Your Money ; Financially Speaking
Getting good advice may be the toughest challenge of all
Questioning Life Insurance By Jane Bryant Quinn
What to do about life insurance when you get older? No single answer works for everyone. Personally, I
quit buying coverage in my late 50s when my
last term policy ran out. My husband and grown
children don’t depend on my income, so they’ll
be all right (financially, anyway) if I die. Instead
of paying insurance premiums, I put the money
into investment accounts.
But many of you might have depen-
dents who will need help if you die.
Or you might have a cash value pol-
icy you no longer need, and wonder
whether to keep it or monetize it in
some way. It’s impossible to cover all
the tricky corners of life insurance
in one short column. But I can offer
some ideas to start with:
If you need more insurance, you can
still buy 10- or 20-year term coverage,
as long as you’re in reasonable health. For a look
at the range of premiums, go to Term4Sale.com.
Remember, you need less coverage now than you
did 20 years ago, because your life span is shorter.
If you’re uninsurable because your health is poor,
you might be able to convert your current term
policy to cash value coverage without a health exam. It
will be expensive, but worth
it if you don’t expect to live
for many more years (sorry
to be this blunt, but death is
what life insurance is about).
If you think you’ll need
coverage for more than 20
years, you might look at
no-lapse universal life. The
premiums are lower than
those on traditional cash
value policies, which accumulate savings over time.
The guaranteed death benefit can last for as many years
as you want. The downside:
There’s not much flexibility. If you cancel the policy,
you’ll get little or nothing
back. No-lapse doesn’t accumulate cash value.
If you can’t afford the premiums on your current
cash value policy but you still need life insurance,
consider turning it into a smaller, paid-up policy
that lasts for life, or use your dividends (if any) to
cover future premiums. Certain forms of universal life policies might be losing cash value and will
automatically terminate if you don’t restructure.
If you have a cash value policy you don’t need
anymore, consider these five options.
1. Cancel it. Use the cash value
and the money you were paying in
premiums to add to investments or
pay your bills. Warning: You might
owe a surrender charge. You might
also owe taxes, if you took a loan
against the policy.
2. Keep the policy as an investment,
if it’s paying well. A few older policies, from top companies, are paying
interest on cash values in the 3 to 5
percent range, after taxes and expenses—far more
than you’d earn in a bank account. You can let the
investment build and tap it for cash in the future.
3. Sell the policy for more than its cash surrender value. Investors generally buy policies from
people whose health is poor. You get a lump-sum
Sorry to be
is what life
payment. The investor pays the premiums and
collects the payout when you die. But it’s hard
to know if you’re getting a fair price. If your expected life span is short, your heirs might prefer
to pay the premiums themselves rather than let
the policy go to a stranger, says fee-only insurance adviser Scott Witt in New Berlin, Wis.
4. Pour your cash values into an annuity, tax-free. The process is called a “1035 exchange.”
You can buy an immediate annuity for current
income, or a tax-deferred annuity for investment. The deferred annuity has advantages if
your insurance policy shows an investment loss.
You can use the loss to tax-shelter the annuity’s
5. Use the cash value to acquire a long-term care
policy. This is also done through a tax-free 1035
Where can you get good advice? This is the
toughest question of all. Insurance agents aren’t
paid to service old policies, they’re paid to sell
new ones. Here are the only sources I know
for independent advice on what to do with your
; The low-cost service EvaluateLifeInsurance
.org, run by retired actuary
James Hunt for the Consumer Federation of America.
; Fee-only insurance advisers, who charge perhaps
$300 an hour, or fee-only financial planning firms that
consult with expert insurance advisers.
; GlennDaily.com, which
links to eight other fee-only advisers, as well as to
organizations of fee-only
In the murky insurance
world, independent advice
is well worth paying for. ;
“Now, you may think that you no longer need life insurance.”
Jane Bryant Quinn is a personal finance expert and
author of Making the Most of
Your Money NOW. She writes
regularly for the Bulletin.