If you want to explore a few smart – and often overlooked ways – to purchase life insurance, then this article will certainly help.
We receive many calls from people who want to purchase life insurance later in life. The reasons are numerous. You may decide at age 65 or 75, for example, that you might want your spouse to have a certain amount of money to replace your social security income or pension. You might have personal or business debt that won’t be paid off for several years. Life insurance can be used for these purposes.
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Depending on your situation, a term policy might be more cost effective than permanent life insurance. If your need is short-term (5 or 10 years), then term is probably the best strategy. However, if the need is longer, then you might do better with a policy guaranteed to age 95, 100 or longer.
For more information on Guaranteed Universal Life insurance (also known as “Term for Life”), please click here.
An Example Comparing Term to Guaranteed Universal Life – Over Age 60
Let’s say James is 69 years old and in very good health. He would like a 20 year term policy for $150,000. The best 20-year term rate for James is $320 per month (at the preferred non-tobacco rate class). If he decided to purchase a guaranteed universal life policy, then the rate would be $378 per month.
The difference in premium is only $58 per month. If James were to die at age 90, there would be no death benefit. At the end of the 20 year term period, the policy terminates (or the premium increases to an astronomical amount). For someone who is healthy at the age 0f 69, there is a strong likelihood of living past the age of 89. If James lives to age 92 or 98, then his spouse or children would receive the life insurance proceeds with a GUL.
Consider All Your Options and Ask For The Best Possible Solution
We just don’t know what we don’t know. You might do a lot of research and receive several quotes, not realizing there could be a solution you never considered. That’s why it’s important to explain your situation to an experienced, knowledgeable advisor. A good advisor will ask plenty of suggestions before offering quotes. Even the best fee-only financial advisors might not understand all the nuances of life insurance. Many of these advisors lean on life insurance agents for product solutions.
Some people think that term life insurance is their only option. You might equate permanent life insurance with “cash value” life insurance, not realizing their is a permanent product designed to simply provide life insurance, not as a cash accumulation vehicle. That’s why we like to refer to guaranteed universal life (GUL) as “term to 100” or “term for life”. These names help people understand that GUL is different than other types of permanent life insurance.
If you listen to Dave Ramsey or Suze Orman (both highly regarded financial gurus), then you might not realize there are other viable options besides term insurance.
It’s not Always Either/OR
Another common error: You might think it has to be either/or – either term or permanent. Often times, the best approach is both. For example, you might do best with 75% term and 25% GUL. Every situation is different. We show examples of “laddering” term and guaranteed universal life insurance here.
An Example of Someone Not in Very Good Health
Although this isn’t a Term vs. GUL example, it is shows how creative thinking can result in significant savings.
A 72 year-old male wanted a permanent policy for $25,000 for final expenses. A little medical history: 4 years prior, he had a stent inserted to relieve an obstruction in one of his arteries. After the successful surgery, he was prescribed three medications. It had been four years since the surgery and his health was better. Although he felt good, insurance underwriters consider him a higher risk. Most carriers would offer a Standard Table 2 to 4 “rate-up”.
What is a Rate-up or Table Rating?
A table rating or “rate-up” is simply additional premium assessed by an insurance company due to extra risk. Table ratings are generally the result of health conditions such as diabetes, heart disease, obesity, or a combination of conditions and/or medications. These ratings can also result from lifestyle choices, such as skydiving, flying airplanes, and other high-risk occupations or avocations.
Table ratings generally work in the following way:
- Table A = 25% additional premium
- Table B = 50% additional premium
- Table C = 75% additional premium
- Table D = 100% additional premium
Back to our example….
We looked at many whole life “final expense” policies for this 72 year old. The best rates were close to $200 to $220 per month. We also looked at other guaranteed universal life policies. Some carriers required an exam, others did not. The best possible rate for Table 2 was close to $162/month. More likely, a table 3 or 4 would be offered at a rate of over $200 per month.
Most carriers only allow table shaving on products with face amounts of $100,000 or more. However, one our carriers goes down to $50,000. So, we were able to secure a $50,000 guaranteed universal life policy (guaranteed to age 121) for $201/month. This product also had an excellent Accelerated Death Benefit for chronic illness and long-term care needs. It was a relatively easy choice.
More on Table Shaving
Life insurance companies occasionally offer table shaving programs. The programs are considered underwriting concessions and allow applicants who would normally be rated-up to qualify for Standard (sometimes Preferred) rates. Almost all table shave programs are available for permanent (universal life, whole life) products only.
One Last Example with Mutual of Omaha
One of our clients wanted an opinion of a policy she bought through Mutual of Omaha. We work with Mutual of Omaha and think they offer a very competitive Guaranteed Whole Life product. This product can work well for someone who is “uninsurable”. In other words, their health conditions or history is such that underwriters would declined them. However, Mutual of Omaha’s product doesn’t ask any questions.
This product also has a graded death benefit, so that it only pays the full death benefit starting in the third policy year. It’s not inexpensive, however, it can be a good fit for some people.
This 65 year-old female was in excellent health. We showed her how she could get twice as much coverage $50,000 for less than half the cost of the Guaranteed Whole Life product. Yes, an exam and medical underwriting was required. She was more than willing to go through the underwriting process to replace her current policy.
Purchasing the Mutual of Omaha policy only took a few days. It was quick and simple. You can purchase a lot of things at a convenience store, but the cost will be MUCH higher than going to WalMart or other similar stores. There is usually a price to pay for convenience.
Comparing Term to Guaranteed Universal Life – Over Age 60 Conclusion
As you can see from the above examples, working with a knowledgeable agent can really help you save money. There is no way the average person can be aware of the myriad ways to save on life insurance.
We recommend looking for an experienced agent with at least 10 years of experience. Make sure your agent is independent and works with many carriers, not just 10, 12 or 15 years.
If you have any questions or would like a free consultation, please call us to schedule. We will be glad to help.