Longevity Pushes Limits On Insurance

Hold onto your hat, Willard Scott. Shocking new life expectancy statistics reveal that one of every three people today who are age 50 will reach their 100th birthday.

One in five who are 60 also will celebrate their centennial.

And one in four who are 70 will make it to 100.

“In the future, as many as 32 states may have demographics like Florida does today,” speculates Tracy W. Oishi of American Express Financial Advisors, Algonquin, Ill.

But what will this growing legion of centenarians do for life insurance? Industry mortality tables only go up to 100.

This could be a big problem, says Oishi, also a spokesman for the Society of Financial Service Professionals and a panelist in a recent national insurance outlook teleconference co-sponsored by that organization and the National Association of Estate Planners. A battery of visionaries anticipated hurdles facing a new generation of insurance consumers who will live to see the turn of not one, but two centuries.

Unfortunately, most existing life insurance policies expire at age 100.

“Term insurance might not survive as a product at all,” Oishi warns, “because it is not designed to provide coverage for people so advanced in years.

“Insurance agents and companies need to be better prepared to deal with consumers’ questions,” Oishi says. Especially, agents must become more knowledgeable with regard to providing death benefits after age 100, long-term care policy provisions and personal disability insurance for active retirees.

In Spokane, 78-year-old Gene Bronson couldn’t agree more. “You never outgrow your need for life insurance,” says Bronson, who has been selling policies more than half a century. The dean of Spokane’s active life insurance agents is an ardent exponent of the importance of including a whole-life policy in every investment portfolio.

Bronson, partner in Carbon & Bronson, agents for Mutual of New York (MONY) and other companies, is a Chartered Life Underwriter, a registered securities representative and a certified financial services adviser. Brokers who sell only stocks and bonds, Bronson charges, are selling life insurance short.

In his 53 years of experience, a traditional whole-life policy will outperform over a long lifetime any combination of stocks and bonds that an investor is likely to come up with. This is because of compounding and, as with municipal bonds, a tax-free buildup of values.

However, when a policyholder passes 100, the insurance company pays off, and Uncle Sam takes his cut of value accumulated above the cost of premiums. There are ways to work around this, such as borrowing out the cash value in excess of premiums paid, says Bronson.

New wrinkles are being exploited all the time.

“You’d be surprised how many people in their 70s and 80s are turning to life insurance to help them hang onto what financial success they have been able to achieve over the years. There are wonderful new instruments for this.

“Clients need some assurance that their family’s future will be secure,” Bronson says.

Teleconference panelist Richard Shechtman of Hartford, Conn., said his clients need to know that their family’s future will be secure. “Life insurance plays such a vital role in making that happen,” he said.

“One way to keep the proceeds of a life insurance policy out of the insured’s estate,” Shechtman said, “is to set up an irrevocable life insurance trust and have a trustee own the policy and pay policy premiums. This highly effective planning strategy allows the policy’s proceeds to pass to their heirs’ estate tax-free or provides the cash required to pay other estate costs.”

Those who anticipate heavy estate taxes may want to look into more complicated trust arrangements such as “Alaska or Offshore” trusts, said panelist Jonathan Blattmachr, an estate planning attorney in New York City. In some cases, he said, it is prudent to have a team of advisers working with you on an estate plan, including an accountant, attorney, life insurance agent/broker, and a bank trust officer.