How to Handle Life Insurance Needs for Your Elderly Relatives
A recent cancer diagnosis has forced an evaluation of my Dad’s finances. As we shake down the numbers, a huge monthly life insurance premium jumps out as one of the first items to address.Just what we need right now, facing a major health care crisis — $800 a month in premiums with 10% annual increases. Dad’s been paying on this policy since he was in his early 50s — now he’s 73 — and has put big bucks into it, easily over $100,000.
Seems like a complete rip-off.
Sure, the prospect of a $250,000 payout is nice for the heirs. But do we need the policy? What “protection” is it really providing? Are there better ways to use the premium dollars, not to mention the value tied up in the policy? Is my Dad’s effort to do something good for us really a bad decision?
I set out to answer the question and that quest led me through some interesting choices, including an obscure corner of the insurance world known as life settlements. Life settlements allow you to sell the policy — and get rid of the premiums — to an investor for a calculated lump sum.
Hold, fold or sell
The first question: do you need the policy? Should the benefit stay intact for you or any other beneficiary? Or are the premium dollars better spent elsewhere? That, in itself, isn’t a simple decision, but knowing the options will help you make it. Here they are:
• Keep the policy. You and other heirs will get $250,000 — perhaps soon in my case. So if cash flow allows, $800/month might not be a bad investment. Dollars spent for the last 50 years are water under the bridge. But there may be better ways.
• Let it lapse. Read more
Five Life Insurance Questions You Should Ask
If you’re in the market for life insurance, you might have been tempted by those ads claiming that “for just a few dollars a day, you can protect your family with $1 million in life insurance!” It sounds like a great deal, doesn’t it? These ads typically refer to term life insurance. As its name implies, term life insurance provides protection for a limited amount of time - or a specific “term” of years, such as 10, 20 or even 30 years.
It’s fairly simple; if you die while your policy is active, your family will receive a death benefit, but the many types of term insurance and options can be confusing. Is term life insurance likely to pay off for you? Start by asking yourself the following five questions.
1. What am I trying to accomplish?
Before you buy any kind of life insurance, think about why you’re buying it. Are you protecting your family in case of an early death? Have you taken on additional debt that requires you to provide coverage? Are you looking to leave an inheritance to a charity? Understand that in most cases, term insurance policies do not pay a claim - most people who buy term insurance “outlive” their policy’s term. As a result, if you’re shopping for insurance to protect financial obligations you may have for a very long time - possibly for the rest of your life - consider exploring another type of policy, called permanent insurance. If you’re in a cash crunch and have immediate obligations to your family, business partners, or lenders, term insurance can provide you with a quick, simple, short-term solution.
2. What’s available?
Most people will have access to at least one of the two types of term insurance policies: group or individual.
- Group — Most companies offer their employees some form of term life insurance as an employee benefit. This is called group term insurance, because you’re getting protection as part of a larger group. Usually it’s deducted right from your paycheck and the only requirement for coverage is to complete a brief questionnaire with details of your health history. Here are some of the advantages of group term insurance: Read more