Let’s first talk about what life insurance is for: You purchase this insurance product when you have someone who is dependent on your income — a partner, children, perhaps elderly parents — and you want to protect them in case you die prematurely. That means the vast majority of people do not need life insurance unless they have an income, which means many retirees should pass on this product.
There are, however, a few exceptions: If your spouse is dependent on a pension or annuity that will cease or decrease payments upon your death, or Social Security payments that will be reduced. Or 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 that trust you have.
But 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.
As any travel expert will tell you, August is a peak time to travel — yet it’s also the month that sees its fair share of disastrous weather. Consider: Hurricane Andrew hit the Gulf of Mexico in August 1992, Hurricane Katrina devastated New Orleans in August 2005 and Hurricane Irene slammed the Caribbean and East Coast of the U.S in August 2011. If you have an upcoming trip this month, you might be wondering: should I protect that trip with travel insurance?
In general, the answer depends on your situation: your tolerance for risk, your health, and how long ago you booked your trip. For a trip happening in a week or two, that last consideration might give you an easy yes or no.
“Travelers want to insure their tip once they make the initial deposit. Seven to 30 days after they book that trip — and no later than that,” said Jim Grace, CEO of InsureMyTrip.com, a site that lets you compare plans from over 20 different travel insurance providers. “You couldn’t buy a cancel-for-any-reason policy now if you paid for your trip back in January.”
Grace says that basic trip insurance will cost four to six percent of the cost of the trip, per traveler, though that cost can rise to eight to 12 percent if you want a comprehensive “cancel-for-any-reason” policy that will let you cancel for, yes, any reason (travel anxiety, sick grandmother, hurricane, anything) as close as 24 hours before the trip. A more basic package will still cover trip cancellation, trip delay, medical treatment and evacuation, though it is possible to buy just a medical policy or just an evacuation policy.
Ultimately, the decision to buy travel insurance — and which policy to buy, if you do decide to buy one — boils down to these three questions:
Do I need health coverage? If you’re traveling domestically, the answer is probably no. If you’re traveling internationally, it’s worth checking to see if your primary insurer includes international coverage; if they don’t and you or a travel companion has a health condition, it might be worth getting a travel medical policy so that you’re covered should you need to see a doctor or visit the emergency room in a foreign country. And if you’re on Medicare, like Bill Golden, a 65-year-old retiree who enjoys going on Caribbean cruises with his wife, it’s also worth looking into a travel medical policy. “Medicare doesn’t cover you when you’re out of the country. The healthcare part is very important to us,” Golden said. On the 11 cruises for which he’s purchased travel insurance, he’s never had to use it — but he’s never regretted buying it. “We’ve never collected, not even for loss of luggage,” Golden said. “But it’s the peace of mind that’s worth it.”
Do I need an escape option? Linda Fallon, senior vice president of travel insurance provider RoamRight, said that if you’re traveling to a third-world country with subpar medical treatment, it’s worth buying a policy that covers evacuation back to the U.S (or a country that can provide good health care). “You’re not going to want to be treated in a third-world country. Something that can get you flown to a quality standard of care is essential. Not only does it protect you financially, it protects you physically,” Fallon said. She also noted that an evacuation policy would cover the cost of quickly leaving a country where there is a security crisis, a terrorist incident or unexpected civil unrest. (Fallon said that insurers can’t geo-rate the pricing, meaning evacuation coverage is the same cost in France as it is in Egypt. The only country RoamRight won’t cover right now is Afghanistan.)
Do I care if I lose this money? InsureMyTrip’s Grace said that the ultimate litmus test to determine whether or not you need travel insurance is to ask yourself whether or not the amount of money you’d lose if a trip is cancelled is an amount you mind losing. “If someone is going to Disneyland for $500, that may be a lot of money and they want to insure it. You have to look at your tolerance for risk,” Grace said. “I’m uncomfortable losing $1000, so I’ll spend $40 to $50 dollars to cover what I need.”
Finally, it’s important to note that if you’re booking last-minute travel now for late August or early September, you can still get trip cancellation coverage to protect your trip from a Hurricane Gustav or Hurricane Floyd. The key, both Grace and Fallon said, is to buy the insurance before the storm is on the National Oceanic and Atmospheric Administration (NOAA) map — and before it’s named. “If it’s named, you can’t buy the insurance for that particular storm. It’s a known event, it’s going to happen somewhere,” Grace explained. To see what storms are heading down the pipeline, you can head to NOAA.gov or weather.gov for predictions and information.
I am 63 years old with $250,000 in term life insurance. There are two policies; the first one for $100,000 will expire this month, leaving me with $150,000. I am comfortable with that amount, but I am thinking I might like $50,000 more in coverage. Would mortgage insurance be a better option for that additional coverage?
Hi Gordy, thanks for writing. Generally speaking, you want your insurance to be broad, meaning that it covers as much as possible — a range of things rather than one specific item or need. Mortgage insurance will pay off your mortgage if you pass away, and that’s it.
Term life policies, on the other hand, like the ones you have, are there to pay out for anything your family needs after you die. That’s generally a better deal, overall — mortgage insurance protects the mortgage lender almost as much as it protects you. Your spouse, if you have one, may want to continue paying off the mortgage slowly — especially with today’s low interest rates — and use a life insurance settlement for other day-to-day expenses. With a term life policy, she’ll have the flexibility to do that. It’s difficult to predict how a beneficiary is going to need to use the money, so a broad policy that allows for many options is often the best choice.
I think it’s also worth pointing out here that you’re smart to review your life insurance needs. Based on your age, I’m going to guess that you’re not yet retired, but you may be stepping back from the workforce shortly. Everyone should reevaluate their insurance coverage as they enter retirement, because when you’re no longer earning an income, you may no longer need life insurance. I would re-evaluate your needs with a life insurance calculator like the one at lifehappens.org. And note: This goes beyond life insurance. You may be driving less in retirement, which could lead to a reduction in your auto insurance premiums. Staying home during the day could get you a deal on homeowners insurance. Call around to all of your providers.
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.
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.
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!
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, 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.
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.
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.
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, 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.
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.
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?
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.