Retirees may be untapped life insurance market

Sep 18, 2006 @ 12:01 am

By Gary S. Mogel

NEW YORK - Life isn't just for the young, and neither is life insurance.

About 60% of 1,000 people close to retirement said they needed life insurance to provide for a dependent such as a child after their death, according to a survey released this month by Prudential Insurance Company of America in Newark, N.J.

About 17% of those surveyed said they needed the insurance to provide for an elderly parent under their care.

"Retirement and the empty nest don't always coincide anymore," said Maria Umbach, vice president of marketing for individual life insurance for Prudential.

With more Americans marrying later, having children later or caring for elderly parents, many people in their 60s are better off holding on to - or even adding to - their current coverage than cashing in on it, she said.

A safety net

Prudential describes the period spanning from five years before a client retires to five years after they retire as the retirement "red zone," in which they may still need insurance to replace lost income.

"Many retirees have saved under $100,000 and are loaded with debt and won't be able to make it financially without life insurance if they lose their partner," said Robert Hanten, president of Solidarity Financial Inc. in Golden Valley, Minn., who manages $10 million.

That said, the need for life insurance among older individuals should be considered on a case-by-case basis, said Frank Congemi, a financial gerontologist in Forest Hills, N.Y.

"To sell insurance to everyone in those age brackets with [still having dependents] as the only criterion would not be correct," he said.

Retirees with whole-life-insurance policies generally keep those policies instead of canceling them and taking the cash value - even those who haven't built up a retirement nest egg, said Lee Derrick, an insurance planner with Towson, Md.-based First Financial Group.

Those who do want to extract some of that money, however, can enter into an arrangement with the insurance company that allows them to borrow the money representing their investment gains. That way, there is no taxable event.

"If they canceled the policy and took the cash, there would be a huge tax bill on the growth part of the account that's in excess of their basis," Mr. Derrick said.

Life insurance can also be used by retirees to replace a shrinking inheritance for their children, said Dan Taylor, president of Wealth Capital Group, a Charlotte, N.C., firm offering financial advisory services to the wealthy.

"Much of the inheritance [the retirees] planned to leave may be absorbed in health-care costs or by just the simple fact that they are going to live longer," said Mr. Taylor, who also offers Advisor Freedom, a consulting service for financial advisers.

Life insurance may also be the only way the children can guarantee that they recover money that they have spent on their parents' care, he added.

"Before my father died, he knew that he would run out of money - that his care would have to be subsidized - so he left us life insurance in a trust for me and my siblings," Mr. Taylor said.

The tax-free death benefits can also be used to replace all or part of a deceased spouse's pension or Social Security benefits, or to pay off mortgages or other debt, according to Ms. Umbach.

Retirees buying new policies may find that term insurance is unavailable or too expensive because of their age, she said.

So they may want to consider universal life insurance or other products that can be written for older age groups, Ms. Umbach added.

"Some companies are issuing term insurance to age 100 that is priced like whole life, or selling term life hybrid policies to the retiree market," Mr. Taylor said.

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