My mother in law recently retired and was approached by a life insurance salesman who pressured her to “take care of her family when the time came.” But for a senior on a fixed income, is life insurance a good idea?
The cost of life insurance for someone over 65 can be quite high, since the chances that person will pass away are substantially higher than those of a younger person. But even if the senior can afford it, the real question seems to be whether it is necessary for the benefit of the beneficiaries, especially if they are the children of that senior. At that point in their lives, most children are no longer dependents, but are self-sufficient and don’t need for their parents to carry a financial burden to ensure their future.
But many senior parents, despite the change in relationship with their children, maintain a sense of responsibility for their welfare. When offered a chance to do something for their kids, especially when that something is wrapped in the right language, they will take it, no matter what the cost is to them.
In my mother in law’s case, we were able to talk her out of spending nearly $200 per month for the insurance—money that could be better spent on living expenses, travel or even gifts for the grandkids—but it was surprisingly difficult. Mom still felt as though it was her role to make sure we, and her other children, were provided for.
It may be a good idea to review all the insurance policies your parents own to determine whether they are an accurate reflection of the actual needs of both them, and their families. If you decide life insurance is a good option, you might want to shop around using an online life insurance brokerage that can compare multiple rates.
Some general rules when looking for insurance:
- Get All Insurance Proposals in Writing
- Don’t Feel Pressured. If your insurance agent is making you feel pressured to make a decision then maybe you need to find a new agent.
- Understand First, Sign Later. Don’t ever sign something you have not read and understand.
- Know Who You Are With. Make sure the insurance agent, broker and insurance company are properly licensed—you can contact your state insurance commissioner to find out who is licensed in your state.
- Obtain Full Disclosures. Ask for a full disclosure of all information relating to the benefits and possible negative consequences if you replace your existing annuity.
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The last ten years of my Professional Engineering career was concentrated in Project Management, with primary emphasis on two advanced facets of Project Management, Monitor and Control and Risk Management. Within Risk Management, insurance is a major component, though it is considered a last resort option.
I had not properly transferred that professional knowledge of insurance utilization to my personal life. Ten years ago I was wasting $4,000.00 per year on life insurance, and found that I had no reason to have any life insurance.
The last seven working years, as I phased into retirement, I was in Financial Services. The education gained during that time was of far greater value than the business that I owned. I had projected that, had I worked until 65, I would have gained an additional $250,000.00 in net worth by surrendering all my life insurance, and properly investing the money recovered. That is what I did, and that was a major first step to enabling me to retire comfortably. Having recently cashed out my pension, which would have annuitized, I am finally free from all life insurance products.
Take it from someone who has been trained and licensed in life insurance, variable contracts, and in securities, there is absolutely no justification for a retired person purchasing life insurance. Life insurance is most valuable for a young growing family. Life insurance has only one rational purpose, that of income protection. Only if there are people, other than yourself, who are dependent on your income, should you even consider life insurance. Even then, the only form of life insurance that should be considered is the original form, called term life insurance. A retired person has no earned income, therefore no reason for life insurance.
Most of what is sold as Life Insurance is called cash-value insurance, under numerous names such as Whole Life and Universal Life. These products were developed by the Life Insurance companies for the sole purpose of making insurance agents and insurance companies rich. They claim to combine insurance and investment, but perform miserably in both areas.
The other common insurance product is annuities, which include pensions. Annuities have a valuable benefit for someone who is in the highest tax bracket, and also receives a very large cash reward, because they can reduce tax burden. Most annuities are sold as though they are investments, and they also make insurance agents very rich. To consider an annuity you must expect to be earning high levels of income for another 10-12 years, during which annuities generally provide no return on investment, and they should never be annuitized, or paid out as a monthly income.
A scam that we have written about on this blog was Viaticals, which are also a life insurance product. The term has a legitimate usage, but what my wife’s parents were sold was clearly “Senior Abuse.”