Is it too late to start accumulating cash value?

What if you have a 65-year-old client who likes the idea of owning life insurance for the purpose of leaving a benefit to his loved ones, but who would also like to accumulate cash value for future needs? Is cash value growth a feasible expectation at this age?

While the cost of insurance may appear to be a glaring impediment to accumulation, there are occasions where cash value can prove to be a valuable asset, even if your client is purchasing the policy in retirement.

As long as your client is healthy enough to qualify for life insurance, the next step would be to ascertain the client's ability to afford the policy. Affordability is often misinterpreted, however, as a measure of the client's current income. In many cases, a client's assets can be leveraged to pay the premium and thereby leave a more tax-efficient legacy.

The question of affordability, then, is: How comfortable does your client feel about his projected retirement income? And, if he feels secure with the current income strategy, are there any additional assets that are not being utilized to create this income? These are the assets that can be directed into a life insurance policy as a lump sum, an annuitized income, or regular withdrawals used to fund an ongoing premium.

Different solutions for different needs

There are multiple strategies for cash value accumulation in a life insurance contract.

For instance, many whole life products offer a paid-up additions rider that allows the policy to be overfunded. Paying additional premiums into this rider, combined with the contractually guaranteed cash value growth and the non-guaranteed dividends that can also be used to enhance a policy's cash value, may allow a client to eventually direct these values toward the premium, reducing or eliminating the need to pay the premium out of pocket. If designed appropriately, the cash value may even continue to increase throughout the life of the policy.

See also: 10 timely life insurance riders

Another way to utilize the paid-up additions rider could be to guarantee a paid-up policy using the contract's non-forfeiture option. This idea of a paid-up whole life policy can be a great way to create an additional tax-free death benefit while guaranteeing cash value growth that often continues to accumulate beyond the total amount of the premium paid into the policy — hence, providing a leveraged death benefit while maintaining access to the cash. After the "reduced paid-up" non-forfeiture option is selected, the client may still have access to the cash value via loans and may also still be able to participate in a declared dividend in the policy. Some companies even offer a rider that allows access to a portion of the death benefit in the event of a prolonged illness, solving an additional contingent concern for your client.

As professionals, we know that there is no one-size-fits-all answer for seniors, and with proper planning, we can assure our clients the solutions we are recommending have been tailored to specifically meet their needs and concerns.

For more from Adam Sherman and Timothy Hall, see:

Convert that term … before retirement

Leveraging qualified assets with life insurance

Does your client still need that irrevocable life insurance trust?