Mailbag Monday: Life Insurance at 74
When does buying life insurance at the age of 74 make sense? We are thinking in terms of protecting our estate, but aren’t sure if we need to do that. We do have a trust.
– Evelyn
Hi Evelyn, that’s a great question. The vast majority of people do not need life insurance unless they have an income, which means many retirees should pass on this product. Getting rid of life insurance, or letting a term policy expire, is a great way to free up some cash in retirement.
It should be noted, though, that there are a few exceptions: If your spouse is dependent on a pension or annuity that will cease or decrease payments upon your death, you may want life insurance to pick up the slack. The same goes for Social Security payments that will be reduced — life insurance can step in at that point. The other scenario in which life insurance may be necessary is if you want to use it as part of an estate planning strategy, as you indicated. If you plan to pass on a large amount of money, you can use a life insurance policy to pay for estate taxes. You can also set a life insurance policy to pay into a trust as a way of passing on an inheritance.
Here’s the issue, though: Purchasing life insurance at age 74 will be extremely expensive, even if you are in good health and you’re looking at a term policy. The high premiums may not be worth it – you may be better off investing that money elsewhere. If you’re planning to go this route, I would work with a good fee-based financial advisor who focuses on estate planning to make sure you’re taking the correct approach. You can find one at NAPFA.org.
AARP: Lower Your Out-of-Pocket Medical Expenses
Even if you have insurance, medical expenses can add up quickly. In my latest article and video for AARP, I break down three ways you can keep your healthcare spending in check. See all my strategies here!
Mailbag Monday: Insurance premiums by city
I moved last year and my insurance went up $400 more a year. How can I find out which areas will bring a lower rate when I move again?
- Anita
Anita, there are a couple tricks to this. You can simply call your insurer and ask them to run you a quote for your new neighborhood. Or you could use a tool like the one from carinsurance.com, which gives you average premiums by zip code.
But I want to point out one more thing – once a year, and definitely each time you move, you should shop around for insurance coverage and see if you can get a better deal. Often, another company will be willing to undercut your current premium to bring you on board, or your current company may be offering deals or promotions. I’ve even heard of instances where the underwriting has changed, and you’re entitled to a lower rate, but you have to call and ask for it. That’s why this kind of annual audit is so important.
Ask Jean: Pre-existing Conditions
About two years ago I was diagnosed with cancer. I am currently healthy and am working to avoid treatment as long as possible with lifestyle changes and a rigorous exercise program. My health care costs are currently in line with most people with the exception of additional tests and scans annually. If I were to change jobs, how likely am I to experience serious issues with a preexisting condition? I really want to check out my options because my current job is very stressful and not rewarding and that has a negative effect on my health.
- Brian
Congratulations on your progress in the face of that diagnosis! I hope your health continues to improve. To answer your question, I’m happy to say that you can rest assured that you can’t be declined coverage under an employer-based health insurance plan due to a pre-existing medical condition. This is one of the long-standing distinctions between employer-based coverage and coverage you purchase as an individual on the open market (though, per health care reform, this will change in 2014 when individually-purchased plans can no longer decline coverage to applicants based on pre-existing conditions, either).
That said, you could face a waiting period before medical care kicks in for pre-existing conditions like cancer. Generally, this can last no longer than six months, and not all employers will impose the wait. Essentially, that is your worst case scenario: That you may have to wait up to six months before coverage related to your cancer kicks in. That argues for getting all of your scans and procedures related to that taken care of while you’re on your current plan, just in case.
Ask Jean: Too Much Life Insurance?
My husband and I are 44. We have several universal and whole life policies and are currently still paying monthly or quarterly premiums. We both have $10,000 policies we bought when were about 18. We also bought a $200,000 policy when we got married 20 years ago and when our daughter came into the picture four years ago we bought term policies ($500,000 each) with a 20 year term. My husband wants to cash out the universal and whole life policies (cash is approximately $10,000 +) to put into either our ROTH or 529 for our daughter…keeping of course the 20 year term policies. We also both have policies with our employers that are worth 1x our yearly salaries. Thoughts?
- Darlene
Darlene, I agree that this money could be working harder for you elsewhere, particularly what you’ve invested in the whole life policies. I generally advise term policies as the best life insurance option for most people – they are inexpensive and provide adequate coverage. Yes, whole life policies have an investment component, but you’re better off investing elsewhere because they carry high fees and commissions.
Depending on your life insurance needs – which you can find by using a calculator like the one at insure.com – you may be covered with those term policies and the insurance offered by your employer. There is no sense canceling either of those – group life insurance is generally cheap, and doesn’t carry a cash value, and the term policies are likely a good option for you. As for the whole life policies, are you still paying premiums on the $10,000 policies you purchased 25 years ago? If so, I would dig deeper into that, because it seems strange to me. If they are paid up, I would hang on to them.
Then take a very close look at the $200,000 policy – the terms, including the surrender fee, should be outlined on the documents you originally signed and you should be able calculate how much you would actually recoup there. Generally, cashing out a whole life policy isn’t going to yield much, particularly if you do it early, because it takes time to build cash value and if a surrender fee applies, that can eat a lot of your takeaway. But you’ve held this policy for a while so you may walk away with something worthwhile, and if you do, that money will work harder for you invested elsewhere, as your husband says.
Money 911: Combining Finances in a Second Marriage
Navigating finances in a second marriage can be tricky, but with a prenup and a solid plan to manage money (a yours, mine and ours system, for example), it can be done — or at least, that’s what I told a viewer who called into Money 911! To hear our discussion, plus tips on annuities and finding affordable health insurance, check out the video clip below.
Visit msnbc.com for breaking news, world news, and news about the economy
Ask Jean: Small Business Health Insurance
On the Today Show this morning, during the Money 911 segment, mention was made about small Mom and Pop businesses qualifying for group medical insurance. Could I please get more information?
Thank you.
Happy to. I called up the folks at ehealthinsurance.com to find out some more information, and they tell me that if you’re a small business owner and have at least two employees on payroll — including yourself — you may qualify for a small business group health insurance plan. This is true in all fifty states, as well as DC.
Money 911: Homeowner’s insurance, time-shares and more
Does the declining value of real estate mean that you can reduce your homeowner’s insurance premium? Should you close a credit card with a $59 annual fee? What do you do with a time-share you’re not using? This morning on Money 911, we answered these questions and more. To see our responses, check out the video clip below.
Visit msnbc.com for breaking news, world news, and news about the economy
New York Daily News: The ins and outs of disability insurance
A few weeks ago, I wrote to you about disability insurance, and many of you had follow-up questions. In my latest New York Daily News column, I tried to answer those questions and provide some insight into the process of getting disability insurance.
New York Daily News: Giving company health insurance policies a look
If you think your health insurance premiums have been rising a lot, you’re not imagining things. A new study confirms that annual health care premiums have increased by 9% since last year, and workers are paying an average of $4,129 for family coverage. In my latest New York Daily News column, I tell you how you can reevaluate your coverage and even save some money.