5 Tips for Life Insurance in The Age of Increasing Life Expectancy
Increasing longevity is good news for many Canadians. According to Statistics Canada, over the past century, life expectancy at birth in Canada has risen substantially to 79.8 years for males, and 83.9 years for females. And we are not just living to an older age - we are also enjoying many more years of good health along the way.1
Perhaps the only worry is that more years of life also means more years of financial need. From basic living expenses to long-term care and medical expenses, Canadians have to approach their financial planning with a longer view than ever before. This goes extra for women, who are statistically likely to outlive their male counterparts.
Here are five tips for providing sound life insurance advice in the age of increasing life expectancy.
Tip #1 Protect legacies with permanent insurance
Permanent insurance can address two related challenges that can arise with longevity.
The first challenge is that, if a client opts only for term insurance, there is a chance that they will outlive the term, leaving them without coverage towards the end of their life.
The second challenge is that, as they continue living their extended life, they might spend all the money they were planning to leave for their children and grandchildren.
With permanent insurance, they can eliminate the risk of their coverage ending too soon, since it is guaranteed for life whether they make it to the average life expectancy or well past it.
And, if they have a desire to leave a financial legacy for their loved ones, they can strateGIAally use permanent single life coverage (instead of the default joint last to die coverage) to replenish their assets at death and ensure that they are still able to fulfill their vision for future generations.
Tip #2 Create flexibility with a Guaranteed Insurability Option
Life is a winding road, and the longer you live, the more twists and turns you can expect. This makes policies with a Guaranteed Insurability Option all the more valuable.
There are many reasons why a client could see their insurance need increase as they age. Imagine completing a renovation that results in a higher debt load, welcoming a new child or grandchild into the family, or discovering that more insurance coverage now could enable a better tax and estate planning outcome later.
A Guaranteed Insurability Option means that your client will always have the flexibility to add additional coverage without the need for a medical exam or new underwriting, regardless of changes in their age or health.
Tip #3 Optimize the plan with the right conditions and features
When selecting life insurance policies with longevity in mind, it pays to look for conditions and features that will offer the right mix of protection and flexibility.
For example, you might look at Term to 100 life insurance - where the premiums stop at age 100 but the coverage continues for life - and think that it is hardly relevant, since so few live past 100. But statistics show that the number of Canadians aged 100 or older has increased from only about 1,000 in 1971 to almost 10,000 today.2
Another area to think about is fees and returns. Is there a time limit on any important terms and conditions? How long are they guaranteed? It’s more necessary than ever to view policies through a very long-term lens. If there’s anything you don’t understand about a Beneva policy, please ask us.
Tip #4 Create pools of capital to cover future taxes
Taxes tend to go up over time - in more ways than one. Take for example a family cottage. If a client’s kids will inherit it many years from now, it will likely be worth a lot more, which means there is a larger taxable capital gain. And, if history is any guide, the rate of tax will also be higher the future - just look at the recent increase in the capital gains tax inclusion rate from 50% to 66.67%.
Life insurance is a way to create pools of capital that can be used to offset future tax liabilities. Your clients should understand that these liabilities will not be based on the asset values or tax rates of today, but on the asset values and tax rates that could be the reality when their loved ones ultimately receive their inheritance.
Tip #5 Provide guaranteed income with a back-to-back strategy
Your clients are statistically likely to live longer than their parents or grandparents, yet we never know exactly how long. This can create a lot of uncertainty around how much income they will need and how long their money will have to last.
One strategy to consider is a back-to-back annuity, which is also known as an insured annuity. The idea is to buy a life annuity and back it with insurance. That way, the annuity provides guaranteed income for life and the insurance replenishes the estate when the client passes away.
What’s truly remarkable about this strategy is how effective the after-tax rate of return can actually be. For example, at Beneva, we’ve recently helped insurance advisors implement this strategy for clients as young as 61 years of age and achieved an after-tax return of as high as 7.89% on a GIA-equivalent basis.
How would your clients feel about investing in a GIA that returns nearly 8% and securing their income for life? If this is a strategy you’d like to learn more about, get in touch with a member of our team.
Above all: be prepared
Once upon a time, financial planning models stopped at age 90. Today, the odds of exceeding that mark are considerable, and the cost of being unprepared could be catastrophic.
There is no reason for your clients to take that risk. Talk to them about the odds of living a long life and why they need to have the right protection and flexibility to make sure that they and their loved ones will always be financially sound.
As you work with clients in the age of longevity, know that Beneva is here to support you with the right concepts and strategies as well as life and health insurance solutions that are made for these times.