Last week’s blog post set forth a scenario for using life insurance in divorce and the possible option of universal life insurance to meet the husband and wife’s needs. As a result of that post, I got several comments from other life insurance professionals with other thoughts on the topic.
One of the comments is set forth below, from Gregory Rutchik JD, LLM (firstname.lastname@example.org) with Michael Altman (email@example.com), Financial Representatives of Northwestern Mutual Financial:
“There were two concerns addressed in your blog:
Wife’s concern that husband will die after the insurance term period has ended (if term insurance is the funding product chosen) thereby leaving her without insurance coverage; and
Husband’s concern that he does not want wife to “get rich” from his death.
Wife’s concern is real. Using a form of permanent coverage certainly makes more sense than term. However, a secondary guarantee Universal Life Policy with some sort of premium rider may be a poor choice.
Real world – paying the premium on the policy does not make husband happy. Frequently, he will delay paying until the last minute, far into the grace period. He may also be on vacation when the premium is due. If premiums on these products are not paid when due (before the premium grace period) the guaranteed cost rider is invalidated and premiums almost certainly rise. Bad result!
Husband’s concern is possibly valid. Your prior post suggested using a Settlement Option to create a level stream of payments to the wife rather than providing her with a lump sum. Since the carrier gets to hold onto the money post mortem there is less cash needed than would be if there is a lump sum payment. Buy less, pay less. Good idea. All carriers offer in their insurance contracts a selection of settlement options.
We recommend using a whole life permanent policy. Using a whole life permanent policy instead of a universal life policy will return MORE than just a return of premium as offered in your universal life example.
Situations change. Settlement options, especially those elected at time of policy purchase are inflexible. A better solution would be for the proceeds to be paid into a trust for the income benefits of the wife. What if she re-married and did not need the income – she could perhaps disclaim in favor of her (their children) or the trust could dictate so. Conversely, what if she or one of the children needs expensive uninsured medical care? The trustee could have flexibility about how the proceeds are distributed.
Summary – one size does not fit all. One product does not solve all problems. More important than blanket solutions is that the attorney, insurance agent and affected parties work together to come up with a solution acceptable to the specific parties’ needs.”
I am grateful the community reads what I post each week. Interesting and informative discussions result from these conversations which in fact will yield the best result for each individual client. Teamwork is no doubt the key to success.