Some Us were trying to offer elderly alumni life insurance policies naming the U as beneficiaries unfortunately those tended to be sold to folks with remarkable longevity so I believe money so I believe they had to switch the business model.
H had a combo whole life policy that was paid in full at some point—maybe when he turned 65. He also had a policy with his former employer that he had 2 options when he retired—keep it and pay all premiums, stop paying premiums and have it drop every year until it’s worth 25% of face value when he retired.
We opted to keep it in force and pay the monthly premium out of his pension with the medical insurance premium, & Medicare. By a happy coincidence the amount we get as a premium rebate from his paid up whole life policy is close to the amount of the premium. Our CPA told us he felt the premium of under $3000/yr for $130k coverage for someone >75yrz old with no exam was very good.
In deciding what to do, it makes sense to consider all your assets & your spouse’s assets and what would happen if either of you died if the policy were allowed to lapse. Also how much of a hardship paying the premium will be vs what else you and spouse may want to do with those funds. Also consider financial rating of the life insurance company (if they go bankrupt no one gets paid) and the likelihood of how much longer you and/or spouse will live.
Is there any reason to keep the policies? In your mid-60’s, it is usually for estate planning (a lot more insurance) or because you have insufficient assets to live on, or you are still paying down a mortgage on a jointly owned house.
Those prices are just ridiculous. We pay around $650 ea. for two 500K policies in our early 60’s/late 50’s. I’m going to drop the insurance when the prices increase in the next few years, and have only held on to them because we still have a mortgage.
Just invest the money you save and start working out a lot more. Chances are you you won’t die for 20+ more years.
Not sure that your statement is correct regarding non-payment of benefits if a life insurance company goes bankrupt. Don’t most or all states have guaranty funds ? And, if the answer is yes, the next question is what is guaranteed by the state fund.
I’m not positive but I always try to do business with companies that are as financially solid as possible. No one needs extra heartache and uncertainty and delayed and potentially reduced payments.
I agree, but some insurance companies have earned high ratings from A.M. Best, but did so based on fraudulent filings. Decades ago, some insurance companies used Merrill Lynch to cover-up low grade investments in junk bonds when reporting time came around by switching assets temporarily. These were not household names like Metropolitan, Prudential, or New York Life, but they certainly fooled the regulators and the ratings agencies/companies.
Reminds me of the billionaire fraudster Bernie Madoff.
Decades ago, and maybe still true, many advised against doing business with insurance companies headquartered in Florida or Texas. Not sure if still appropriate advice. If I recall correctly, Texas had unusually low/minimal capitalization requirements (especially for health insurance related companies/trusts) & Florida had (may still have) very attractive & enticing bankruptcy provisions for those with less than honorable intentions. (Although bankruptcy is a federal matter, individual states get to determine exemptions.)
Hmmm, yep the old garbage in, garbage out. Oh well, we do our best. The policies H has are pretty puny compared to what people are writing about and our other assets but part of our assets. I’m glad we have it as it will be more options for us and our heirs.
Ours are MetLife and FEGLI (which does life insurance for many Fed employees, so I think both are pretty solid).
I’m actually wondering about a specific term policy on my husband and whether we should keep it or not also. Let me know what you all think.
When he got divorced in 2012 he had to get a term policy for the benefit of his ex wife in the amount of $600k as long as he paid her maintenance or until he turned 65. Since you can’t just get a random year policy he had to get a 15 year term policy. He no longer pays her maintenance so I’m now the beneficiary of the policy. It’s about $1,100/year. Mainly that high because of his age at the time (late 50’s and one of the top rated insurance companies, not sure if he had a small ding healthwise also because his father died around the age of 60).
So anyway, the policy is due for renewal in July and it terminates in 2027. Should I bother paying it or not? He’s sees his Dr’s regularly and other than one minor bout with a-fib a few years ago, is quite healthy for a 62 year old. Takes no medications other than vitamins. I just keep going back and forth on whether it’s worth it or not.
Ask yourself if you have any financial dependency on him being alive (e.g. paid labor, unpaid labor that you would have to pay to replace, pension or annuity income or other benefits contingent on him being alive) and whether such financial loss if he died would be a financial hardship for you.
If yes, then consider whether the cost of the policy is a reasonable deal, and how financially secure the insurance company is.
What else do want or have to spend the $1,100/year on? What else would return $600,000 for an investment if $1,100?
That’s a pretty good rate for pretty high coverage, imho.
If you have tons of other assets and $600,000 doesn’t make any difference, then maybe you don’t need it. If the loss of your H would decrease your assets or require you to hire someone to do some or all of the things he does now and in the future, $600,000 may be helpful to have.
Keep it as the rate is great & insurance can be required for certain investments & loans. Plus, if you do not need the death benefit, it could be a nice way to make a charitable bequest that may or may not result in a substantial gift to a charity.
It’s a term policy so it cannot be used as far as credit against loans since there is no guaranteed payout and it’s not an investment for the same reason. Basically, if my husband doesn’t die in the next 6 years there is no payout, which is the dilemma. If it were whole life that’s the type that can go against a loan and has a guaranteed payout. We have one of those too and I think have 2 more annual payments on that one which we are paying because it makes no sense to surrender the policy and get less back than what we paid in.
So the question is really whether it’s worth paying the $1,100 for the net 6 years to get the payout within that period of time which only happens if my husband dies within the next 6 years. The only person in his family that died young is his father. His mother is in her 90’s and his grandparents lived long. Obviously, he can be hit by a car tomorrow.
@ucbalumnus Haha your post sounds funny, but basically no, I am not financially dependent on him. The house is paid off, we have a “retirement” property which is an investment property right now and pays for itself but it has a small mortgage which is the only debt we have. We do have high property taxes and the last 2 whole life premiums are a lot of cash outflow, there are also 2 other term policies on him (for about 800k IIRC) but they are much longer term policies so we will keep those, which is kind of why I’m thinking there is no point to keep this one. The 2 term policies plus the whole life, plus if he kicks the bucket there’s also his social security. We also already have cemetery plots so don’t need to pay for that, just the other parts. Yeah, ick factor I know. The insurance company is financially secure as it’s Banner and that’s one of the best companies out there.
@HImom $1,100 won’t go far for us, but May-Sept just seem to be the killer months. Home insurance due, property taxes, car insurance, 2 term policies, and whole life policies. It’s a brutal feeling. College costs too but that doesn’t hurt as bad because that comes from specific college 529 accounts and other college accounts for non 529 expenses. I can’t say I have tons of other assets but at the same time I realized recently I am one of those people that will think they never have enough money and have to lighten up a little.
I think if I died it’s my husband who would have to hire someone to do all the things I do, lol. He is a klutz and breaks everything and is not handy. If the printer doesn’t work his first act is to say it’s broken we need a new one. SMH. He doesn’t try to fix anything. In the last week, I was the one on the ladder outside changing lightbulbs, resetting our timer on the lights, changing bathroom lightbulbs, replacing our smoke detector, etc. LOL. He likes to do laundry and make the bed. Haha.
Why can’t term life be used in a loan situation ? It is used almost always when required by lenders. Mortgage life insurance is typically term insurance which expires when the mortgage term expires.
Why can’t it be used when one invests in a business ? Term insurance is used often as a potential funding device for key person insurance & for buy-sell agreements.
Why is a guaranteed payout required ? I have never encountered this before.
A term life policy which expires in 6 years can be used as a potential funding device for any situation for 6 years. Again, why is a guaranteed payout necessary ?
It may not be ideal–or it could be ideal–but it can be used for the next 6 years.
Why? Because with term life there is no guaranteed payout unless the person dies within that period, unlike whole life which has value as you pay into a policy and it is an investment which has value as you pay in which if you want to cash out has a surrender value.
Lenders do not look at term policies as assets. You may be listed them as such but if you ask them they will tell you they do not count. “Mortgage underwriters count life insurance as an asset for your mortgage application if the policy has a cash value that exceeds the surrender cost. Generally, permanent life insurance products – including whole, variable and universal life insurance – contain a cash value. A term life policy does not have a cash value that is considered an asset by underwriters.”
A guaranteed payout is necessary because that’s the only way it has value. Paying in $1,100 a year doesn’t reap anything or any value because once the term policy expires in 6 years the $16,500 that was paid for it (1,100 x 15 years) is lost. It’s not an investment, we never see the money again. The payoff for it is only if he dies.
Publisher, there are MUCH better ways to use insurance as a bequest then what you are proposing. I am not a financial planner, but someone who works with high net worth individuals will have a lot of experience structuring a bequest for maximum benefit (today) in terms of tax efficiency, ultimate donation to the charity, etc.
Like several other posters we let my husband’s term life policy expire when the term was up and the premiums were set to increase hugely. Mortgage was paid off, he was retired, kids all done with undergrad (no loans), so nobody was dependent on his income or labor.
In hindsight we should have had a large policy on my life instead, because he has become partially disabled and if I get hit by a bus tomorrow he will need to hire help. Life throws some curveballs.
You misunderstand my comments. Use existing low cost term life in place of credit life insurance or in situations in which an agreement requires life insurance. An ultimate death benefit payout or cash value is irrelevant. All that matters is that life insurance coverage is in effect for a specified amount or more for a specified period of time.
P.S. Simplest version: Think credit life insurance. (Has nothing to do with status as an asset; has nothing to do with cash value; has nothing to do with need for a guaranteed death benefit payout beyond the term expressed in an ancillary agreement.)
Yes, perhaps OP can clarify “now that the term has passed”, which I assumed meant the term of the insurance has lapsed.
My assumption is that it’s like my 20 year term policy. After the 20 year term has expired, there is a contractual option to extend it, but at an outrageous annual premium. I assume this is why OP is asking whether it’s worth paying such a high premium.
I still don’t see how one can “sell” the policy in either case. I suppose you could find someone willing to pay the premiums, and maybe some premium/discount based on assessing the insured actuarial expectations. But I’ve never seen any market for such an arrangement. Do you have a link to someone who serves this market?
Yes, I think that you now understand the situation as I do.
Term life insurance can be bought & sold. It is up to the potential purchaser to do the math to decide whether or not it is a reasonable investment. Firms that buy others’ life insurance policies run ads in media such as cable TV. Just goggle:
“How To Sell My Term Life Insurance Policy” and you will be directed to commercial websites.
These days people can sell anything, just look at all the junk they sell on the FB marketplace lol.
It’s obviously a risk for the buyer because they have to pay something to buy it and then the new premium every year which are usually flat aka “level term insurance” as we hear advertised but to the buyers they must pay off more than not to make it worthwhile. In this case, for 14k/year even if there was no purchase price they come out ahead if the insured doesn’t live much beyond 35 years. OP said he’s mid 60’s so it’s likely. There’s also the time value of money, so that 14k in 10 years is not what it is today, but same can be said for the FV of the 500k and if that 14k were invested instead of put into premiums for term life insurance.
As to the OP personally I would take a pass on paying 14k for the coverage and as someone suggested, maybe it was you, invest the money themselves. While I know she said he isn’t completely healthy, they may even be able to find a new term policy for a shorter duration if that’s what they wanted for a lesser amount of premium if they felt it was worthwhile, but most likely not at this point and it sounds like they have retirement savings. It’s a tough one that I’m sure a lot of people deal with.
If I had to do it all over again, I probably wouldn’t bother with the life insurance for my husband, or at least the whole policy. It was a business associate of his that we bought it from and when I happened to go to the bathroom during our meeting the guy tried to convince my husband that there should be a policy on me, which there didn’t need to be. That should’ve been the sign to walk out. They then tried to upsell us on what we wanted in the first place - another sign. But, since he was a business associate/friend of my husband’s he didn’t want to blow him off. I will be so happy in 2 years when we are done with these payments after our 10 years are up so that we’re not sticking anymore $ into it and eventually our surrender value will be what we paid if we do decide to pull it all out and invest elsewhere. The death benefit isn’t enough to make a difference in our case as it’s a small policy because of the age my husband was when we got it and the premium cost, but ugh what a pain in the butt insurance is, with the exception of those with little kids who should have a term policy to cover expenses in the unfortunate event they die and the surviving spouse needs to replace the income to care for the children and provide childcare.