Guaranteed universal life: The retirement saver
Life is not what it used to be, is it? Given the instability of the markets over the past few years, many Americans are now working farther into their “golden years,” have had to witness the values of their homes and their investment portfolios decrease, have become the primary caregivers for their parents (often an expensive proposition), or provided significant financial support to their adult children.
The effects have been deeply challenging, and now Americans are looking for ways to protect their assets, put more away for the future and meet their needs for income in retirement.
As professionals in the financial services industry, we have a timely opportunity to assist clients and prospects with mending their fiscal health and carving a clear path to attainment of their retirement goals. Today’s economic climate — and the innovative products introduced to the market because of it — present potential solutions worthy of consideration in the areas of retirement planning as well as estate planning.
Let’s review recent history for a moment before we move ahead. As you may recall, last year, Life Insurance Selling reported on the 2011 SunAmerica Retirement Re-Set Study* from SunAmerica Financial Group and Age Wave. As part of SunAmerica Financial Group, American General Life Companies shared a number of insights about how consumer attitudes, expectations and financial planning for retirement have changed in the past 10 years. As a refresher, some of the highlights of the study findings included:
• The emergence of a retirement mindset reset: 54% view retirement as a new chapter in life rather than a winding down — a significant increase over the 38% that felt that way in 2001.
• A resetting of the timing and reason for retirement: Retirement is being postponed by five years — from age 64 to age 69 — not only because people are living longer, but because of the recession and financial need. Further, nearly two-thirds of survey participants report they would like to remain productive and include work in their retirement.
• A shift in priorities: Today, attainment of financial peace of mind is today’s primary financial goal, more so than wealth building. People are six times more likely now to say that “saving enough to have financial peace of mind” is their No. 1 goal versus “accumulating as much wealth as possible.”
• A focus on giving support to older and younger family members: Almost 50% of Americans age 55 and older expect to provide intergenerational support for family members and 70% of those believe their adult children will need financial help.
Given the mindset today toward retirement, solutions that help clients meet their financial planning needs while offering flexibility in an apprehensive economy are more attractive than ever. Clients who want to minimize risk can appreciate the unique protection afforded by innovative, fully guaranteed universal life products that have been created to respond to changing conditions. Consider recommending GUL products that feature:
• A guaranteed death benefit and guaranteed premiums, which together provide reliable protection, even during times of economic uncertainty
• The flexibility to lower both the death benefit and future premiums in response to evolving needs and tax regimes, without loss of guarantees
• A no-cost, return-of-premium feature that can facilitate the return of up to all premiums paid
Other features of some of the more appealing, 100% guaranteed UL products include:
• Second-to-die coverage that offers flexible, guaranteed death benefit protection
• The option for last survivor term insurance during the first four policy years for additional estate flexibility and protection
• Guaranteed cash value accumulation, which does not affect the competitiveness of premiums
Products that demonstrate such unmatched guarantees and flexibility can be a welcome advantage for clients and agents alike. After all, when you offer practical solutions to meet current needs, your role as trusted advisor becomes more highly valued.
Universal life and estate planning
There’s another potential win-win here. When discussing retirement planning options with clients and prospects during the remainder of this year, advisors can also review with them an unprecedented estate planning opportunity that exists in 2012 due to a perfect storm of circumstances.
The gift tax exemption (the amount one can give away without owing any federal gift tax) is the highest it has ever been: $5.12 million. The top gift tax rate, on amounts in excess of the exemption, is the lowest it has been since 1931: 35%. However, on Jan. 1 (unless congressional action is taken), the exemption will plummet to $1 million and the top tax rate will increase to 55%.
This year, then, could well be the last opportunity for a client to gift so much to his or her beneficiaries and pay so little, perhaps even nothing, in taxes. However, individuals have only until Dec. 31 to make their gifts under the current rules, so advisors should speak promptly with their clients and prospects about including lifetime gifts in concert with their estate plans.
Strategic gifting can be beneficial in estate planning since the gift — as well as the growth on the gifted assets — is outside of the donor’s estate at estate tax time. This can result in more wealth transferred to one’s heirs and less to the government. Furthermore, while life insurance is often purchased to provide liquidity to pay estate taxes at death, it can also be used to equalize inheritances when assets that are not always easy to liquidate (for example, real estate holdings or a business) are bequeathed.
Some of the more appealing solutions for leveraging this year’s unique estate planning opportunity focus on the use of permanent life insurance products, especially GUL, for clients most likely to realize the benefits of this estate tax reduction strategy. These include individuals who have assets worth more than $1 million and can afford to make substantial gifts to their heirs now.
The time to get in front of these clients with information and advice is now, before the clock runs out on the opportunity — keeping in mind that, with the presidential election looming, pressure for tax increases may continue to build. Definitely consider carriers who offer market-specific, cutting-edge tools to help generate conversations with clients about their options.
When we as financial services professionals can respond to needs and opportunities with innovative solutions, including those specifically developed for estate and retirement planning, we become even more valuable partners to those we serve. Clients and prospects are looking to financial services professionals for smart guidance and are seeking the benefits that products such as 100% guaranteed UL can offer.
*The 2011 SunAmerica Retirement Re-Set Study (www.retirementreset.com) is a public opinion poll conducted by Harris Interactive in conjunction with Age Wave, in the second quarter of 2011 with a national sample of 1,001 adults, age 55 and older who were representative of the general population by income, ethnicity, geography and gender.
By John Deremo From the September 1, 2012 issue of Life Insurance Selling. John Deremo is executive vice president and chief distribution officer for American General Life Companies.