Insurance Part 1: Term Life Insurance

[lockets]

Insurance is so confusing to me. I plan to ask a few different questions here and welcome any help or suggestions!

First question is...

I have a term life insurance policy on my stepfather with AARP NY Life.

I'm paying $40 per month for $15K life insurance and $50K AD&D. Policy began 2013 and is good until he's 80 years old. I don't expect that he will make it past 80 years old.

I keep getting solicitations to switch to "permanent life insurance." Not a good idea right? (The rates always seem quite high so I've just stuck with what I have already.)

Also is the price ($40) for the coverage listed above a good price?

I think I can increase this policy to $150K. I wonder if I should do that...

Finally - this is tax free money, right? Or should I scrap this policy and start putting $40 in Roth IRA instead? Thing is he's 63 and my attempt at reaching $15K in an IRA might outlive him so maybe I just keep going with the insurance?

Thanks for your help!

 

[barkley]

what is your goal? with the current coverage it sounds like burial...with the new numbers it sounds like a financial windfall.

 

[tvguy]

Yes, life insurance proceeds are tax free.
$40 seems high to me for only $15,000 insurance but it depends of a lot of things, like how old he was when he first bought it. I pay $123 a month for $250,000 term coverage.
The big question really is, does he even need life insurance? Will his assets cover his final expenses? Does he has a spouse who would need the insurance money to replace his lost Social Security and if he has one, pension? My mom dropped her life insurance when she turned 70. No dependents. Her assets would more than cover her final expenses, and she had Long Term Care Insurance.

 

[lockets]

Thanks for responding so fast! He's single and destitute.

He is concerned about his health and how I'd pay for his funeral and he even asked me the other day if there's a way for his SSI benefits to transfer to me upon his death, but I told him they'd only transfer to a spouse not a stepdaughter. He didn't want to pull the trigger on SSI yet because he's only 63, but he literally has nothing so he just applied for it and it starts this month.

 

[lockets]

$40 seems high to me for only $15,000 insurance but it depends of a lot of things, like how old he was when he first bought it. I pay $123 a month for $250,000 term coverage.

My mom got the policy under his name in 2013 (which would have put his age at 52 or 53) because she wouldn't be able to afford his funeral if/when he died. Then she passed prior to him and I took it over. I'm assuming it was one of those "no health checks needed" policies back then. I wonder if I should shop around for something cheaper, or increase this one as I recall paying close to $15K for my Mom's funeral and that was years ago, but I'm worried he'd have to pass health tests that I don't think he could pass. I don't know how it all works. I suppose I'd have to call the company to see how much it would cost to increase it. In the meantime I pay this one like it's the most important bill of my life and I never let it lapse!

 

[tvguy]

My mom got the policy under his name in 2013 (which would have put his age at 52 or 53) because she wouldn't be able to afford his funeral if/when he died. Then she passed prior to him and I took it over. I'm assuming it was one of those "no health checks needed" policies back then. I wonder if I should shop around for something cheaper, or increase this one as I recall paying close to $15K for my Mom's funeral and that was years ago, but I'm worried he'd have to pass health tests that I don't think he could pass. I don't know how it all works. I suppose I'd have to call the company to see how much it would cost to increase it. In the meantime I pay this one like it's the most important bill of my life and I never let it lapse!

There is another thread here on funeral costs. Just depends what you want. My mom's came in at $3,400 in 2013 and she would have been outraged that I spent that much.
I had to have a health exam for my policy and I was 30 when I got it. So yes, brace for that possibility if you shop around.

 

[lockets]

what is your goal? with the current coverage it sounds like burial...with the new numbers it sounds like a financial windfall.

Definitely burial and I wonder if the $15K is enough these days because it's stayed stagnant at $15K since 2013.

I have no idea what it would cost or what would be involved to increase it, but I mentioned 150K because their web site says that's the max.

I'm not sure if I have enough discretionary income to afford more, or some amount in between $15K to $150K, but if I did then I suppose it might be worth it in terms of a windfall since I choose to keep paying on this policy anyway?

I guess from an emotional perspective - - - I inherited both him (stepfather) and this policy and I've been mindlessly paying it because I feel like lapsing insurance policies can be both tragic and a tragic waste of sunken costs, but I'd like to now make a conscious choice like "what am I doing here?" and "what makes the most sense?"

Bare minimum though, I feel 100% comfortable paying a policy that pays for his burial, but I would feel uncomfortable bridging the money that may be needed to bury him if the policy doesn't provide enough with my own funds since I have a family to take care of as a priority.

 

[kymom99]

I don’t know where you live but 15k should be plenty for final expenses.

 

[lockets]

Ok got it. Another part of it is... NY Life bombards me with Permanent Life Insurance conversion paperwork in the mail. Ignore, right?

 

[lockets]

I don’t know where you live but 15k should be plenty for final expenses.

I should have clarified that I help him out from time to time so I pay for some of his living expenses, and when he does make money he pays me back, but it's never enough to cover the amount that I've laid out. However it's also not accumulated to be higher than $15K because I say "no" when it becomes too much. That being said the $15K would be funeral plus any expenses I might be owed by him upon his death.

 

[amcnj]

I always viewed term insurance as trying to financially cover a specific purpose which you would otherwise be unable to pay for out of savings. In your case it is funeral costs.

It may have been a 30 year term policy. If so, note that over the 30 years, at $40 per month, the total cash outlay will be $14,400. At age 63, should the policyholder live to age 80, there are further payments of $8160. Should the policyholder live beyond the expiration, then the policy has no value.

Life insurance is covering a risk, and you have to assess if it is necessary, in this case to be able to pay for future burial expenses.

If you do find the coverage is needed, you could also try shopping around to see if a less costly term policy exists for a male aged 63, and which has no medical
exam requirements.

 

[Christine]

Personally that seems like a lot of money for a destitute person to pay each month for a $15K "risk." I mean, I get it, he doesn't want to leave you with the expenses. FWIW, I've had two relatives pass recently and we paid nowhere near that but they did not want full up funerals so it was just creamtion and a small memorial service.

Wouldn't it be better to put the savings aside for the eventual funeral or, do like my coworker's mother did, and prepay/prearrange all expenses with the funeral home ahead of time? That was kind of nice for her actually because it was all paid for and taken care of.

 

[_19disnA]

You have started multiple insurance threads and you will likely get similar replies on each. There are 2 types of life insurance and they are all sold by for-profit companies who run a business where they expect to pay out less in coverage then they take in from premiums. They use life expectancy tables and include categories like if you smoke (since it lower life expectancy) to determine your premiums. If your father has limited financial means, I don't think the added expense of paying for life insurance once he is over 60 makes much sense, particularly given the financial situation you described. It would probably be better for him to put aside a few dollars from SS each month. Your existing policy might also have a 'cash value' you could take and stop paying more into it.

Part of the reason there are constant ads on TV for insurance is they need to keep bringing in new money to keep their business going. Whether you need/should have insurance is determined by a number of factors including your general health, age and financial situation. For some people it just makes more sense to invest that money and not have any type of life insurance. TV ads make it sound like everyone needs their product and that is simply clever marketing. If you do the math, with many of these policies if you live long enough, you simply get back the money you paid into it.

Term life insurance I would avoid since if you live longer then the term of the policy, you get ZERO in return and all money you paid into it is gone. There are LOTS of websites you can find to learn more about insurance.

 

[mjkacmom]

We just canceled our term life 20 year policies (since the term has ended and my premium went from $27 to $1500 a month). We had $500,000 on me and a million on my husband, our youngest kids are turning 20, our retirement is on track (we are 55), our assets will cover everything if we did (actually since we haven’t retired it’s a bit of a windfall). Whole life rarely makes sense (my husband is a financial advisor).

 

[lockets]

Personally that seems like a lot of money for a destitute person to pay each month for a $15K "risk." I mean, I get it, he doesn't want to leave you with the expenses. FWIW, I've had two relatives pass recently and we paid nowhere near that but they did not want full up funerals so it was just creamtion and a small memorial service.

Wouldn't it be better to put the savings aside for the eventual funeral or, do like my coworker's mother did, and prepay/prearrange all expenses with the funeral home ahead of time? That was kind of nice for her actually because it was all paid for and taken care of.

He doesn't pay for the policy. I do. But still I understand what you're saying. Maybe it's too much each month for a funeral that won't cost that much, or could be better used to pre-pay a funeral.

He also asks me to help him out randomly with money, which I do. We keep a running tab of what's owed. It's a constant teeter between coming close to paying me back and then owing money to me again. The $15K is also supposed to cover the money he'd likely owe me upon death since I became a private creditor to him. That was the logic of me keeping the policy when this got turned over to me.

 

[Christine]

He doesn't pay for the policy. I do. But still I understand what you're saying. Maybe it's too much each month for a funeral that won't cost that much, or could be better used to pre-pay a funeral.

He also asks me to help him out randomly with money, which I do. We keep a running tab of what's owed. It's a constant teeter between coming close to paying me back and then owing money to me again. The $15K is also supposed to cover the money he'd likely owe me upon death since I became a private creditor to him. That was the logic of me keeping the policy when this got turned over to me.

I get it but it seems like you're paying money monthly to pay yourself back (at his wishes). The only way anyone makes out here is if he goes early.

 

[DL1WDW2]

Have you discussed this with your father?
When he starts getting his Social Security , he could technically have enough to pay for this. It might upset him if he feels you will not receive anything . For some reason an insurance policy for this generation might be more than just should I keep or cancel.
Apparently a lifetime of marketing worked.
If I was him I would want to know I still had the policy for you.
It was not worthless to your mother and is probably worth something to your stepfather.

 

[lockets]

We just canceled our term life 20 year policies (since the term has ended and my premium went from $27 to $1500 a month).

Whoa. Ok so essentially the $27 paid a month - you do not get back.

This is why @ _19disnA is saying don't do term insurance, I think? Now I understand better.

BUT your policy was for a large insurance amount "just in case" and it was just a stopgap while you saved enough in an investment account to self-insure, right? So for $27 a month that makes sense.

 

[lockets]

I get it but it seems like you're paying money monthly to pay yourself back (at his wishes). The only way anyone makes out here is if he goes early.

You're right. And I started to realize it when I wrote the response back to you. I'm essentially paying myself back with my own money!

 

[lockets]

Have you discussed this with your father?
When he starts getting his Social Security , he could technically have enough to pay for this. It might upset him if he feels you will not receive anything . For some reason an insurance policy for this generation might be more than just should I keep or cancel.
Apparently a lifetime of marketing worked.
If I was him I would want to know I still had the policy for you.
It was not worthless to your mother and is probably worth something to your stepfather.

He told me to dump the policy years ago, but I was confused because my Mom said never dump the policy since he'd likely not qualify for one ever again in the future.

Then he literally told me that when he's dead he won't know the difference, and I could wheel him out to a corner and leave him there to be found for all he cares.

Obviously I'm not going to do that!

I'm on my own when it comes to making a rational decision about this policy