Astre felt so strongly about it, he had the man sign a statement saying it was his decision to go against the recommendations of his advisor. The man got into a fatal car accident several years later on the Northern State Parkway on Long Island. Astre says the man had stopped coming to see him by that point, but he learned of the accident when he was contacted by an attorney, who said he was representing the man's wife. She was suing him because her husband was underinsured. Astre sent the attorney the statement the man had signed and the matter disappeared.
Investors aren't just resistant to life insurance. They're not too keen on buying long-term-care insurance either, says Matthew Tuttle, president of Tuttle Wealth Management in Stamford, Conn. In fact, Tuttle says he sees this counterintuitive divide: People in their fifities have less of a problem buying it than people in their sixties and older, the ones who are more likely to need it. They struggle with the prospect of paying the $4,000 to $8,000 annual premiums, Tuttle says.
"The 50 year olds will say, 'Where do we sign?' and the 60-and-up crowd will say, 'We've looked at it before, and we don't' want it,'" Tuttle says.
Tuttle thinks the issue is that the parents of the 60 year olds died younger and didn't really have a reason for it, while the parents of the 50 year olds-who are part of a generation of people living longer-have wound up actually needing long-term care.
"They see Mom and Dad slowing down and forgetting things, and they see how in a year or two, they may have an issue," Tuttle says, noting that Connecticut, where he is based, is the second most expensive state in the country for nursing homes, after Alaska.
Joshua Shorr, a senior investment consultant at Robert W. Baird & Co. in Alpharetta, Ga., says he, too, sees couples chafe at the prospect of buying insurance. He had one couple in their mid-fifties who were very underinsured, and the husband, a mechanical engineer, was the only one working. Shorr told the man that if anything happened to his wife and he became mentally incapacitated and unable to work, he would have no income. The man wound up buying some insurance, but a lot less than Shorr recommended. And to save the $1,000 annual premium, he bought no coverage for his wife. Shorr asked the man to sign a letter saying it was his own decision to remain underinsured.
Within a year, the wife called her husband at work one day saying she felt dizzy and weak and wanted him to come home. When he arrived, he found her dead on the kitchen floor. And as Shorr had prophesied, the worst-case scenario played out. The wife had no coverage, the man had a meltdown and couldn't work, and he ultimately lost his job, Shorr says. He wound up having to sell his house in a fire sale and move in with his children.
"He was actually very upset with me," Shorr said. "'You should have told us about the risks,' he said. I think he's very litigious. I think he would have sued me."
Shorr says the man had e-mailed him and his branch manager, very upset and saying he didn't have enough insurance. It was as if he was trying to build up some kind of case, Shorr says.
Advisors say the problem is usually that the client doesn't want to spend the money today, so they ignore the potential consequences of tomorrow. Shorr says he was working with another client on an estate plan, and the man had about $13 million in real estate, but only $600,000 of it was in liquid assets. Shorr warned him that it could be problematic because when he and his wife died, the children would be facing a $5 million estate tax bill. And they would probably have to sell some of the real estate empire he had taken a lifetime to build in order to pay for it.
Shorr suggested setting up an irrevocable trust to pay for it. The trust would cost $10,000 to $15,000 to set up, and the man would have to pay an additional $5,000 to $8,000 a year in life insurance premiums. The insurance would then pay the estate taxes. The man declined.