Published December 15, 2011
“The Boomer” is a column written for adults nearing retirement age and those already in their “golden years.” It will also promote reader interaction by posting e-mail responses and answering reader questions. E-mail your questions or topic ideas to email@example.com.
We’ve all received calls from life insurance agents pushing life insurance policies. They tell us we need to get coverage to protect our spouse and family in the event of our death. And while the topic isn’t a fun conversation piece--who really wants to talk about their own mortality--it’s an important topic.
Many of us boomers have life insurance plans that we purchased 20 or more years ago, but now that we are close or in retirement, our lives and financial situations are different, and our life insurance needs have evolved.
We all should review our life insurance coverage periodically to make sure the plan still provides adequate coverage. Life-changing events like a substantial increase or decrease in income or assets, a divorce, or no longer having kids in the home are also good times to assess a life insurance policy.
Kelly Campbell, CFP, principal at Campbell Wealth Management in Alexandria, Va., answered the follow questions regarding boomers and our life insurance needs.
Boomer: Unstable policy structures, volatile markets and interest rates are causing many policies to lapse without the policy owner even knowing it. Can you explain this?
Campbell: The variable life policies, which are invested in the market definitely haven't done as well as people assumed. Neither have fixed-income policies.
Many people think because they have a million-dollar policy and that it will be with them for the rest of their life because they are paying a high premium. But no one can know if they are paying enough until an inforce ledger is conducted—that will provide the current and projected values of a policy.
The important thing to keep in mind is that some of those assumptions could have been flawed, and now is time to look at whether your policy is going to be around when you or your family need it.
Boomer: Our generation is living longer. How has this affected the industry and premium prices for baby boomers?
Campbell: Because people are living longer, insurance companies are not going to have to pay out a death benefits for a longer period of time--which means that their costs will go down. Not only are people living longer, but some of the causes of death are no longer relevant.
When you buy a policy, you buy it at the rates that are based on the day you purchase it. If you bought a policy even five years ago, the mortality tables may have changed a little so maybe that death benefit cost is a little more expensive. If you bought a policy within the last couple of years do the math to see if it you should change it—alterations may bring surrender penalties. For those of us who bought coverage 10 or 20 years ago-- the internal costs are now a lot less, so you should definitely at least review it.
Boomer: Advancements in medicine have led to insurance companies offering better rates to qualified candidates. For example, The Hartford has a breast and prostate cancer program. Can you tell us more about this?
Campbell: Many insurance companies are getting better at underwriting. What they thought would kill you years ago may not be a mortality issue now. You may not be as healthy, but you are still going to be around for a lot longer. In reality, life insurance companies are only concerned about whether they have to write checks from a death benefit—now that they understand certain ailments better, they are able to underwrite these ailments more accurately.
Take cancer--a diagnosis a couple years ago used to mean a direct decline, but now it depends on the type of cancer, how long have you had it, date of last treatment and how long have you been in remission that can really make a big difference in that policy or in your insurability.
We have had clients that five years ago we couldn't get underwritten because they had some kind of health issue—now those same clients can get underwritten because a particular issue isn’t a big deal anymore.
Take smokers: some companies specialize in working with these individuals that understand the implications of lung cancer they have done their studies not just among a broad case of individuals--but a broad case of smokers. They have a much better handle on mortality rate among smokers.
The odds of a long life after being diagnosed with prostate cancer even 10 years ago were much lower than today. Because of that, some companies are specializing in that work where they take an underwriting department and they have hired not just a regular underwriting medical practicioner, but doctors that have practiced dealing with that certain ailment so they really know the implications of it. They’re making more detailed studies of how long people can live with a certain illness, and the underwriting is a lot more accurate.
Boomer: The current economic situation means more consumers should evaluate their life insurance. What is the easiest way to do that?
Campbell: I recommend people visit their agent if he or she is a broker. Some of the more captive agencies are still getting paid every time you make a premium payment. I am not saying they are not giving you good advice, but there is always that risk. Go to someone that is unbiased and looking at it from an outside standpoint--someone who would say, “you have a good policy but you would be better off doing x, y or z.”
Especially in this economy, people are worried about what is happening to their money and how much is going to be left when they die. If you are paying for all of this life insurance and don't need it, surrender it and get the cash value. In some cases, there is a market where you could sell the policy--but you have to find the right company to do that. Remember all life insurance values transfer to the beneficiary tax free. If you can buy a life insurance policy, and typically it is for pennies on the dollar compared to what it would take to just give your kids a legacy after you die, you can get insurance a lot cheaper. Because it is tax free, that might be one of the best ways to plan for their inheritance.