Might some of your single clients unknowingly need life insurance? Yes. “One typical reason young people (in their 20s and 30s) buy life insurance is to protect their insurability,” says Ronald Klein, assistant vice president at Sun Life, Wellesley, Mass. “It is also a good tax-free way to save for the long term.” Older people in their peak working years may need insurance for reasons besides leaving a legacy, but they often don’t buy it because they don’t have any beneficiaries, he adds.
Fifty-three million households are run by unmarried men or women, and 32 million persons live alone, according to the U.S. Census Bureau. In addition, about 750,000 unmarried grandparents are caregivers for grandchildren. Yet, more than half, or 54 percent of single men and 58 percent of single women, lack life insurance coverage, according to LIMRA.
That’s because it’s tough to get someone in their 20s and early 30s, with concerns over the economy and job security, to pay life insurance premiums. “We don’t notice a lot of (younger) singles buying insurance,” say Byron Udell, CEO of AccuQuote.com, a Wheeling, Ill. insurance broker. Older singles may know they need insurance, but the cost is prohibitive. Often, they do nothing about it, he says.
However, there are reasons both younger and older single clients might need coverage. As they age, health problems could prevent them from qualifying for insurance. Meanwhile, life insurance costs quite a bit less in monthly payments for a younger person. And due to longer life expectancies, younger persons can lock into lower life insurance premiums.
Say a parent, friend or relative has co-signed a loan for a young adult, for example. Udell notes that term insurance could help insure coverage of the debt. A 20-year level term insurance policy for a 30 year-old costs about 50 cents per $1,000 of coverage. By contrast, a 30 year-old single person, expecting to marry some day, could pay about $10 per $1,000 of permanent whole life insurance coverage.
Klein, of Sun Life, says that with permanent insurance, such as whole life, universal life or universal variable life, the single person gets life insurance and cash value which grows over the years. He or she can borrow against the cash value at low or zero interest rates.
He recommends that younger singles get universal variable life insurance because they can invest the cash value in stock and bond mutual funds for growth. “You can dollar cost average into mutual funds for the long term with universal variable life insurance,” Klein says. “They have a long time horizon so the ups and downs in the stock market are not as important.”
It also could make sense for a single parent to get coverage to provide for a child when he or she is not around. Typically an insurance “needs analysis” shows that a person with dependents needs about five to eight times annual wages in life insurance. So a single parent making $80,000 annually may need $400,000 to $640,000 of life insurance.
A 45 year-old divorcee ordered by the court to get life insurance would pay about $1.20 per $1,000 of 20- year term insurance, says Udell of AccuQuote. By contrast, a permanent life insurance policy would cost about $15 per $1,000 of coverage.
Permanent life insurance can be a lot more expensive than term insurance. But with term insurance, the policyholder pays higher premiums and may be required to take a medical exam to renew the policy when the term expires. So advisors might seek a term insurance policy that can favorably be converted to whole life insurance down the road.
Clients who need flexible premium payments might consider universal life, which pays current rates of interest, or universal variable life, which invests in mutual funds. This way, budget conscious clients can start with lower premium payments and increase them as their income grows.
Mutual insurance companies, such as Northwestern Mutual, MassMutual, New York Life and Guardian Life typically sell a type of whole life that lets policyholders pay lower premiums during the early years, and increase them as they age.
Perhaps single grandparents want to leave money or for their grandchildren’s higher education. Or, if they are subject to estate taxes, they might want to consider leaving the life insurance death benefit to a charity, adds Klein of Sun Life.
Life Plus Long-Term Care
Meanwhile, singles in their 50s and 60s might consider life insurance with a long-term care insurance rider. “The primary benefit of the life insurance combination is that the buyer will get some benefit from their premiums even if he or she does not eventually need long-term care,” says Jesse Slome, executive director of the American Association for Long Term Care Insurance, Westlake Village, Calif.
Combination life insurance-long-term care policies are offered by about 30 insurance companies. Some require the payment of monthly premiums. Others require a lump sum payment into the policy. If the policyholder goes into a nursing home, he or she can use the death benefit to pay the bills. With the purchase of an extension rider, payment of long-term care bills can continue after the death benefit is used up.
Slome says that the average single premium for a combination life insurance-long-term care policy is $68,000, and the average death benefit is $174,000. "More carriers are entering the marketplace and certainly more insurance and investment professionals are discussing these options with their clients," Slome says. However there is no free lunch with combination coverage.
“The life plus long term care combo can be significantly harder to health-qualify for than traditional long-term care insurance because there are both mortality and morbidity concerns,” he says. “Someone who won’t health-qualify for traditional long-term care insurance is very unlikely to qualify for a life plus long term care policy—though there are a few situations where this isn't always true."
On the plus side, he says that the combination product is easier to sell than a standalone long-term-care policy. "The unique selling proposition for combo products is the ability to address one of the most significant objections to traditional long-term care insurance: The concern that one doesn't use the policy benefits.
With combo products, if you don't ever need long-term care, you still receive a benefit—either a death benefit to heirs or an annuity payout for yourself or payout to beneficiaries. This is what makes these products attractive to a certain segment of clientele who have the savings that they can reallocate into a life plus long term care.”