There are many ways to structure and pay for this plan — for example, monetary gifts from the children’s birthdays. My father paid for the policy at its onset, and eventually we took over the premiums along with aforementioned gifts.
Using a permanent life insurance policy on your parent as a forced saving mechanism with a tax-free benefit is a safe and conservative way to put money aside for the future. Along with using a policy as previously described, there could be a few other reasons why your clients would want a life insurance policy on their parents.
What are some other needs your clients’ parents might have?
» Long-term care. It’s never too late to look at parents’ assets and see whether they have a need for long-term care coverage. You can offer permanent insurance solutions that offer living benefits to provide LTC solutions should the need arise. If the need doesn’t arise, then the life insurance policy plays its primary role of providing a death benefit.
» Final expenses, including funeral costs. Every parent needs proper planning for end of life. The more prepared your clients are for that day, the easier it will be to swallow that pill. This includes coverage for debt repayment, mortgage, car loans and any medical expenses your client’s parents might leave behind.
» Income for surviving parent. This involves supporting one parent — financially and emotionally — after another one dies. Many of our clients find that losing one parent is worse than losing both. The surviving parent will need comfort and support after such a life event, and many clients financially would not be able to afford the burden alone.
Finally, when considering life insurance for parents of your clients, the person (or sometimes entity) holding the rights to the life insurance contract must be established. Who will own the policy? Will it be the children or the insured? Ownership is important because the owner can make changes to the life insurance policy, such as transfer of ownership, beneficiary changes or premium changes.
Advisors are always looking for smart ways to grow their book of business, so the possibility of helping change the future for their clients’ families should be an enticing prospect.
Sam Goldsmith is the principal broker of Goldsmith Insurance Agency, an independent life insurance agency in Denver. Sam may be contacted at [email protected].