Thursday, July 07, 2016

Life to the Max

Working on an interesting (well, to me, anyway) life case:

Gentleman is 57 years young, and recently retired(!). When he chose his pension payout, he was between wives, so chose the full amount, with no "survivorship" option. This guaranteed the highest payout amount, but also meant that once he expires, so will his pension. Now he's got a new bride, and is (justifiably) concerned for her financial well-being should he shuffle off this mortal coil.

This is called Pension Maximization, which is simply using life insurance to offset any such loss. Generally speaking, this is a pro-active strategy; that is, one does all the calculations and underwriting beforehand. But there's no reason that we can't accomplish the same goal re-actively, as in: now.

Oh, one more variable: his advisor suggested that he look at $500,000 of term, locked in for either 10 or 15 years, but then came back and wondered if we could also write an additional $250,000 five year term plan. I explained that these are in short supply (for a variety of reasons), but that also there's a simpler and more cost-efficient way to accomplish this goal: write the plan with a $750,000 face amount and then, in 5 year's time, reduce that down to $500,000.

This avoids duplicate applications (and perhaps exams) and policy fees. It also adds flexibility: what if they end up needing/wanting the additional amount for 6 or 7 years instead of 5? This way, they can reduce the death benefit at 5 years, or 8 years, or not at all.

Pretty nifty, no?
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