10 January 2014 0 Comments

Should You Wait And See?

wait and see?You’re age 57, in reasonably good health and your term insurance policy you bought 10 years ago is coming to its end. You figure at this point in your life a $200,000 policy is what you want to carry until the day you die.  Now, if you’ll tell me when that fatal day will arrive, I’ll tell you exactly what policy is best for you.  But, the smartest insurance actuaries and underwriters can’t determine that, so you’ll have to make some decisions without the advantage of clairvoyance.  You can’t wait and see.

First you look at another 10 year term policy.  If you can qualify as a Preferred Risk (one premium class higher than the most competitive due to a family history of heart attack) your annual premium will be about $530.  That’s great, but you sure plan to make it past age 67, so you look at 20 year term for an annual premium of $930.  But, what happens if you’re still alive at age 77?  So, you look at a 30 year term policy; the annual premium is $2200.  Still, your grandfather lived to age 90 and this policy will cut off at your age 87.  Well, it won’t exactly cut off then because you can continue paying the premium and the $200,000 policy will stay in force.  The problem is, the annual premium in the 31st year will be $65,700, rising to $70,600 in the 32nd year and $82,100 in the next year.  This policy was never intended to be continued beyond the 30th year, unless death is eminent within the next couple of years.

So, next you look at a Guaranteed Premium Universal Life policy that will cost $3000 per year. That premium is guaranteed if you live to age 121—that should take care of it, you figure.  But, that $3000 is just a bit too much at this point.  So you opt for the $2200 premium that would have been charged for the 30 year term, but you don’t buy the 30 year term.  Instead you purchase the Guaranteed Premium Universal Life policy and pay only $2200 for the next 8 years at which time you can extend the death benefit to age 121, with an annual premium of $7750.  You also could have started this policy with a $1460 premium that would carry it for 3 years with the annual premium increasing to $3725 thereafter.

All of this tells you is that you need a good agent who will walk you through the various options allowing you to make intelligent decisions about what policies are available to meet your lifelong needs.  Take time and get professional advice with this important part of your financial plan.

Next, I’ll be discussing the power of the unilateral contract—a life insurance policy.

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