Getting Life Insurance on a Senior Parent or Grandparent in Poor Health

We have often received calls from, mostly, desperate children of seniors who had just found out that their elderly parent(s) did not even have life insurance to take care of final expenses. Children understand that, the fact that their parents or grandparents are older; may mean higher premiums for the insurance coverage. What many do … Continue reading “Getting Life Insurance on a Senior Parent or Grandparent in Poor Health”

We have often received calls from, mostly, desperate children of seniors who had just found out that their elderly parent(s) did not even have life insurance to take care of final expenses. Children understand that, the fact that their parents or grandparents are older; may mean higher premiums for the insurance coverage. What many do not realize is that age is a relatively small factor in the cost of life insurance. Probably, the biggest factor is health. To keep cost in check we recommend the following.

Not all health problems are a big problem

As people get older, some of the diseases that may have great negative effects on younger people may be considered more minor with seniors. Take diabetes for example. If someone is diagnosed with diabetes before age 40, rates on their insurance (if approved at all) may be higher than for someone in their 60s! Depending on the type and prognosis, even cancer can have a lesser effect on a senior’s insurance rate than on a younger individual. So, just because your parent is not healthy does not mean he or she will get heavily penalized and have to pay very high premiums. Give the insurance company all information on your parent’s or grandparent’s health history and ask them to give you an idea of what the rates may be and what options are available.

How about big health problems

If your father or mother does have more serious health issues, and you need a larger amount of life coverage ($100,000+), speak to at least three insurance companies or three agents that represent different insurance companies. Note that we did not say just three different agents but three different insurance companies. What would be the point of speaking to three agents if they represent the same insurance company? Gather all information from your mother or father and, as long as your mother and/or father are OK with it, share that information fully with the insurance companies. Each company should come back with a different possible outcome. Once you have possible final rates, select two of cheapest and apply to both making sure that each company knows you are applying with multiple carrier. Note that that underwriting can take weeks. The wait should be well worth it though as you are more likely to get better rates.

If all you need is a final expense plan such as a whole life for $20,000, the process should even simpler as, usually, no exam is needed and underwriting normally takes a few days. There are many companies that offer these types of plans and their simplified process can vary greatly. Since the process is simpler, it will also be easier to narrow down your choices. With these plans, we would highly suggest that you shop five companies. Give them your medical history, ask them what you can qualify for (which they should know right away), ask them about plan details such as rate guarantee period, is the face value level or graded or modified. Also, request company financial and customer ratings information and a brochure. Once this information has been gathered, simply select the cheapest plan that offers the best and most benefits.

In worst health cases, a guaranteed issue life insurance may be your only choice. These types of polices do not ask any health questions and everyone usually qualifies. Rates are very high though. I would explore all other above options carefully before selecting a guaranteed issue life plan. Some may suggest that instead of these types of policies you might as well get a very cheap accident only life insurance but we do not agree. Accidental life insurance pays only in case of an accidental death and the likeliness of an elderly parent dying in an accident is very remote – unless, of course, they sky dive or mountain climb as a hobby.

Let your parent(s) fill out the application

Parents can be very secretive when it comes to their personal health. In all situations you want to make sure that your parent fills out the application themselves. When they see the health questions on the application it may remind them about some health problems they have not thought about. Some people think that too much detail on an application can raise their potential insurance rates but that is not usually the case. In many cases, we have seen that details on an application actually helped as the insurance company was able to make a more educated decision and decide to give you a lower rate than they would otherwise have. They will certainly feel more comfortable that you are not trying to hide anything and penalize you because of lack of trust.

We hope that his article has been helpful. Please look for us in other articles that may further help you in your search. We wish you well. Always feel free to ask us questions too.

Life Insurance Myths and Facts

Life insurance as part of an overall financial portfolio is rife with mythology and misinformation. In this article, I will address some of the myths that continue to circulate and provide useful information to help consumers make some rational decisions on the purchase of this important personal asset.

In an earlier article (“Why Buying Term and Investing the Difference is One Big FAIL!”), I discussed why buying term insurance and investing the difference is generally inferior to simply buying a cash value life insurance product. For the vast majority of people, buying term and spending the difference is the default, meaning that the theory of building greater wealth through a systematic investment program rarely materializes. Further, term policies can get painfully expensive in middle age, resulting in people dropping their policies, or, if they purchased a level term product for a long period, say 10 to 20 years, they may find their health will make them uninsurable or the cost beyond their means when the time comes to replace the expired policy. And they often find that the returns on the investment portion of their portfolio do not come close to equaling the life insurance coverage they need.

The second issue deals with taxes: the “invest the difference” part of the equation will almost invariably have tax consequences: unrealized capital gains and dividends for non-retirement investment accounts will result in a tax bill. What that means is that, as the fund manager buys and sells stocks for the portfolio, the capital gains on those transactions result in a tax liability. Similarly, dividends that are reinvested are also taxable. In both cases, you will be getting IRS Form 1099s in the mail around January of each year, which will show the gains and dividends and must be accounted for at tax time. In both cases, you will have no money in your pocket but you will have more in taxes to pay. This effectively lowers your rate of return.

Whole life insurance products don’t have either tax problem: the dividends grow tax-free and the cash value can be paid out later in life on a tax-free basis. And, of course, the death benefit is not subject to income tax if paid out (although it could be subject to estate tax).

I now continue with others myths concerning life insurance. Probably the biggest one is that young, single people don’t need to buy life insurance. This myth developed and has been promulgated by the popular financial services publications because life insurance is supposed to protect survivors’ ability to remain financially solvent in the event a breadwinner dies prematurely. Therefore, according to this myth, young people, who are typically single, don’t need life insurance.

The fact is, that young, single people will almost invariably get the most preferred premiums: even substantial whole life policies are relatively inexpensive. And because young people are typically in the best health of their lives, they are unwritten at the best rates. As one gets older, the risk of having a rated policy due to health issues increases, which can dramatically increase the cost. In addition the cash value of these policies not have a far larger time horizon to accumulate.

For example, using the projections of a top-rated mutual insurance company, a $500,000 policy at age 21 will have a monthly premium of approximately $320 per month; waiting until age 31, the monthly premium increases to approximately $470 per month, and waiting until age 41 increases the monthly premium to approximately $730 per month, or more than double the premium at age 21.

What is more interesting is the cash accumulation for each example: starting the policy at age 21 provides over $600,000 in cash value at age 65 and over $1,175,000 in death benefit; at age 31 the cash value is a little over $454,000 at age 65 with a death benefit of approximately $931,000, and starting the policy at age 41 provides a little over $322,000 in cash value and a $754,000 death benefit.

Now, keep in mind, the amount of death benefit needed to maintain a lifestyle for a family will typically increase as both responsibilities and income increase. However, the earlier you start the life insurance component of your financial portfolio, the less expensive it will be and the more you will have accumulated for yourself or your heirs later in life. And a guaranteed insurability rider will allow a person to purchase additional coverage at specified times without having to prove insurability.

The next myth is that employer provided life insurance is sufficient to provide the necessary income for a family if the employee dies. Typically, most companies that offer life insurance as a benefit will provide coverage equal to one year’s salary, with the employee given the option to purchase additional coverage up to around five times their salary. These are always term policies, and generally only remain in force only during the time of employment.

Another myth is that only people with dependents need life insurance. People who are married and have no children still should begin a life insurance portfolio. Even if no children are planned, the surviving spouse will need a source of income to maintain a lifestyle and replace what the decedent generated while alive, even if the surviving spouse works. And if children are planned, then getting a life insurance plan in place while a person is young and healthy will make the costs more manageable as family expenses increase. And with the trend toward having children later in life, getting a permanent life insurance policy makes a lot of sense: the policy has grown in value, and the health problems that would preclude underwriting an older age are no longer an issue and the cost of maintaining a policy purchased at a young age is far more affordable.

A big myth perpetuated by the popular press is that life insurance brokers and agents are more interested in selling the product that makes them the most commission, not the one that provides the best coverage for the client. The vast majority of agents and brokers are highly ethical professionals. They are going to provide the best plan for their customers not only because of their ethics, but because it makes good business sense for them. A good agent is looking for a client for life, not a one-time transaction. And he or she is also wants to maintain an impeccable professional reputation: word that an agent is doing the wrong thing just to increase commissions will spread quickly and will destroy his or her reputation very quickly. It also can result in censure or loss of license by the state insurance commission.

This article discusses some of the key myths that agents deal with regularly as they deal with prospective clients. Unfortunately, journalists who lack training in the complexities of insurance, authors trying to sell books, or companies that peddle an “insurance solution” to demonize the rest of the industry and make themselves to be the only ethical players in the business, often perpetuate these myths (if you run into one of these agents, head in the other direction!). Life insurance may seem like a simple product to most people, which make them susceptible to the myths I discussed. In fact, building the right insurance portfolio is often a complex undertaking, that involves decisions about needs, affordability, and long term goals to find the right product mix that provides affordable and needed protection. That means working with a professional in the business who will provide the right solution for each client, not a “one size fits all” solution that likely will not meet the needs of the client.

How Does a Whole Life Insurance Policy Work?

How exactly does a whole life insurance policy work? Whole life policies are popular with some select groups of people but they are a little bit more complex than their plain vanilla easy to understand term life insurance counterparts.

The business of insurance has to be one of the most underrated services offered in the United States nowadays. Not many people think having life insurance is important and because of this we see that the industry is not as successful as the auto and homeowners insurance business. It is important to know however, that death comes at any age; and if a person wants to protect their family or other people after their death it is imperative for them to purchase a life insurance policy.

There are two basic types of life insurance in the United States that work in completely different ways and because of this have different premiums. One of these types of insurances is one that is called a temporary policy. This policy covers a policyholder for about 5 to 30 years and their premiums are most of the time stagnant. On the other hand we have the permanent policy in which members are covered for life as long as they pay all their premiums. Part of your premium will go toward a little saving portion of the policy that will accumulate over time and the other portion of the premium goes towards the insurance cost of the death benefit.

Whole life insurance is one of the three types of insurance polices that you can obtain if you want a permanent life insurance policy. This means that whole life will cover you for life and that your cash value (saving portion) will get higher as time goes by. However, whole life is different in that your cash value is tax deferred until the beneficiary withdraws it and you can also borrow against it.

A person should consider whole life insurance when the need for coverage is lifelong. Whole life may be used as part of your estate planning because it accrues money after a person pays the premiums, as mentioned before. Because premiums for this type of policy are much higher than those of temporary policies, a person must know that this is what they want after all. Whole life is a good choice if you want to make sure that your family or dependents have a good life after your death, and that the transition from the death of a person close to their lives is a close one.

Within the whole life realm, there are six different kinds that a person can choose from.

1. Non-Participating Whole Life Insurance: This type of whole life policy has a leveled premium and a face amount through the entire policyholder’s life. Since the policy has fixed costs the premiums will not be necessary high, but it will no pay you any dividends after the policyholder dies.

2. Participating Whole Life Insurance: This type is much different from the first type mentioned. One of its differences is that this one does pay dividends and because of this premiums can be said to be a little bit more expensive. These dividends can be used to reduce your premium payments because they can be paid in cash, they can be left to accumulate at a specified rate of interest or they can be used to purchase additional insurance which in turn will increase the value in cash that a beneficiary will receive after a policyholder’s death.

3. Level Premium Whole Life Insurance: This kind of insurance is one that has the same premiums with no significant drop or rise in the money paid monthly through the entire life of the policy. At first the premiums will be enough to cover the services given and a little portion of it can be put away to cover the premiums that will come in later years when the cost of insurance in the market rises. The insurer can also pay extra premiums that will go toward the cash value part of the policy one the policyholder dies.

4. Limited Payment Whole Life Insurance: This is the type of policy that will allow you to only pay premiums over a specified period of time. This means that if you only want to pay premiums for about twenty to thirty years or up until age 65 or 85; this is the type of policy that you want. Because premium payments are going to be paid over a specified period of time, your premium payments will be significantly higher, but after you get done with them you will be covered for life.

5. Single Premium Whole Life Insurance: This type of policy is one that is very common for people that select the whole life insurance type. This is a limited policy with a single relatively large premium due at issue. Due to the fact that the owner of the policy will pay the single premium payments when the policy is first signed, the life insurance policy will immediately have cash and loan value! This type of whole term life insurance is mostly an investment oriented type than some of the others.

6. Indeterminate Premium Whole Life Insurance: This is the easiest type of whole life policy to understand and also one of the most common ones in the life market. With this insurance the company will give you a premium based on how the company is doing economically and on expense costs. This means that while one year the premiums can be slightly lower than expected, in the next the company can charge more if they are not doing up to expectations. It is also good to note that there is a maximum guaranteed premium when you first sign your policy and that the life insurance company can never charge above the premium stated

While the cost of whole life coverage is substantially higher than a term life policy with the same death benefit it is important to keep in mind that the reason for the difference in price is that the death benefit for the whole life policy will almost certainly be paid out – after all everyone dies sometime! With the term policy of course the insurance company is counting on not paying the death benefit out on over 90% of the policies it issues.

The issue of life insurance should not be taken lightly if one has a family or dependents. While some people in the United States are fed up paying all the different kinds of insurances and they figure that they don’t need to pay extra for life insurance when they are young, it is important to understand that life insurance can be a life saver after a family member, husband or parent dies.

Whole life insurance covers you for life and it will allow a beneficiary to continue life only having to cope with the issue of death and not having to worry about the economic hits that come with it. Life insurance policies are a must for anyone that has someone that relies on them for support and it’s time for all responsible Americans to realize that.