Life insurance is not just for young people. Kit Antinozzi, a State Farm Life Insurance Representative at the Pat Spielman-Morris Insurance Agency, believes it is crucial for older Vermonters to carry life insurance to cover their final expenses, incidental medical expenses, and perhaps leave a small legacy for their family or a favorite charitable organization. There are a number of things you should consider when choosing and/or updating a policy.
Antinozzi recommends some of the more common life insurance policies, which include term life, universal life and whole life. Each of these policies offers unique benefits that can best address an individual’s current and future financial needs or obligations. Antinozzi describes term insurance as being a good deal because of the initial low premiums versus whole life insurance, which usually has fixed yet more expensive premiums. However, whole life, unlike term life, continually builds a cash value in addition to the face value of the policy. If you’re looking for the best of both worlds, then a universal policy may be the answer. It combines some of the best features of both the term and whole life policies.
Jim Cohen of New York Life provided the cautionary tale of a client who had purchased a 20-year term life insurance policy from another company, recognizing that premiums would rise from $500 to $5,500 in the twenty-first year. In the nineteenth year of his policy, he was diagnosed with cancer and given three years to live. Thankfully, the family found a way to pay the premiums; the man lived for another four years, and his children received his $250,000 policy. The moral, said Cohen, is you never know what you will need later in life – a permanent policy would have been safer.
According to Jack Dolan of the American Council of Life Insurers, over 300,000 Vermonters hold life insurance policies, averaging $93,000 per policy holder and totaling over $40 billion. In 2007, the last year for which statistics are available, $840 million was paid to Vermont residents from life insurance policies.
Life insurance can also be a tool for estate planning. Stephen Unsworth, Esq. of Unsworth and Barra recommends that well-to-do seniors get a policy in which heirs are assigned “the incidents of ownership” as well as being the beneficiaries. In cases such as these, the heirs are the owners of the policy and the insured annually gifts them enough money to cover the costs. The IRS allows tax-free annual gifts to individuals of up to $13,000. Unsworth said people don’t realize that the cost of life insurance has gone down as life expectancies have gone up.
Once a policy is written, you should continue to review the document periodically, paying particular attention to the beneficiary. Cohen gave the example of a man whose primary beneficiary was his late first wife. Her death negated that portion of the policy, but the secondary beneficiary was her brother who happily collected the money despite the fact that he and the insured hadn’t spoken to one another in years. The man’s children felt the money should have gone to them, but Cohen believes a lawsuit would have been useless because an insurance policy is the equivalent of a contract.
But Cohen also knows some very heart-warming stories, such as the 76 year-old woman who told him she was risk-averse but had $350,000 in a speculative market-based investment. Since other investments provided her with sufficient income to make her comfortable, he suggested putting those funds toward life insurance. By purchasing a policy with a guaranteed 10-year payout, that $350,000 (which Cohen said would have shrunk to $250,000 after taxes, assuming a flat market) turned into a minimum of $800,000 tax-free for her children.
A driver’s license and money for the deposit are the only prerequisites for a life insurance application, according to Antinozzi. Applicants can expect to be asked some standard medical questions, complete a longer health interview and a basic medical exam. Certain pre-existing conditions or family medical history can make it more expensive to obtain life insurance. However, if a pre-existing condition is under control, the condition may not be a barrier to getting insurance. If an insurer learns that a policyholder falsified his or her application, a death benefit will not be paid, but premiums will be returned to the deceased’s family. Antinozzi noted that some policies specifically designed for older people have less physical underwriting requirements, but these also have lower death benefits.
Antinozzi cautioned that aside from changing beneficiaries, seniors would do best to keep their policies intact because changes in a person’s health might adversely affect their insurance eligibility. Some life insurance policies allow for a portion of death benefit to be distributed early if the insured is terminally ill.
Unfortunately, there are insurance-based scams which prey on senior citizens. Unsworth warned that financial predators are buying insurance policies, offering far less money than the policy is worth. Unsworth noted that for someone who is informed, this might be advantageous, but frequently those who sell their policies are unaware of the ramifications, which may include taking money away from their heirs.
Antinozzi recommends working through a local agent, rather than relying on the phone or computer for insurance because the local agent can become more familiar with your needs. A change of beneficiary, for instance, can easily be done through a visit to the office, rather than a lengthy phone call to a center that is unfamiliar with the insured.
Cohen agreed, adding that part of his job is reviewing policies on an annual basis to ensure that things like beneficiaries are current. “A lot of things get forgotten,” he said. That’s where a responsible agent steps in.”