Broadcast Retirement Network’s Jeffrey Snyder discusses whether you need to own life insurance in retirement with The Warner Company’s Phillip Snyder, CLU
Jeffrey Snyder, Broadcast Retirement Network
Well, dad, welcome back to the program. So great to see you again this morning.
Hi Jeff, how are you? I’m doing well, and I don’t want to give the impression that I never talked to my father. I go to Baltimore.
He’s in Baltimore, I’m in Charlotte. I talk to him on a regular, at least two or three times a day. And I head to Baltimore on a fairly frequent basis.
So dad, thanks so much. So let me ask you this basic question, get your reaction to it. If I am retired, I’m no longer working, or maybe I have a side gig, do I still need my life insurance?
Phillip Snyder, CLU, The Warner Companies
I guess the quick answer is maybe.
Jeffrey Snyder, Broadcast Retirement Network
Oh, well, that’s helpful.
Phillip Snyder, CLU, The Warner Companies
Let me give you some examples as to where you, reasons why you may want life insurance in retirement. I think generally for most people, the answer is no. But then there are always circumstances that would create the need.
On one extreme, you have people who are extremely wealthy, who have federal estate taxes, and maybe state, inheritance or state estate taxes to be paid. And they could use life insurance to create the cash that’s needed to pay those estate taxes. You could be receiving retirement benefits or about to receive retirement benefits.
And let’s say they’re in the form of an annuity, for example. You might be able to elect to a life annuity, a life only annuity, which means it’s payable to you and you alone, but it stops at your death. That option would give you the largest amount of distribution from the annuity.
However, it goes away when you die. So you may buy life insurance to protect your spouse in the event you die prematurely so that there’s adequate money and in effect, that benefit continues. So those are two simple examples.
You may buy life insurance or you may own life insurance that has a long-term care rider or a chronic illness rider attached to it. And those are events where you need long-term care, custodial care in post-retirement more typically. And consequently, you wouldn’t want to give up that policy because those policies distribute a portion of the death benefit, typically 2% to 4% per month as reimbursement for incurred expenses.
So in effect, you’re creating a lien on the death benefit. And those events typically don’t occur until later in life. So those are just a couple of quick reasons.
Then there’s so many circumstances that would dictate whether you do or don’t need life insurance in retirement. You may have just want to create a legacy of some sort or you want to maintain charitable life insurance into retirement. You may, oh, I’m just thinking of all kinds of circumstances.
There may be a bridge to be paid off. You may have children still in school. It’s not unusual today because generally people get married later in life and they can actually be in retirement years when their children are off the college or post-grad work or post-grad schooling.
So you may want to protect them for that. So those are the kinds of things. What I would say generally is every circumstance is different.
Right. I’m sorry, go ahead.
Jeffrey Snyder, Broadcast Retirement Network
Yeah, I was going to say, I mean, it sounds like if I’m just listening to this and I’m in retirement, I should really sit down with somebody, preferably somebody who is skilled, qualified, that can give me the answers I need and help guide me in the right direction. Let’s just say, I want to ask you about, I’ve seen a lot of ads on TV about, and I’m not going to tell you who the, you’ll be able to figure it out because I’m sure you’ve seen these same ads, about if I don’t need life insurance and I want to sell my policy, even a term policy, Dad, does that make sense? So say that, and how does that process work?
Because if I’ve come to the realization, I don’t need life insurance in retirement and I want to sell it, there’s a market out there for your policy, potentially.
Phillip Snyder, CLU, The Warner Companies
That’s correct. A life insurance policy has value. The question is, what is that value?
Typically, the sale of a life insurance policy to a third-party purchaser would be applicable for those, I would say, age 70 and beyond. Unless someone is in poor health and they still don’t want to retain their insurance and they’re younger, that might be an opportunity there as well. The older you are, the shorter your life expectancy and the higher the quality of the life insurance policy that you’re selling, the higher value it’s going to create.
So we’ve done some of these in our business from time to time. Typically, I would say the ones that we’ve consummated are people who are clearly in their 70s, maybe 75, even 80, and they just don’t want the life insurance any longer. They don’t want to pay premiums, but they don’t want the policy to lapse necessarily where they’ll lose their value in the policy.
So they go to the marketplace and find out what it’s worth. And what the buyers do real quickly is they’re going to not only do an analysis of the policy, which may well be a term policy, typically a convertible term policy, but it may well be a term policy. They do a life expectancy analysis and they’ll do an analysis and a projection of the policy so they can determine their carrying costs until death.
And that’s the process. And it takes a few months typically to get through that process.
Jeffrey Snyder, Broadcast Retirement Network
Dad, I have a question that came in from one of our audience members yesterday. Let me ask you, there’s a lot of, just to kind of follow up on the ads that we see on TV, there are direct to consumer insurance purchase options out there. How do you weigh that?
And I know you’re going to have a strong bias towards being, you know, talking to a professional because that’s what you do and have done for 40, 50 years. But how do you weigh these newer purchase options against going to, no offense, the old fashioned broker, financial advisor to get your life insurance? I mean, what do you need to be aware of?
If you’re seeing these commercials, you got any 100 number, you got a phone app, what do you need to be aware of?
Phillip Snyder, CLU, The Warner Companies
What I would say is if you deal direct with one buyer and don’t go to the market, you will never know if you’ve got a good deal or a bad deal. Okay, doesn’t mean at the end of the day, we’ve worked on some of them in our practice and ultimately we couldn’t create a better deal going to the market after some middleman compensation, so to speak, that would offset the direct purchase or be more favorable than the direct purchase to a buyer. So, but I think you’ll never know that unless you go through the process.
So, and there are several very high quality buyers out there who will test the marketplace. They’ll do their calculations. They’ll put it out the bid and they’ll collect bids over a period of time.
And that’s the process. And then you’ll know if you’re getting a good deal or a bad deal.
Jeffrey Snyder, Broadcast Retirement Network
But, and I have to close out the show, but let me just follow up on that. I mean, how do I know that the company that I’m buying the policy through, if it’s online, I’m not dealing with typically dealing with a human that I can shake hands, talk to, touch, feel. How do I know I’m getting a good deal and that the insurance company is going to stand behind the guarantee that it’s providing, right?
That’s, you know, you’re buying a future guarantee.
Phillip Snyder, CLU, The Warner Companies
You’re buying a death benefit.
Jeffrey Snyder, Broadcast Retirement Network
Right, but it’s guaranteed by the insurance.
Phillip Snyder, CLU, The Warner Companies
Well, all those go into the calculation, all those things. You won’t know as the seller, unless you go to the market and get multiple bidders, you’ll never know. And that’s the reason they go that route.
That doesn’t mean that ultimately one of the people who are advertising on TV may ultimately be the buyer. You’ll never know that if you don’t go to the marketplace.
Jeffrey Snyder, Broadcast Retirement Network
Yeah, I’m a big fan of the market. I think that my personal opinion as someone who’s done due diligence, that, you know, the market is the market at the time of the bidding. The market can’t be what happened a quarter ago.
What can’t be what happened might happen in the future. It is at the moment. That’s the information.
That’s the importance of pricing. Dad, I’m going to have to leave it there. Really great to see you as always.
And I will see you in person later this month.
Phillip Snyder, CLU, The Warner Companies
Good to see you. Thanks for joining us. Too much information in the crowd and too short a period of time, but hopefully it was helpful.
Jeffrey Snyder, Broadcast Retirement Network
Yeah, we’ll see you this coming weekend. Yep. Thanks, Dad.
Enjoy the rest of your day. Great job, Dad.