I had lunch with a friend of mine the other day; we’ll call him Bill, not his real name. He needed someone who’d listen and provide some feedback to make sure he was on the right track. The conversation started with him letting me know he’d just gotten laid off from a managerial position he’s had for several years. The pain was obvious as we talked.
One of the points Bill wanted feedback on was he had no life insurance other than what he’d had with work. This is not unusual for many of the people I talk with about life insurance. To guide our conversation, I outlined the three questions I ask everyone about life insurance:
- What do you want the money to do?
- How much will it take to accomplish that?
- What can your budget handle?
Answering these questions for Bill was very simple. He’s over 50, single, and his children are grown. Bill’s not worried about leaving a legacy for the kids or grandkids; he wants to have funds available to wrap up final expenses when he dies without his kids having to pay for that. For Bill, that means he wants enough coverage to fund a cremation and wrap up any expenses he may have such as bills or medical costs.
I outlined for Bill the two broad forms of life insurance, term and permanent. I usually recommend term life for most people, but in Bill’s case, that may not be the best choice. Most people in his family live into their 80’s and 90’s. Since Bill’s 56, most life insurance companies will offer no more than a 20 year term policy. If Bill lives as long as his family members have, then a term policy would end about 10 to 20 years too soon.
Bill confirmed he wants a permanent policy, one that will last as long as he lives. The most basic form of permanent life insurance is a whole life policy. These usually run through the age of 100 although some companies offer a policy that goes up to age 120. This would cover Bill for the rest of his life if he lives according to the family pattern without the worry of him outliving his policy.
The other type of a permanent policy is a universal life policy. This type of life insurance is actually a blend of term and whole life insurance. The major benefit for a universal life policy is it cost less than a whole life policy and the payments can be structured to fund the policy to a predetermined time in the future. In Bill’s case, we looked at funding the policy to age 100. Below is a chart showing the monthly premium for the term, universal life, and whole life options I prepared for Bill and how they compare to each other.
|
20 Year Term Life |
Universal Life to Age 100 |
Whole Life |
|||
|
$100,000.00 |
$150,000.00 |
$50,000.00 |
$100,000.00 |
$50,000.00 |
$100,000.00 |
|
$47.35 |
$67.68 |
$56.58 |
$100.31 |
$129.00 |
$237.00 |
While the cost of the term options is very attractive, they don’t meet Bill’s need to cover him as long as he wants. The whole life and universal life policies meet the age concerns Bill has, and since the universal life option is less than half the cost it best fits his budget and his needs.
Bill’s next steps are to determine which amount of coverage he’d like to proceed with. Once that’s determined, we’ll complete the application together and submit it to underwriting for consideration. I’ll schedule a paramedical exam for Bill to confirm he’s eligible for the rates we’ve quoted here.
There are three points I believe are important for everyone to consider, regardless of age:
- Have your own life insurance policy
- If you don’t have one, go get it now
- Get this while you’re young rather than older
Have your own life policy. Being solely dependent on the life policy through your employer puts you and your family at risk. Look at the largest layoffs of 2012; HP, JP Morgan, Citigroup, Lockheed Martin, and American express laid off over 74,000 people, and those people lost their group life policy.
Why wait any longer? The good news for Bill is he’s healthy and there should be no problem keeping him from getting an attractive rate on his own policy, however, I’ve worked with other people that were declined for an unknown health condition.
If you’re in your 20’s and 30’s don’t wait until you’re over 50. You’ll have great rates on more coverage that will fit into your overall financial plan. If you handle your finances right you can effectively self-insure when you’re older.
Do you have a comment, question, or experience you’d like to share with us? Do so on our Google + and Facebook pages or in the comments section of our blog. I’d love to hear from you.
