Life Insurance -Through a Financial Advisor’s (and Mother)’s Eyes
by Andrea Bulen
Remember our conversation back in October (How Big is Your Umbrella?) when I told you that one of the occupational hazards of being a financial advisor is that we think of almost everything we know in terms of how it affects our family and friends? Well, here is another story that proves that point.
When my son Fischer was 2 mos. old he was diagnosed with a rare genetic disorder, called Neurofibromatosis 1. It’s very serious, but the degree to which it affects an individual is highly variable. After I got over my initial shock and natural motherly reactions, my financial advisor instincts kicked in. I have officially decided that Fischer will lead a full and happy life and that NF will just be one of those things he has to deal with. However… I did worry that he would probably be uninsurable for the rest of his life. He has no need for life or disability insurance now (he’s 10 years old), but what happens when he is a happy and healthy 40 yr. old with two children? At that point, he should have life insurance to protect his family in the event of tragedy. But what if by the time he is 40, Fischer has had enough health issues that insurance companies won’t issue him life insurance? I must admit this thought has kept me up nights. I brainstormed about how we should save more to support our future daughter in-law and grandchildren. My husband tells me I worry too much, but I argue this is a real concern!
For every financial risk, there is generally a solution (if you know a good financial advisor). I investigated getting life insurance now before he has too many problems with the disease. If he was rejected for underwriting it could have a negative impact if he pursued life insurance at a later point. The solution was to work with my life insurance agent to go through an “unofficial” underwriting process. The process was rather painless and the life insurance company decided that they would insure him now. The policy will last for his life (as long as my husband and I keep paying the premiums) and give his family protection. When Fischer turns 18, I’ll encourage him to go through the underwriting process again, this time for term life insurance. Most companies require you to be 18 to issue term insurance, which will be a much more affordable way to capture a higher death benefit for his future family. I’m sleeping better these days…at least when it comes to worrying about my future grandchildren.
If you know someone that may become uninsurable later in life, it may be a good idea to pursue life insurance now while they are insurable.
OTHER NON-TRADITIONAL USES FOR LIFE INSURANCE:
Life Insurance on your Adult Children: Two friends of Colleen have recently lost their husbands (both ran their own businesses). Each was without savings, and without a life insurance policy - shockingly sad and also financially devastating to the families left behind. Her friends had to find jobs for the first time in many years; they had to sell their homes; and their kids’ activities were cut back to nothing. Because their husbands were self-employed, they did not even have a small company life insurance benefit. Imagine waking up one day unable to pay a single bill, or to buy groceries for your kids.
We like to think that our adult children make good financial decisions - and that they learn from their mistakes, and preferably even ours. But this is one very expensive, life altering lesson we don’t wish upon anyone. We encourage parents to talk to their grown children about the need for life insurance. Talk to them! They may not have thought about insurance because: 1). They don’t really think their time is coming soon; 2). They don’t know how much money their family would need if one of them were to pass; 3). They don’t have the time to pursue coverage; or 4). They can’t afford the premiums.
One way to help would be to offer to pay for your adult child AND their spouse to get the proper amount of life and disability insurance. Term life insurance is incredibly affordable and it sends a message to your children that it’s critically important. If any family member or close friend couldn’t live six months without a paycheck, imagine a lifetime without that paycheck. Having that uncomfortable conversation about their insurance situation can save a lifetime of financial heartache.
Reimbursement for long term care costs: Ten years ago we recommended long term care insurance to almost every client we worked with. The risk of having a long term care expense is high and at the time, insurance was affordable and the benefits were enough to cover the full cost of coverage. Today, long term care insurance has become much less affordable and the benefit you purchase may only cover a portion of long term care needed. However, the risk has not gone down. Back to the drawing board.
We discovered that if there was a long term care need later in life, most people could self-insure. However, an early illness would be devastating for the healthy partner. Life insurance may be a solution for a long term care risk. The benefit wouldn’t be available to pay the custodial care costs, but it could “reimburse” the survivor and provide assets for the remainder of their life. Therefore, we look more closely at life insurance you have in place, 
but are thinking of terminating because you no longer have the typical need. In certain circumstances we also recommend people pursue 10-15 year term insurance policies in the event they suffer a long term care illness while they are young (prior to 75 years old). Often the premiums are affordable and provide coverage for the critical time period described above. Review both your life AND long term care needs before terminating life insurance policies. (Note: there are also hybrid life insurance policies on the market that allow you to access insurance proceeds to pay for custodial care costs).
Insurance on an ex-spouse: Not only is divorce emotionally devastating, but the financial impacts can be great. Often, the divorce agreement dictates that if there was uneven earnings during the marriage, one spouse will pay the other support payments for a period of years. Not only do support payments cover current living expenses, but often a portion of the payments are saved for future years when the payments stop. What happens if the paying spouse passes away before the support payments are scheduled to end? The divorce agreement may not have called for life insurance specifically, but there is definitely a need for it in this circumstance. You are able to purchase life insurance on your ex-spouse. He/she would have to go through underwriting and you would be responsible for paying the premium, but in the event of a premature death, the proceeds would make up for the lost payments. Even if you think you can support yourself, are there other things you were planning on your ex-spouse funding, e.g. college tuition and other support for your children? Would life insurance be a good solution for that need? If you have adult children who are going through divorce, be mindful of their need for continued life insurance.
Certainly not everyone has a need for life insurance, but sometimes it is smart to think outside the box when it comes to coverage. We covered some ideas in this blog and Mike Smith of CPS Horizon covered others in our client event on life insurance last fall. Let us know if you have any special situations that may require a fresh look at how you are covered.
-Andrea