As people keep living longer, it’s important to remember how life insurance and longevity can work together
By Robert Eichler CFP, CLU, ChFC, MSFS, AEMr. Eichler is a producer with the New York City-based firm of Empire Wealth Strategies (Cooper Agency).
When I started my career in financial services in 1993, like most of you, some of my first prospects were family members. Armed with a little knowledge and a need for a sale I approached what I considered to be a sure thing, my father. At that point my dad was in his late 60’s and a successful physician who was getting close to retirement. Fortunately for my dad, he practiced medicine at a time when doctors made a significant income. Today, successful physicians are both good doctors and smart business people. But back then, you could be a successful physician without having great business sense, and that describes my dad. He always cared about his medicine and his patients’ health more than the business of medicine or his own personal finances. I always make the analogy that if my dad was Starbucks he would still be selling only coffee or if he was McDonalds he would only be selling hamburgers and fries.
All I knew about estate planning was that if you died with more than $600,000 the government was going to tax the balance. As someone who had a vested interest I was determined to do something about it. Getting the appointment proved harder than I thought but I got it. Seeing how I did not need to build rapport, I led with a disturbing statement, “Dad, according to my calculations (I had been in the insurance business for a month), you have a serious estate tax problem.” Unfortunately, all of my role playing was for naught when he came back with the unexpected response “No Bob, you do. Anyway we plan on using all of the money when we retire, if there is anything left over, it will be split between you and your sisters”. I persevered and continued with my presentation. It was spectacular, no could say no to the Iogic! I presented $3,000,000 of survivorship universal life insurance coverage for him and my stepmother. When I was done, he looked at me for a long time and promised that he would get right back to me. We are now on the verge of 2013 and I am still waiting.
A lot has changed in the last 20 years. For one I now have a lot more people to call on. I have hundreds of clients and several of them live in Florida where my dad has retired to. Whenever I get a call from one of my Florida clients, I always suggest that we set a face to face meeting and I will fly down. This gives a chance to see my dad who is now in his late 80’s have dinner with him and my stepmother and spend some time with them. Don’t get me wrong, they are in great health and I don’t think anything is imminent but when you’re in your late 80’s, you never know so I go down whenever I can.
A couple of things have happened in the last couple of years that have really demonstrated the value of permanent life insurance. About 6 years ago on one of my visits with my dad he was being unusually quite. After some time he turned to me and said “Bob, I need to talk to you”. This is not what you want to hear from your 82 year old father. First he said, Connie and I want to tell you that we’re really proud of you. My response was “Yeah, what else?” He continued, “How would you feel if in our planning, we left most of our assets to your sister and stepsister?” I asked him why and he explained that he thought that I was doing well financially and that if I inherited a third of their assets, it would not change my lifestyle. It would make a huge difference to my sister and stepsister. Although that statement is not entirely true, I agreed. But I saw what it took out of him and how hard it was to ask me the question.
A few months after that I was down in Florida again. My dad asked me to follow him to the tire store to buy new tires for his car which had seen better days. I suggested that instead of putting more money into the old car he consider getting a new one or possibly a certified pre owned. He agreed to consider it and the next time I was down there he had a brand new…set of tires. When I asked him what happened he said that he and my stepmother has some dental bills and they were not comfortable doing both. I believe that they felt like the girls would have been buying them the car.
When the market was hit in 2008 and 2009 he sold his beautiful home and downsized to keep expenses down. He also left the country club. If my parents had applied for and secured the survivorship coverage described above and paid all required premiums so that the policy did not lapse, they would be able to consume their wealth knowing that the children would eventually become the beneficiaries of a $3,000,000 life insurance policy. Since that policy does not exist, they do not have the freedom to enjoy the wealth they worked so hard for all their lives. Who got financially go hurt in the long run? My parents, the children will inherit either way. The purpose of the insurance would have changed, with the current tax environment, my parents no longer have an estate tax issue but the insurance still would have been one of their best financial decisions.