Answers to Mid-Life Couples Life Insurance Questions
March 11, 2011 Leave a comment
This is the second article in a series of three written to address the life insurance questions of familial age groups. The first installment addressed the needs of young families with dependents. This second installment addresses the needs of mid life couples and families. And, the third installment addresses the concerns of older couples and retirees.
In its simplest form, life insurance transfers the risk of death to an insurer. Usually, the purpose of life Insurance is to provide for those you leave behind when you die. Individuals and couples at mid life have a shorter horizon than young coupes. However, the loss of a provider’s income can result in a severe change in life style for a spouse left behind. Often, medical conditions begin to occur during middle age. This can make it difficult and expensive to secure an appropriate death benefit.
How much life insurance do we need?
For those at mid life, determining the right death benefit usually consists of determining how much capital will be needed to fund the future needs of dependents. The least expensive form of insurance, and often the most appropriate for this purpose, is term life insurance.
If you are considering purchasing a term life insurance policy to replace your income should you die and untimely death, here’s a simple process to estimate the amount of coverage you may need:
1) Determine the annual amount of income needed by your dependents in the event of your death.
2) Determine the number of years this income will be needed.
3) Include any debts you would want paid off in the event of your death.
4) Estimate your burial expenses.
5) Add these four items and subtract your existing life insurance benefits.
The above process should give you a pretty good idea of how much death benefit you need and the term you need to specify. You can fine tune this figure by adding 5 or 6 percent per year to cover inflation.
What kind of life insurance should we buy?
The appropriate type of life insurance depends on your financial objectives and your time horizon. T erm Life Insurance is relatively easy to understand. In return for your premium, the life insurance company promises to pay a fixed sum to your designated beneficiary should you die within the term of the policy. The “term” is the period of the insurance contract, or policy. At the end of the term the policy expires. Often, term policies will carry a “conversion” option. This rider or option allows the consumer to convert the term policy to permanent, or cash value, insurance within a specified period of time. This can be a valuable provision should you become uninsurable during the term of the policy. Numerous other riders and features are available from the many providers of term life Insurance.
When considering riders, keep in mind why you are buying the policy in the first place. And, be careful not to double insure. You may already be covered for disability. If so, adding a disability rider doesn’t make much sense. Return of Premium (ROP) riders are also very popular with insurance companies and agents alike. They serve to pump the premium payment. But, do the math and carefully consider whether or not you want to add this feature. You may want to check with your financial adviser before committing to riders.
In addition to term life, cash value life insurance products have been developed to permit the consumer to secure permanent insurance and accumulate savings for variety of purposes on a tax deferred basis. These include: Whole Life, Universal Life and Variable Life products.
Permanent life insurance is more expensive than term for the same death benefit. Some agents like to characterize term life as “renting” and cash value products as “owning.” The comparison is drawn between renting and owning your home. This pitch is less likely to work with the middle aged than with the young. Most people are painfully aware of their mortality by the time they reach middle age. So, permanence is seen as less important than securing adequate coverage.
Permanent life insurance products accumulate cash value over time. One or more of these products may be appropriate when the purpose of the insurance is to accumulate savings and provide a death benefit for heirs. Specialized cash value products have been developed to address special situations. For example, a whole life product designed to provide Long Term Care Insurance for those who don’t qualify for traditional Long Term Care Insurance.
It’s important to compare the two primary elements of cash value products to financial alternatives when considering a permanent life insurance purchase. These elements are the characteristics of the “death benefit” and the projected “cash value” accumulation. The life insurance illustration will provide the information you need. Just make sure you understand everything in the illustration before buying the product. If you do make a purchase, you still have 10 days after you receive the policy to run it past your financial adviser. If, for any reason, you decide not to keep the policy within ten days of receipt you can cancel without penalty. It’s called your “free look,” and, it’s the law.
How do we get a quote?
If you do a quick Google or Yahoo search on “life insurance quote” you’ll be greeted with a huge number of hits. Some of these hits will come from insurance companies. Insurance carrier’s web sites promote their products. You won’t learn much about competitive products from a carrier’s web site. You’ll also get many hits from quote companies like QuoteAuction.com NetQuote.com and Insurme.com. Be careful here. You’ll be asked to enter your information to get a free quote. But, you may get more than you bargained for. These companies sell your information to as many as 6 agents. So, you will likely get 5 or 6 phone calls per quote source. You’ll also get dozens of emails.
Many agents buy leads from these quote firms in order to maintain a healthy flow of prospects. But, leads purchased from these sources are always expensive and often of little or no value. As a result, some agents have begun making their quote engines available to clients directly. The author of this article makes his health insurance and life insurance source available to consumers. Just send the author a message requesting a Life Insurance quote.
The best you can hope for online is to get a rough idea of what insurance may cost. If you are in excellent health you can specify Preferred or Preferred Best in the risk rating box. But, there’s no guarantee that the carrier’s underwriting department will rate you per your guess, or per your agent’s guess for that matter. Eventually, you need to specify a carrier and file an application. Then the underwriting process begins.
If you pay an initial two months premium with the application the agent should provide you with a signed “conditional receipt.” The conditional receipt binds the insurance company if the risk is approved as applied for, and subject to a myriad of other conditions on the receipt. If you are totally without life insurance it may be a good idea to pay the up front premium and get a conditional receipt. This will at least provide a measure of comfort while the application is in underwriting.
What is involved in the underwriting process?
Depending on the amount of insurance you are seeking, you may be asked to meet with a paramedic. The paramedic will fill out a questionnaire, measure your weight and take one or more body fluid samples. This process is painless and usually takes only about 20 minutes. Often it can be taken care of in your home or office.
If you indicate a medical condition on your application or to the paramedic, the underwriter may request medical records from your physician. In any event he will certainly request your records from the Medical Information Bureau (MIB). Not to be confused with “Men in Black,” the MIB is a service organization that collects medical data on life and health insurance applicants for insurance companies. Even if you do miss something in your statement to the paramedic, chances are the MIB will make the underwriter aware of your condition. So, don’t fudge. Tell the whole truth regarding any medical condition you may have up front.
The underwriting process can take from a few weeks to several months depending on the carrier and the degree of difficulty in obtaining medical information. The policy will either be issued at the risk rating indicated on the application or the underwriter may issue an offer to insure at another rating. If the underwriter offers to issue the policy at an unacceptable rating you always have the alternative of applying with another carrier. A good independent agent will likely already have one or more alternatives for you to consider.
What if I just need enough insurance to bury me?
If your health is poor and you are trying to secure insurance to cover your final expenses you may want to consider a guaranteed issue product. This is insurance for which you cannot be turned down. With this kind of insurance you are essentially setting aside funds specifically for your final expenses. You can apply for many kinds of insurance products through the author’s on-line insurance store at: