16 July 2014 0 Comments

Who Should Buy The AARP Life Insurance Program?

shutterstock_124272760My AARP magazine arrived recently containing a full page ad with the heading:  DO YOU HAVE ENOUGH LIFE INSURANCE?  Well, I actually do have enough, but since the subject interests me, I read on.  It’s a special program only for AARP members offered by New York Life Insurance Company—one of the oldest most financially sound insurance companies in the world.  The ad went on to point out why you might be interested…to provide extra coverage…added security for the people you love.  I can’t argue with that.  This is what life insurance is all about.

The program is term insurance and there is no waiting period.  You’re covered for the full benefit amount frown the very first day coverage takes effect. On top of that, the ad stated that there is no physical exam and that acceptance is based on your answers to three health questions and other information you may provide or give NYLIC permission to obtain. The health questions have only to do with treatment for major illnesses or hospitalizations for any reason in the past two years, or visits to your doctor for any reason within the past 90 days. Boy, does this sound good!

There are a few caveats.  The premium which is calculated on 5 year brackets is not guaranteed and all coverage ceases at age 80.  It is not convertible.  The coverage may be applied for between the ages of 45-74 and the premium automatically increases as you attain ages 50, 55, 60, 65, 70 and 75.  What will those premiums be?  They can’t really tell you because they are not guaranteed, but they do tell you what the beginning premiums will be. So let’s take a look at a few of those.  For a male, the monthly premium for a $100,000 policy is:

                                    Age                                              Monthly Premium

                                    45-49                                         $ 40.04

                                    50-54                                         $ 51.21

                                    55-59                                         $ 79.88

                                    60-64                                         $124.17

                                    65-69                                         $174.83

                                    70-74                                         $265.83

Do those premiums seem high?  If you are in good health, they are extremely high.  By going through the normal medical exam and review of your medical history you might be able to get a 20 year term policy for a fraction of the cost of this initial 5 year premium—and—with premiums that are guaranteed not just projected.  The AARP plan appears not to charge more for tobacco users, so if you are a cigarette smoker this plan might get you coverage for a 5 to 10 year period of time at premiums less than available elsewhere.

What this means is that NYLIC is apt to end up with a pool of insureds who pay a lot, but not enough to cover their excess risk.  If that happens, the non-guaranteed premiums are raised to cover the adverse selection.

If you want low cost term, before you go to AARP see what is available by going through an agent and the normal underwriting process. If that fails, try AARP.

Some of you have asked how the cash value of a Universal Life policy can be zero, but the guaranteed death benefit continues on…that’s next.

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