12 March 2013 0 Comments

Don’t Wait Until it’s Too Late

out of timeDuring my many years in the life insurance business I’ve often talked to people who relied on term insurance during their family’s growing years who are suddenly surprised that they may no longer be able to afford any life insurance.  Typically, they have reached age 60+, their term insurance has come to the end of its duration and the premium has skyrocketed!  How could it go up so much, they want to know?  They can’t afford it!

What are their options, other than just dropping the policy?  Can they purchase a new policy for a lower premium?  Perhaps, but that will depend on the current health of the insured.  If term is still available at their current age and they can qualify for preferred premiums, that might work.  But, what happens when that term policy comes to the end of its duration?   Oh, oh—another fire drill.  Can they convert the term to a permanent policy whose premium will be guaranteed for life?  Perhaps, but often conversion rights cease at age 70.

There may be no good answer if you’re already in that leaky boat.  But, the lesson to learn from those who are on the brink is to review your long term needs long before you are there.  If you are age 55+ you should be at a point in your life when you can determine how much of your insurance you want to have in force when you die—whenever that may be.  Take the case of a man, age 57, in great health who is just purchasing a new $500,000 twenty year term policy.  He has qualified for the best premiums and will be paying about $1,825 per year.  In the 21st year the premium will zoom to about $50,000, rising each year after that.  Wow!

What our 57 year old should do today is determine how much of the $500,000 he might want to keep after age 77.  Since he’s a preferred-plus risk, odds are very good that he will still be alive at that age.  He wants to be sure that $100,000 of his coverage will extend beyond age 77.  Here are his options:

  • Instead of all term, opt today for $100,000 of coverage to be a Universal Life policy guaranteed to age 121.  It will cost about $1,100 more per year for the next 20 years, but after that he’ll be able to keep the $100,000 for only $1,820 per year.
  • Wait until age 70, the last year to convert, and convert $100,000 at that time.  We don’t know today what the premium will be, but it will likely be close to $4,000.

Just don’t wait until it’s too late for any reasonable option.  If you decide to convert coverage later, be sure not to let the conversion termination date slip by.  Get advice today; review your options and what meets your needs.

Coming up, I’ll be talking about the pros and cons of buying life insurance on-line or on the phone as opposed to the in-person agent.

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