A lengthy article in a recent online edition of Life Insurance International entitled "United States - Insurers pin hopes on baby boomers" was quite interesting and informative. It's always useful to see ourselves as others see us. By and large, the article covered familiar ground about the huge opportunity the approaching retirement of tens of millions of baby boomers presents. And it discussed the continuing evolution of products to meet the needs of these folks – accumulation, guaranteed lifetime income, long term care, etc. The article is as good an overview of the direction of the industry as I have read and I agree with almost all of it.
However, the article's contention that distribution is rapidly migrating to online Internet delivery is without foundation. I haven't seen data, but as recently as internet sales were less than 10% of the total. To be sure, there are sales organizations like SelectQuote and USAA that do a big job selling insurance over the phone, but the reality is these are still very much sales made by a human being. And, at least in the case of SelectQuote, virtually all its sales are term insurance sales. While an argument can be made – and SelectQuote makes it – that term insurance is better than no insurance when the person dies, that flies in the face of the fact that more people are living longer and need insurance well into late life.
I have no argument with term insurance. I owned a lot, sold a lot and have urged my children to buy it to cover the needs of their young families. But as I approach retirement I realize more than ever how important my substantial permanent insurance portfolio is to my retirement planning. While modern medicine and improved lifestyles have made an early death less likely, it still happens and when it does, too often economic disaster follows without life insurance. Obviously death happens more often as people get into their 60s and 70s and 80s.
But here's the startling fact – the odds are that for every two people who are today 65 years old, one will still be alive at 92 – 27 years later!! Most of us didn't figure we would live that long. And that's today. Imagine what medical advances could mean over that 27 year period.
So what's the point? Just this. Retirement planning is very complex. It has to consider not only advance accumulation of retirement funds, guaranteed lifestyle maintenance income for life, long-term care, but also the consequences of a surviving spouse living a long time. Most people will not have enough money to live the way they want when they retire. They will seek ways to maximize the income from the assets they have accumulated, often at the expense of providing for a lifetime stream of adequate income. In other words, it is very possible that many people in their late 70s and 80s will see their nest egg begin to shrink with increasing speed as they draw down principal to maintain an adequate standard of living. A long life for a surviving spouse may be a nightmare with little or no money rather than a pleasant winding down in the warmth of family, grandchildren etc.
Permanent life insurance bought early enough is a part of the solution to this problem. It has vital characteristics that term insurance does not have. The first is its permanence. It doesn't run out. Second, it is affordable later in life. In fact, it can be made to be paid up – no more premiums due. The cost of term insurance is practically prohibitive in later years. Third, permanent insurance has cash surrender values that provide a terrific source of emergency funds or to supplement other sources of income or to pay for medical expenses, nursing home care, etc. Most importantly, of course, it's there to provide a steam of income to a surviving spouse no matter how long he/she lives.