What Would You Suggest - High Income Earner

[thecorp]

As you can tell in this thread, I still have a lot to learn about the different types of life insurance. Curious on what you would suggest in this case as I believe that some sort of guaranteed policy makes sense. Situation:

Female client, 34 years of age who is a Dr. Husband has just quit to be stay at home dad. Total income is $460k per year. Not bad for a 34 year old, huh?

They have $180k left on their mortgage and no other debt (just paid off all medical and student loans). Maxing out her 401k (she's employee; does not own practice so Solo 401k/SEP not an option).

Have $2.5m of term life on both. They are very frugal and have about $15k per month of disposable income.

I talked very briefly about life insurance as an alternative, she was quick to say she HATES whole life. She's read Dave Ramsey and that's what she's basing it on.

Any suggestions on what type of insurance product you would recommend?

 

[VolAgent]

First you need to start with more term. She is grossly underinsured. Tell her Dave Ramsey says to have at least 10x your income. Although she should have even more at her age and depending on husband's previous field and ability to reenter the workforce.

Second, how is her DI? Again, Dave Ramsey says to load up, plus everyone in med school and during her residency said the same thing.

Get her use to doing what you tell her to do, then you can start rebutting Ramsey's recommendations and she might even put down the kool-aid long enough to listen.

 

[moonlightandmargaritas]

I talked very briefly about life insurance as an alternative, she was quick to say she HATES whole life. She's read Dave Ramsey and that's what she's basing it on.

Hmmmm...(scratching chin)...I wonder if old Dave mentioned that in many states, life insurance cash values are creditor-proof by statute...

Twenty-million dollar malpractice suit? Your cash value is protected.

 

[djs]

Just out of curiousity, even if she wasn't opposed to whole life, why would you recommend it in her case (or would you)?

If she is making this kind of money and is spending responsibly, I'm not sure I could make a strong case for whole life. Term, yes. Whole life? Why?

Just curious.... Maybe this is why I don't sell much of it. I understand the positioning a lot better for those who have a harder time saving money.

Dan

 

[VolAgent]

Just out of curiousity, even if she wasn't opposed to whole life, why would you recommend it in her case (or would you)?

If she is making this kind of money and is spending responsibly, I'm not sure I could make a strong case for whole life. Term, yes. Whole life? Why?

Just curious.... Maybe this is why I don't sell much of it. I understand the positioning a lot better for those who have a harder time saving money.

Dan

M&M makes a great point about PI being creditor-proof. In Tennessee it is as long as it is for the benefit of dependents, spouse and children.

I'd prefer to start with the term and DI, you can take advantage of her liking Ramsey and get her use to buying from you.

 

[djs]

It is a good point, and I've used that before, but it has NEVER gotten me a sale.

In his example, proper malpractice coverage is a better sale than a whole life policy, though I understand many other things can come up.

Heck, most annuities are creditor proof as well and I think would be a better option than a whole life policy in this case. More term and DI is by far the best option, an annuity probably wouldn't fly.

Dan

 

[LGilmore]

DI is a must. You need to go over her coverage from her employer (most docs are employees now), check for caps. For example she makes 450k, her group coverage might only be maxed at 200k. Try and cover as much of her income as she wants.

On the term vs. whole life thing... sell her convertable term. Make her a client before you have any deep conversations about whole life. And if all she ever buys is term, after age 60 term pays pretty well for your time.

There are lots of Ramseites who didn't have life "kicked" by the time they hit 60. Lots of them need to buy again. As an agent who I looked up to 20 plus years ago said.. "some clients deserve to buy twice from you...."

 

[BNTRS]

Remember what I said about level premium life insurance? There's a lot of skipped over. Dave likes to talk about whole life insurance as if the product Mutual of Omaha sells is the same stuff everyone has, non par.

There's a lengthy discussion why all of this is wrong. Maybe a little visit here will be a good read on why cash value as an asset class works.

There's more stuff, but I haven't gotten around to updating tags and post categories.

This being said, I'm not sure I'd recommend whole life on this one.

If they're interested in $20k+ per year outlay (and by the looks of it this is a possibility), IUL starts to become super attractive, so long as they aren't looking to be super stock market neutral.

What you're going to do is drive the death benefit as low as possible based on the planned outlay (all the way down to the Guideline or 7-Pay death benefit--don't let the term 7 pay throw you off, it's merely a reference to MEC's and doesn't mean she'll be limited to 7 payments).

You'll need an increasing death benefit option and GPT TEFRA/DEFRA test.

The bigger challenge is the specific IUL you choose.

Some might suggest Lincoln. Big company, pretty well known name. Not the most stellar with respect to financial ratings. Not bad, but not great either.

Personal favorite: Penn Mutual. The only true blue Mutual to offer IUL. 2% floor, 12% cap. Simple annual point to point crediting method with a DCA account that pays 5% while the money waits to be allocated towards the indexing account.

Oh, and awesome underwriting I might add.

 

[moonlightandmargaritas]

In his example, proper malpractice coverage is a better sale than a whole life policy, though I understand many other things can come up.

True no doubt, but what happens when:

1) A judgment in excess of the limits?
2) Can't speak for Calif, but here in Fla, when malpractice premiums were at confiscatory levels, many docs went naked.

Heck, most annuities are creditor proof as well and I think would be a better option than a whole life policy in this case.

What if you need the insurance? As Vol pointed out, these people are seriously underinsured. What kind of DB does the annuity offer?

 

[dgoldenz]

Needs max DI coverage, if she has a group or association policy it probably sucks. She must be a specialist to be earning $460k/year...sounds like Guardian's target DI client.