As I searched my mind for a topic for this article I happened to be listening to the radio and then VOILA it comes to me. As this older millennial was streaming songs from The Weekend & Ariana Grande (ok, you maybe it was an episode of “The Whistler”, but let’s not get hung up on details) played a commercial from Coventry Direct for about the hundredth time and it started me thinking. Why is Coventry Direct playing so many commercials trying to purchase people’s old life insurance policies? The reason why they (and many other companies like them) are paying so much money trying to convince people to let them buy their life insurance policies is simple, they think that it is a good investment. Think about it this way, they are going to pay you a value greater than the cash value of the contract, pay the premiums on the contract and then collect the death benefit. So, it becomes clear that the return is great enough on the life insurance death benefit to cover the costs of obtaining the policy and paying the premiums until death. This is some company’s entire business model. So, the million-dollar question is why does this matter to me?
Many of you reading this, have old life insurance policies whose original purpose for purchasing them is now longer relevant and you are wondering what to do with that old policy. In today’s age of repurposing and countless TV shows based on that premise, there is absolutely no reason that your existing life insurance contract can not be repurposed. Let me give you an example, you purchased a life insurance policy as a retirement supplement, but due to your hard work at saving and investing for the future you don’t need the cash that the contract was originally purposed for. So, then the question that needs to be answered is what do I do next with this policy. My thought is that you repurpose this contract and address your current financial goals and desires. For some of you the cash value of the contract is of little consequence to your overall financial plan, so for you all I would suggest looking using the death benefit as an investment for your heirs and maximize the amount of death benefit that you can obtain while maintaining the existing premium structure (maybe even decreasing or eliminating the premium entirely). If your current financial plan does not include long-term care planning then maybe you add a rider on to the new life insurance policy and cover some or all of your possible long-term care costs through the new life insurance contract. That last statement always brings up the question, can I not just add the rider to my current plan and the simple answer is NO.
Here are a couple of examples that may make you think what you could possibly do with your existing life insurance. I have a gentleman in his mid-60s who called me about what to do with his existing policy that had $750,000 in death benefit and $200,000 cash and he was not paying any premiums. He had originally purchased the contract as a retirement supplement, but now his financial plan showed that he isn’t even currently spending what his plan allows let alone needing the cash from his life insurance policy. After talking with him his desire was no longer cash accumulation or retirement cash flow from the policy, but maximizing the amount of money available to his wife at his passing. When I researched his options, he could get $900,000 of life insurance with a long-term care rider to help offset any possible long-term care costs in the future. He can do all this while not paying any additional premiums or increasing his risk in the contract. I had another client who is about 60 and he had purchased a $300,000 policy to help protect his wife and family in the event of his premature death. After reviewing his plan, it was clear that the client no longer needed any life insurance, but the policy had a large taxable gain so cashing the contract out did not make much sense. Once again after talking with the client one of his major concerns was long-term care costs in the future. We were able to have the client maintain his existing premium structure, purchase a $400,000 policy with a long-term care rider all while maintaining the same investment risk. The great thing about the life insurance with the long-term care rider is that whatever amount of your contract you do not use for long-term care expenses will be paid to your beneficiary as a death benefit.
These are just a couple of different scenarios, but there are a myriad of other different options that may cause you to want to “repurpose” your life insurance. It could be a term policy expiring now or in the future, maybe your need for insurance has either increased or decreased. Maybe your spouse has predeceased you and now your insurance needs to be re-evaluated in that light and many other scenarios that I won’t bore with you at this time.
Whether this makes sense for you or not will be different for every client and their individual situation, but I wouldn’t wait until it is “Too Late” (see what I did there, that is a song by The Weekend for those non-millennials) to exercise any options that you may have. Talk with your financial advisor to see how your current life insurance policies fit into your current financial plan and then explore the options to see how your old contract can all of sudden be repurposed and will now be made to be shiny and new.