Couple Convinced They Need High Coverage. Possible?

[MediumRoller]

I am working with an engaged 30s couple that live together. They have no kids. The man earns about $125k a year and the woman earns about $75k a year. They have substantial disposable income.

They want to purchase two 20 year term life insurance policies each being 5 million. One where the man is the beneficiary and one where the woman is the beneficiary (they both want a 5 million policy against the other).

I told them at their income level a 1-2 million policy would be better suited. However, they insist that 5 million is best due to 1) they feel their earnings potential will increase substantially over 20 years 2) they believe inflation is likely to rise a lot so 5 million today might be a lot but 5 million coverage at year 15 not so much 3) they plan to have kids within the next 2-3 years. 4) They just want to get the policies and forget about it without continually adding new policies.

A 5 million policy would be a 66 income multiple for the female and 40 income multiple for the male. Does anyone know which companies that would underwrite this or is the income multiple just too high to be underwritten?

 

[DHK]

The highest I've seen is a 30x multiple, based on income replacement alone.

This is a rare situation because usually it's the agent trying to talk people UP... not to talk them down in coverage.

Unless there are other circumstances, such as business ownership interests... they should get the most the insurance company will issue, and then convert it over time.

Show them how a whole life or IUL policy can work over time to increase the death benefit without requiring additional underwriting.

 

[Larry Tew]

Instead of telling them that you recommend a lower amount, compliment them on having the foresight to fully insure their "human life economic value".

Let them know that the insurance company has upper limits and the best they can do is to insure for all the company will issue.

Lastly, call your company of choice and ask the underwriter what they are willing to issue based on the applicant's reasoning. They may offer a little more than the published multiple of income.

 

[scagnt83]

These are Permanent Insurance prospects. Show them WL or IUL using Opt 2.

But they might actually be right. If they do have the potential to double or triple their current income over the next decade then a 5million dollar policy might be a smart idea. You cant guarantee that they will be insurable in the future, or at what health rating they might come in at if they are insurable.

If they are pulling in $300k in 5 years and suddenly cant get more insurance that is a problem. You need to take their profession and future earnings potential into consideration.

Ask why they feel they have a high earnings potential in the future, and ask what they expect their income to be in 10 years. Then send a cover letter with the app and tell the underwriter their responses. If they have a good reason for believing they will be at double or triple in the next 10 years then the underwriter will most likely issue it. But be sure to do an informal inquiry, I would suggest to do it with about 3 different carriers and see what they all say. Then choose the one that will issue the highest amount.

 

[MediumRoller]

Here are some more facts so that you understand why the required amounts are requested as it is not purely for simple income replacement:

1) The guy has a successful consulting business which has previously generated upwards of $300k a year, but which now makes less as he is currently living a more balanced life. As a result, there is a strong case his future earnings will increase when he focuses again on the business.

2) His business is high stress where he is fully responsible for the income (consultant). So, the reason why he wants a policy on his wife is because if she died it would probably (permanently) devastate his income due to the inability to work his business during the grieving process., So, though the multiple of the wives income is 66 her death would likely affect his ability to generate income, so the result of death would be more than the loss of $75k a year.

3) The couple plans to have children in the next few years, so the policy in not merely income replacement. They want to ensure that if one of them dies there will be ample money available for the rearing of any children.



Regarding #2, has anyone had a similar to this where the underwriter accepted the insurance was not needed simply to insure the earnings lost of the person who died, but is also being used to insure the loss that the beneficiary may experience due to the grief of the death? As a result, the income multiple would be much higher than when considering lost wages alone.

 

[Larry Tew]

Here are some more facts so that you understand why the required amounts are requested as it is not purely for simple income replacement:

1) The guy has a successful consulting business which has previously generated upwards of $300k a year, but which now makes less as he is currently living a more balanced life. As a result, there is a strong case his future earnings will increase when he focuses again on the business.

2) His business is high stress where he is fully responsible for the income (consultant). So, the reason why he wants a policy on his wife is because if she died it would probably (permanently) devastate his income due to the inability to work his business during the grieving process., So, though the multiple of the wives income is 66 her death would likely affect his ability to generate income, so the result of death would be more than the loss of $75k a year.

3) The couple plans to have children in the next few years, so the policy in not merely income replacement. They want to ensure that if one of them dies there will be ample money available for the rearing of any children.



Regarding #2, has anyone had a similar to this where the underwriter accepted the insurance was not needed simply to insure the earnings lost of the person who died, but is also being used to insure the loss that the beneficiary may experience due to the grief of the death? As a result, the income multiple would be much higher than when considering lost wages alone.

A couple of things. One, you're selling the high face amount to the wrong audience here. Talk to the ONLY person who can actually help you... an underwriter.

Second, grief, etc is not a measurable component that will factor into the amount they can qualify for.

We all have our pet products that we will tell you is the right one for these guys, but if it were me, I always initially apply for as much term as I think I can place. Once approved, I either issue the full term or a combination of term and permanent. First step is to get them approved or "priced" for the maximum amount you can place.

 

[UW Guy]

A 40 multiple is hard enough to justify unless he has a net worth well into 7 figures and this is viewed as income and estate coverage. Without kids or some sort of charitable purpose as an underwriter I'm not seeing a ton of estate needs here (unless there's a great story about extended family you care to pitch me). At $125K you're correct; he's probably looking at $2M line, $2.5M maybe $3.5M with flexing in other financial factors.


As for the female, hard to justify with the difficulties as outlined above. She's more likely to be given $2M-$2.5M unless her profession is something truly special.