We would love to hear from you. Click on the ‘Contact Us’ link to the right and choose your favorite way to reach-out!

wscdsdc

media/speaking contact

Jamie Johnson

business contact

Victoria Peterson

Contact Us

855.ask.wink

Close [x]
pattern

Industry News

Categories

  • Industry Articles (21,155)
  • Industry Conferences (2)
  • Industry Job Openings (35)
  • Moore on the Market (414)
  • Negative Media (144)
  • Positive Media (73)
  • Sheryl's Articles (800)
  • Wink's Articles (353)
  • Wink's Inside Story (274)
  • Wink's Press Releases (123)
  • Blog Archives

  • March 2024
  • February 2024
  • January 2024
  • December 2023
  • November 2023
  • October 2023
  • September 2023
  • August 2023
  • July 2023
  • June 2023
  • May 2023
  • April 2023
  • March 2023
  • February 2023
  • January 2023
  • December 2022
  • November 2022
  • October 2022
  • September 2022
  • August 2022
  • July 2022
  • June 2022
  • May 2022
  • April 2022
  • March 2022
  • February 2022
  • January 2022
  • December 2021
  • November 2021
  • October 2021
  • September 2021
  • August 2021
  • July 2021
  • June 2021
  • May 2021
  • April 2021
  • March 2021
  • February 2021
  • January 2021
  • December 2020
  • November 2020
  • October 2020
  • September 2020
  • August 2020
  • July 2020
  • June 2020
  • May 2020
  • April 2020
  • March 2020
  • February 2020
  • January 2020
  • December 2019
  • November 2019
  • October 2019
  • September 2019
  • August 2019
  • July 2019
  • June 2019
  • May 2019
  • April 2019
  • March 2019
  • February 2019
  • January 2019
  • December 2018
  • November 2018
  • October 2018
  • September 2018
  • August 2018
  • July 2018
  • June 2018
  • May 2018
  • April 2018
  • March 2018
  • February 2018
  • January 2018
  • December 2017
  • November 2017
  • October 2017
  • September 2017
  • August 2017
  • July 2017
  • June 2017
  • May 2017
  • April 2017
  • March 2017
  • February 2017
  • January 2017
  • December 2016
  • November 2016
  • October 2016
  • September 2016
  • August 2016
  • July 2016
  • June 2016
  • May 2016
  • April 2016
  • March 2016
  • February 2016
  • January 2016
  • December 2015
  • November 2015
  • October 2015
  • September 2015
  • August 2015
  • July 2015
  • June 2015
  • May 2015
  • April 2015
  • March 2015
  • February 2015
  • January 2015
  • December 2014
  • November 2014
  • October 2014
  • September 2014
  • August 2014
  • July 2014
  • June 2014
  • May 2014
  • April 2014
  • March 2014
  • February 2014
  • January 2014
  • December 2013
  • November 2013
  • October 2013
  • September 2013
  • August 2013
  • July 2013
  • June 2013
  • May 2013
  • April 2013
  • March 2013
  • February 2013
  • January 2013
  • December 2012
  • November 2012
  • October 2012
  • September 2012
  • August 2012
  • July 2012
  • June 2012
  • May 2012
  • April 2012
  • March 2012
  • February 2012
  • January 2012
  • December 2011
  • November 2011
  • October 2011
  • September 2011
  • August 2011
  • July 2011
  • June 2011
  • May 2011
  • April 2011
  • March 2011
  • February 2011
  • January 2011
  • December 2010
  • November 2010
  • October 2010
  • September 2010
  • August 2010
  • July 2010
  • June 2010
  • May 2010
  • April 2010
  • March 2010
  • February 2010
  • January 2010
  • December 2009
  • November 2009
  • October 2009
  • August 2009
  • June 2009
  • May 2009
  • April 2009
  • March 2009
  • November 2008
  • September 2008
  • May 2008
  • February 2008
  • August 2006
  • Is a Million Dollars Enough Today?

    September 10, 2013 by Mark Peterson

    Over the years, many clients may have obtained million-dollar life insurance policies to help address survivor needs. Although a million-dollar policy might have sufficed to provide that needed survivor benefit 10 years ago, or even eight years ago, some of today’s clients may need policies with face values that are twice that amount.

    Why the difference, when many aspects of our economy seem to be improving? And what’s a good entry point for the conversation with clients?

    Let’s start with the evolvement in taxes, which is a great reason to conduct a beneficiary review. When Congress changes tax laws, the American people take notice. The federal changes wrought by the American Taxpayer Relief Act (ATRA) earlier this year are a compelling reason to talk with clients, many of whom may need to add coverage, as mentioned previously. In some cases, the common threshold of $1 million of life insurance may need to be doubled, or nearly so, if clients are to attain their financial goals.

    Survivor income is a universal issue for clients. ATRA has removed the “furlough” from the two percentage point reduction in payroll taxes that had been in effect during 2011 and 2012. In addition, some clients are affected by the higher income surtax in the Patient Protection and Affordable Care Act, as well as by the increased personal income tax rates. Keep in mind, survivor income takes into account what would have been earned by way of dividends and sale of capital assets after the capital gains tax; both of these may well have been impacted by the new legislation in terms of higher taxation. Adding it all up, the time is right to take a serious survey of the adequacy of existing coverage for survivor income purposes.

     

    Low Inflation and Low Interest Rates Compound the Issue

    Another consideration for survivor income is the prospect of higher inflation rates in the future. Did you know that the average 2012 inflation rate of 2.1 percent is lower than the inflation rate that we experienced in 60 of the previous 98 years? The inflation rate in the first quarter of 2013 was lower than it was in 2012. Does this mean that future inflation rates will be higher?

    Nothing is certain, but history would point us in that direction. For a more current perspective, 22 of the past 50 years have seen an average inflation rate of 3.5 percent or greater. How many of us are using a 3 percent inflation rate to determine income needs? Is it conservative enough when planning for a survivor who doesn’t want to run out of money?

    Last, but not least, the historically low interest rate environment in which we live provides an unprecedented lack of return on savings, and less that can be counted on by way of self-insurance when calculating the need for survivor income.

    To show the universal nature of this opportunity, let’s set aside income taxes for a moment and simply look at the impact that the current low interest rate and inflation rate environment can have on the survivor income needs analysis.

     

    Client Scenario: Mike and Becky

    Let’s look at a scenario to examine this opportunity surrounding the current rates and their impact on survivor needs coverage. Meet a couple named Mike and Becky. Mike is the primary wage earner and the spouse whose passing would engender the most financial risk without appropriate life insurance.

    In 2007, with the help of their insurance advisor, Mike and Becky purchased a $1 million policy to cover Becky’s survivor income need of $50,000 per year, inflating each year for 45 years, until Becky reaches age 90. Two key factors determining the amount of the insurance policy were the return that they would expect to earn on the $1 million in order to provide the income and the inflation rate by which to increase Becky’s survivor income each year. In 2007, they believed that a 7 percent return was a conservative, long-term investment rate while a 3 percent inflation assumption would be adequate.

    Now it is six years later. Mike and Becky are meeting with their advisor again and they have a much different view of the economy – as do most Americans. They no longer feel that 7 percent is an achievable, long-term, conservative investment rate. Additionally, they fully expect that inflation will return in rates higher than their original 3 percent assumption. They opt for a 5 percent investment rate and a 4 percent inflation rate.

    Adjusting Becky’s survivor income goal for inflation from 2007, we check the adequacy of the $1 million at 5 percent to provide $56,000 per year, considering a 4 percent inflation rate. The result? The money runs out in half the time: 20 years. At this point, Becky’s age would be 71, not the age 90 goal originally desired.

    The revised goal will require a total of $1.8 million, almost double the original coverage. With their agent’s help, Mike and Becky purchase an additional $800,000 of life insurance.

    In years past, as with Mike and Becky, consumers often believed a $1 million policy would cover their needs, including survivorship. Now, however, they may need a face value of twice that amount to provide sufficient survivor protection and income generation. Given the continued low interest rate, higher taxes and capital gains rates, and rising cost of living overall, it’s critical to sit down with clients and take another look at that million-dollar policy to ensure they will meet their lifetime income, planning and survivor goals.

     

    A “Best-Case” Scenario

    We have addressed this issue so far from the due diligence perspective of the worst-case scenario: in this example, the family losing Mike relatively early in life. What if Mike and his family enjoy a very long life together? We know from research, as well as anecdotally, that many Americans are concerned they will outlive their savings.

    While leading clients through the important process of survivorship planning, including dual survivorship, let’s remember to review products specifically structured for survivor protection and income generation. Universal life (UL) products often feature a guaranteed death benefit, guaranteed access and guaranteed cash value. UL can be coupled with a newer type of lifetime income rider featuring guaranteed monthly withdrawal benefits after as few as 15 years, regardless of the surrender value within the policy. Savvy producers can recommend riders that handle the best-case contingency, while helping clients plan for the unknown.

    Diversification and flexibility are key in responding to the factors that have affected the value of the traditional $1 million policy. Your clients need you now more than ever to provide guidance and counseling so that they make the best decisions for their future.

     

    Mark Peterson is senior vice president and head of brokerage life distribution for American General Life Companies. He can be reached at Mark.Peterson@innfeedback.com.

                                                   .

    Originally Posted at InsuranceNewsNet Magazine on September 2013 by Mark Peterson.

    Categories: Industry Articles
    currency