An unfortunate reality today is that some clients are finding themselves without work. During such a stressful and emotional time, the advice you give and any thoughtful approach you take can make a huge impact on how they approach their new reality.
Whether they were part of a closed manufacturing facility or a downsized department, they now face difficult choices: Do they immediately need to search for new work? Are they in a position to retire early? Or do they need to take some hybrid approach to pursue their interests on a part-time basis to continue to earn income in a working-retirement arrangement?
In any case, the specific facts of the client’s situation and his or her short-term and long-term goals must be considered.
For example, let’s consider the case of Jerry and Annette Worski*, a couple in their late 50s. After recently being let go from the manufacturing facility in Edmonton where they both work, they are left with a number of concerns. Their children are grown and independent, but the Worskis had financially supported their kids through post-secondary education and were planning to work for another five years to build their assets to a more comfortable level.
With a mortgage-free home and some assets outside of their company pension plan, they have done a reasonable job of planning for retirement. However, having recently reviewed retirement income projections with their advisor, they are nervous about current market conditions affecting their ability to retire early on their current assets. They are now left with a difficult decision: look for new work immediately or pursue their respective hobbies (carpentry and interior design) to earn a moderate income?
Having worked for a company with a good benefits plan, the Worskis are used to having the protection provided by robust disability coverage. They are also used to having their medical and dental expenses covered.
Though not heavy users of their plan in recent years, Annette’s sister recently went through a health event, making the importance of coverage even more apparent to the couple. If they were to go into business for themselves or if they remained unemployed for a period, they would be concerned about having to fund their own medical costs not covered by the provincial health plan. They are also concerned about covering their income needs in the event of a prolonged disability. In addition, their benefit plan provided life insurance protection in the amount of two times their annual income. They are wondering whether they need life insurance coverage now that their children are grown and their mortgage is paid.
Having reviewed their benefit plan booklet for conversion options, their advisor discovers that their plan does not specify any conversion options for the health or disability benefits. He recommends they start with an individual health plan offered on a guaranteed issue basis, designed for those who have recently left a group plan.
This way, they are covered for their immediate needs in the short term (many of these plans can only be purchased within a short window of departing a group plan), yet have the flexibility to be fully underwritten for a more comprehensive plan more fitting to meet their concerns about high limits or potentially unlimited drug cost coverage. If they qualify for a more comprehensive plan, they could then cancel their guaranteed issue plan. Their advisor also recommends they apply for a basic disability plan at the same time to avoid having to provide additional medical requirements at a later date.
As for life insurance coverage, their advisor recommends they each hold some coverage, in case of an early death, to provide capital for investment and supplement retirement income for the surviving spouse. In addition, they may incur debt early on as they build their business, which the life insurance proceeds could pay off in the event of death.
After examining their plan booklet, their advisor discovers that they are able to convert their life coverage to a one-year convertible term plan or any permanent plan the group provider offers on an individual basis. Because of their interest in starting a business, their advisor recommends they take the one-year convertible term coverage and buy themselves some time. (Many group plans call for action within 30 or 60 days to exercise conversion options.)
Once they’ve secured their coverage, they apply for a fully underwritten renewable and convertible 10-year term insurance plan in order to save on costs as they build their own business. At a later date, as needed, they will look at the applicability of permanent insurance.
Through a difficult and stressful time for the Worskis, their advisor has completed a comprehensive review of their immediate needs and priorities, and helped them transition to their version of work-tirement. Though some advisors focus purely on managing pension assets or converting life coverage, there are many other pieces to the puzzle. For some people, health or disability coverage could be a more immediate concern.
Only through comprehensive fact finding and client-centric needs analysis can an advisor do a thorough job in a cost-effective manner, allowing clients to focus on the next phase of their employment lives.
*Not their real names.