- April 5, 2024
- Posted by: legaleseblogger
- Category: Related News
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## Evaluating the Future of a Term Life Insurance Policy
My dad and mom, both age 65, are facing a dilemma with their expiring term life insurance policy. Over the past 20 years, my dad has been paying $90 per month for a 250k policy, but now the premium is set to increase to $285. Despite not having major health issues, they are unsure if it is worth continuing with the policy, given their pessimistic outlook on their longevity.
In addition to this, my dad receives two pensions – one from his time in the Marines and another from working for the county, both spanning 20 years each. There was an option for my mom to receive his military pension upon his death, but the associated costs were deemed too high at the time. Their main concern now is securing financial stability for my mom in the event of my dad’s passing.
With a mortgage-free house valued at 400k and savings amounting to half of that, they have significant assets at their disposal. However, they are unsure of the best course of action, considering factors such as inflation, potential interest on their savings, and uncertainty regarding their longevity.
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>He had an option to allow my mom to continue collecting his military pension if he died first, but it was going to cost about a quarter of his retirement for that option at the time so they didn’t do it.
That seems unfortunate.
If your dad were to pass first, could your mom still live the lifestyle she would choose without the additonal $250K?
If so, they should skip the life insurance and save the $3400/year in premiums.
To decide, they need to consider all pensions, benefits, social security survivor benefits, returns from their investment portfolio, etc – basically everything that would continue if your dad wasn’t around. Then they compare that to the expenses she would have without him.
Most folks no longer need life insurance once the children have fully launched.
As a few others have said, the way to determine whether or not your dad still needs life insurance is to look at your mom’s income compared with living expenses should your dad die before your mom. Statistically speaking, he will die first because women have a higher life expectancy than men, so you have to prepare for this.
If your mom will be able to meet her expenses without your dad’s pension, then they don’t need life insurance. If she won’t be able to meet her expenses, then you need to make a plan so that she’s covered. Life insurance might be the solution.
Term life insurance is for parents of young kids so that if the worst were to happen they get to keep the house and have enough to get their lives off the ground.
65+? What’s the reason for having it?
How much do they have in savings/investments and how much are their monthly expenses?
I have a $31 a month policy for $1M for myself. I’m the bread winner with a wife and 1 young kid. Term life insurance is meant to replace an income in event of a death. I never plan to renew my 20 year policy, bc at that point my kid will be an adult and I’ll have significant savings.
$90 a month seems high, assuming your dad was in good health at 45 years old for a $250k payout. $280 seems absurd, even for 65 y.o. for 250k. For a non-smoker 60+ y.o. I’m seeing quotes online for around $100 for that $250k.
At this point, will the rates change (increase) yearly?
The purpose of life insurance is to protect those dependent on the insured person’s income. They have no mortgage and you don’t mention your mother’s sources of income, such as work or SS. Your father’s life insurance will get more expensive each year.
Thus, I’m assuming that your mother is not dependent on your father’s pension income. They are likely better off ditching the life insurance policy and investing what would otherwise be life insurance premiums.
What income will your mom have if your dad dies first? Sounds like she’d only have SS. $200k in savings isn’t bad, but not enough if she’s losing a huge chunk of change if he dies first.
How to figure out if they need it: Calculate all their expenses. Adjust what changes if your dad dies (which is probably not that much). Calculate what income your mom would have. Is there a deficit?
I’m almost certain there will be after losing both pensions unless they’re living super frugally – which I doubt because otherwise the 1/4 loss on the pension to give her part of it wouldn’t be an issue.
If there’s a deficit how many years will the savings they have last? What about if there’s a big expense like a new roof or HVAC – how long will the savings last then? What are the odds that they might have to draw down the savings if your father gets sick or has a slow decline?
That’s how you decide if you need the life insurance. If your dad dies – will your mom be thrown into poverty? If so it might be worth the life insurance instead of just saving the $3k/year.
To determine this, they need to analyze your Mom’s income if your Dad passed. Life insurance would be to boost her income when his goes away. If she needs additional income that what she has currently, then they need to keep the insurance.
If Mom has no income and since Dad chose to not pay the 25% for the pension insurance for Mom, he has to buy the Term Life now.
Huge waste of money! Better off sticking $280/mo in pocket! Life insurance at retirement isnt as meaningful as in your 40’s with kids at home…….
Usually when a term policy ends, you can keep it but it converts to a whole life policy, which is much more expensive. Try going through an independent broker (not Allstate, State Farm, etc.) who can quote you many carriers and see what the cost would be for a new term policy. Then you can decide if it’s a cost that’s beneficial to them.
I can’t imagine why a 65 year old man would need life insurance except for extraordinary circumstances.
Based on what you wrote. No. Let it expire. Use that money for other things.
Question, if your dad dies first is your mom willing to downsize her lifestyle and lower her living expenses? If so, they can get away with not having that insurance, specially if you (and your siblings) are able to pick up the tab and take care of your mother.
How much in investments do they have? At 65 that should be what sustains them, including the surviving spouse.
I also opted out of SBP post-military retirement because of a $350k life insurance policy through work, 401k, plus wife and I opened Roth IRAs we are maxing, plus already contributed TSP. Pensions are very nice but insufficient if part of it isn’t saved.
Other thoughts:
Do the financial projections based on all income/assets and expenses but consider things change with age and widowhood.
Would Mom be able/willing to manage the house on her own? at 70? 80? Perhaps in the later years, widowhood scenario she sells and rents an apartment. Easier to manage in your 80s. House sale proceeds can be used then for expenses.
The term policy may be off the table sooner than later. It may be $3360/yr now, but it is at best and hopefully now being rated in 5-year age bands. It will go up a lot in 5 years. If it’s rated annually, then rates go up every year! Be sure to check the rate tables.
Having the paid-off house and 200k in savings is better than many.
Wishing the best for your folks. Hope this helps.
Had that happened to me as the cost of insurance was to be paid by the interest garnered from the money paid in. They never counted on the interest being that low for that long. finally had to let it go and get another policy. from $10 a week to over $100 per week.
As I answered earlier, paying for life insurance at this point is a bad idea. Now that being said, I think that this is just a small part of a larger question which you have. That is: **How can my parents prepare to retire?**
No one here can answer that because there are more factors involved than you put in your question. For example, SS benefits. Details of the pensions which you may not even be aware of. Taxes. GPO. Medicare. Other debts. Etc.
If you really want to help, I recommend that you start here:
[https://www.letsmakeaplan.org/](https://www.letsmakeaplan.org/)
A fee only planner. Perhaps you can pay the fee for your parents as a gift to them. It actually won’t be much. But it will be worth every cent.
Go with them. Make a landing plan that they can follow the rest of their life. Then meet with them every year and make adjustments as needed.
Good luck. You will all be far happier and less stressed for the effort.
Only they can decide if its worth based on there current health Below are some facts.
Life insurance is to protect your spouse and your kids if you die unexpectedly and to pay for your Funeral. The life insurance death benefit amount is usually set at 1/2 the value of average home in your area, or at your current mortgage amount if a spouse would lose the home without it. It is not an investment.
Term life premiums on based on your age and occupation starts lower but the premium goes up at the end of every term based on your current age (usually 5 years) till it becomes unaffordable for most people. It often pays no dividends, has no cash value, so no low interest loans. Often it cannot be renewed past age 70 or 72 so you can outlive any benefits. Term life is sometimes called Universal Life.
Whole life with a fixed premium for life based on your age and occupation at first purchase it is better if you’re under age 35. You can use the dividends it pays to reduce the premiums or raise the life insurance death benefit amount. You can borrow up to cash value amount as a low interest loan. Cash value starts a zero and increases every year. Never cancel whole life with a fixed premium if you had over five years, if you can afford the premiums.
They now have mixed products somewhere between term and whole life which they claim is an investment.