What Boomers Want

They want protection and accumulation products that offer a tax-advantage retirement income.

By Helen Thompson

When your Baby Boomer clients come in to see you with the concern that they haven’t saved enough for retirement, the last thing some of them want to hear is that they need to add life insurance to the financial products they already have. Others are looking for tax-advantaged alternatives for their investment dollars, but also want a certain amount of safety and guarantees. With the right balance of products and planning, you can help them shore up their retirement plans and meet their life insurance needs as well.

Variable universal life (VUL) can be an attractive alternative for Boomers. According to Robert Primmer, senior vice president of Life Distribution and Sales for The Phoenix Companies Inc., “It relates more to their non-death-benefit needs due to the tax advantages that life insurance has over other choices.”

VUL made simple
You may be like some advisors who think that VUL products are too complicated. But many companies now offer new, flexible VUL products that can provide coverage within a matter of hours, with simplified or no underwriting and without the need for the prospect to undergo a medical exam. That makes the sales process go more quickly and makes it easier for you to execute, says Primmer. Without this hurdle, he adds, it’s less difficult to focus on VUL’s unique, retirement-friendly benefits, including tax-free accumulation, a death benefit and loans and withdrawals.

Primmer believes that these qualities make VULs perfect for more affluent Boomers who don’t qualify for Roth IRAs. He cautions, however, that these prospects should know the limitations that can turn a VUL policy into a modified endowment contract.

According to Primmer, the potential returns of a well-crafted VUL policy can be very attractive to Boomer clients—particularly those who don’t feel they have planned well enough for their retirement and need to make up for it, and make up for it fast. Best bets are VUL products that feature low loads to fund the death benefit and offer safeguards from overwithdrawal (which can cause the policy to lapse).

“[VUL] may be the most tax-leveraged product that’s available for people looking for cash accumulation and income generation. You can fund a policy at high levels and suffer no penalty for early withdrawal,” says Primmer. However, you must be aware that VULs may have some tax disadvantages in borrowing money from the policy.

Longer retirements
One concern that can come up during retirement-planning conversations is that many people may live longer than they expect to. “This [life insurance] is where your last retirement dollars should come from,” says Primmer. “When retirement is illustrated and shown to people, it’s done in layers. First is Social Security, then the pension, then the 401(k)—and above that is life insurance.”

Primmer has a slightly different strategy you can suggest to your clients: They should maximize their other retirement income sources earlier in their retirement, and not touch their VUL income sources until later. “Most of us try to manage our last dollar to our last day, but none of us can do that because we just don’t know when our last day is,” he says. “Your clients should save the life insurance for the age at life expectancy and beyond. That way, all of their last retirement dollars are in that policy, and anything that’s left for their estate will transfer tax-free.” Tax events on a 401(k) payout to beneficiaries could leave them with as little as 30 cents on the dollar, he explains.

Changing markets
The marketplace has changed in the past five years, Primmer notes. And so have the products. “People were buying either cash accumulation UL policies or no-lapse guarantee policies, and VUL was initially introduced as a way to have really inexpensive insurance,” he says. He notes that healthy returns can fund the insurance premiums with little out-of-pocket expense, “but that’s a misguided way to sell it.” Overfunding the policy and continuous premium payments are in the best interest of the client.

The market is appealing to younger Boomers, Primmer adds. They lack the defined-benefit plans that older generations have, they are in their peak earning years, and the idea of supplemental retirement planning is very attractive to them.