Life Insurance?
My mom has term life insurance for 10 years for New York Life.. is it true that in 10 years, she’ll be able to renew it another 10 years? Won’t that be more expensive? Also, what happens if you buy that 20 year term insurance and you don’t pass away until 21, 22 or even 30 or more years? What happens to all your money, and isn’t there a way to renew it? I heard that it would cost thousands and thousands more to renew it after 20 years.. Also, what about universal life insurance? I hear it’s no good, but my mom wants to buy that too.. Can anyone please explain a bit?
Some term insurance is renewable- guaranteed renewable term. Check your policy. Sure the premium goes up as you get older (since older people are more likely to die). But after a certain age you really don’t need much insurance. insurance is supposed to provide living expenses for spouse and children so you need a lot when you have a young family but not so much later on.
If your term is not renewable and expires then you are not covered. What happens to all your money? The insurance company uses the money from those who didn’t die to pay the claims of those who did.
Figure out how much insurance you need and then get guaranteed renewable term.
Universal life is usually a bad deal. Very expensive (a good deal for the agent – lots of commissions).
Yes, most likely your mom can renew term life for another 10 years. However, because she is renewing 10 years after her first term life policy, her rate will likely go up. Her rate goes up because she is (and no one) is as healthy as they were 10 years ago.
If you buy term life for 20 years and you are 20 years old. The term life expires at age 40. If you die when you are 41, 42 or 43, then you are out of luck because your coverage of 20 years already ended when you were 40. Term periods are usually 10, 15, 20, 30 years.
Term life is not “permanent” life insurance. Term life is popular because the price (premiums) are cheap. However, if you want insurance that will last until old age, look at “whole life”. Whole life is more expensive, but the coverage lasts usually until you die (It is calculated to end when you are in your 100′s, most people don’t live this long so it is not a progblem).
If you want to renew term life, you will most likely have to go through “underwriting” (they ask you health questions, take a blood sample). The money that you spend for term life is gone, it is like car insurance, once you pay the insurance company, it is gone. Term life is like renting also, you pay the money but you don’t really get anything in return. Buying whole life is like buying a house.
Yes, depending on your health, your premiums can go up greatly. That is why buying term for 10 years is not a good value. Most insurance companies give you a cheaper rate for 20 or even 30 years of term.
Universal Life (UL) Insurance is another type of insurance. This is only an example. The coverage is $100,000. That means when you die your family gets $100,000. For universal life you only pay premiums for 15 years, at $150 a month. So basically you are paying $27,000 over 15 years for $100,000 of coverage if and when you die. So if you get a UL policy, and pay monthly for 6 months (so you only paid out $900) and then you die after only 7 months, your family still gets $100,000.
There are other insurance options. Whole life is more permanent and universal life is relatively new. Term is cheap but doesn’t offer much in the way of protection.
Let me know if you have any other questions. I am glad to know your mom is looking into insurance, many people do not realize the importance of having coverage when someone in the family passes away. Fortunately I have never had to deliver a death claim, but I know from my experience with co workers, that no one ever rejects a check from an insurance company with many zeros behind it.
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Good luck!
If she has a 10 year term policy, renewable and convertable, yes, she’ll be able to renew it. It will be more expensive than it is now, but likely still less than whole life insurance.
With term insurance, if you don’t renew the term, and you die after the term is up, you don’t collect. It’s the CHEAPEST insurance, because it’s PURE insurance – no gimicks added.
Universal life is a gimick policy. When she compares the premium for her 10 year term, to a universal life policy, she’ll notice a HUGE difference in the premium. Now, with the Universal life, for 10X the cost of term, you’re locking that premium in. So while, for example, term might cost $250 a year now, and Universal Life $2500 a year now, ten years from now, the term might be costing $1100 a year. The Uniersal life is still $2500. And 20 years, the term might be $1800 a year, and the universal life is still $2500. You usually have to renew a term policy 3-4 times before it “CATCHES UP” with whole life or a varient. Meanwhile, if you SAVE THE DIFFERENCE, you’re a head of the game.
Before she shops around for insurance, she needs to ESTABLISH THE GOAL. Set the goal, then figure out the best way to reach it. If you invest your money rather than buying whole life, in 20 years or so, you can potentially have much more money than the insurance would have paid – so you have to weigh your options, against the COSTS.
There are various versions of life insurance products out there which all have their purposes in one way or another.
Term Life insurance is intended for those seeking maximum amount of coverage during a specific period of time. Normally, at a more affordable premium. Term life insurance is not good financial vehicle for those seeking life long coverage. The premiums will not be affordable when you reach the older age bands and will have limited portability.
Depending on your mothers age, she may want to explore other financial vehicles to accelerate her end of life needs. A variable life product would probably be a good start.
Caution! A lot of life agents will talk variable products down as only 15% of the agents licensed in this country have the ability to sell them. You must have an agent with many assets including multiple carriers and a securities license preferrably a series 7.
Depends, check the policy as she may have to requalify medically and the new 10 year rates may be based on age at that time.
The term length tells you how long the premium is good for. At the end of 20 years, the coverage may still be available but the rate you pay will increase substantially each year from that point forward.
UL is good for the right situation, especially when you are looking for lifetime guarantees and dont want to outlive a term policy
Term life is the simplest insurance, and I will explain:
Your mom has purchased a life insurance policy, and the premium is guaranteed to stay the same for 10 years. New York Life can’t ask for more money.
After 10 years, there are several options:
1) She can keep the current policy. Premiums are no longer guaranteed to stay level, and will start getting very expensive, but she can continue coverage.
2) She can convert the current policy to a permanent life policy. This generally requires a large cash outlay, but gives you cash value, an investment for life, and a death benefit for life. Most term policies let you do this without proving insurability.
3) She can apply for a new term life policy. This will probably be the least expensive option. The premiums will be higher than they are today, but they will be less than option #1 or #2.
4) She can quit. After a certain point, she shouldn’t need life insurance anymore, because her retirement fund is big enough that she doesn’t have to replace her income and/or her kids don’t need her financially anymore.
Generally, you only pick options #1 or #2 if for some reason you become uninsurable. For example, if you Mom gets cancer in year 9, but isn’t dead. She couldn’t qualify for a new policy, so she makes the policy permanent or pays inflated rates.
My 2c is that for most middle-class folks, this is the right strategy (a 10-year term life policy). They are cheap, do the job, and keep as much money in your pocket as possible. If you do become uninsurable after 10 years (actually, a fairly rare occurance), there is always options #1 or #2. I don’t see the sense in spending money to ‘lock in’ a 20 or 30 year policy. Rates will be higher, and there is a good chance you won’t keep the policy that long anyways. I had two 20 year policies, and didn’t keep either of ‘em for longer than 5 years because life insurance rates went down. Locking in was a waste of money.
–>Adam