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Maybe not a scam, but certainly misleading. You have probably seen the ads for senior life insurance- no physical, no health questions- no problem protecting loved ones for $9.95 per month with premium guaranteed for life as long as you are not over age age 80. What the ads don’t shout about is the $9.95 is “per unit”. Once you learn that, you need to find out what a unit of insurance represents.
What $9.95 a month will buy in terms of coverage varies by your age and the insurer. The short answer is that for an 80-year-old, $9.95 a month typically buys less than $650 in total coverage, sometimes even less. It also varies between male and female.
But there is more. The 2-Year Waiting Period. These “guaranteed acceptance” policies don’t ask health questions, but they usually won’t pay the full death benefit if you die of natural causes within the first two years. If that happens, your family typically only gets back the premiums you paid plus a small amount of interest.
To get a meaningful amount of coverage—say, $10,000 for a funeral—an 80-year-old man would need about 15 units. That would cost roughly $150 per month assuming $650 in coverage per unit.
I guess this coverage fills a need for people who have not planned ahead, but you need to proceed with eyes open.
Insurance may not be a good investment, but I see it as essential for most people as part of protecting survivors, especially spouses. I elected to retain my employer group coverage plus after investing in universal coverage for many years, I used the assets to convert to a paid up policy. Combined they will cover Connie’s basic expenses for at least two years income tax free. I sleep better knowing that.
Dick, I always wondered what the catch was for the 9.95 policies. I appreciate your explanation and am sure you helped people with it. We never know who is reading HD that might need to hear what you said.
We did what most have done here about the term insurance until our kids were gone/house paid off. I have read before about older people who have a lot of assets keeping their life insurance so that it can pay the taxes on the estate. That makes sense to me. We don’t have enough assets to do this so we will self insure for burial. Chris
We don’t have enough assets to worry about estate taxes either, but my employer group life is cheap and I used cash value in a universal policy to convert to paid up coverage. Together they will provide near instant cash for Connie to use until survivor annuities start, then what’s not needed will go to grandchildren. Should Connie predecease me the money goes to our children.
I see value in life insurance for one purpose or another at any age and under most circumstances. Assuming of course, premiums are not a burden.
Thanks for the info, but NO WAY. Insurance is Term when you are Young, but rarely needed when you are 80 years old. I dumped mine around age 65. I put that money in a S&P fund and took my chances. Life expectancy after 80 and you are expected to live another 8.4 years! Seems the S&P is a much better choice.
There is no limit to the number of marketing ideas to sell you expensive products. This is #1 with a bullet on my list of over priced insurance.
The $9.95 plans are whole life policies and there is minimal cash value until about 10 years out making the $9.95 policy one of the most expensive plans of all.
Let’s also not forget about the $1 plans for the new baby. Equally ridiculous costs for whole life insurance.
When you leave a company with a life insurance benefit, you cna convert that to whole life. If you have a medical condition that prevents you from purchasing more insurance, this might be worth it. Otherwise, you are now paying for whole life instead of the term that your employer provided. An expensive trade off.
My mother was taken in by $9.95 life insurance. Its not a scam as long as you don’t buy more extra coverage “units”. But that’s exactly what happened. Every month she was sent notices telling her that funeral costs had increased and she should buy more “units”, which she did. After two years, when we finally convinced her to cancel the plan , we found she could have saved the same amount of the insurance policy herself.
The moment I see that commercial I click off. Maybe not a total scam or illegal but borderline and certainly a bait and switch. Unfortunately they are taking advantage of those who do not understand all the fine or t and may not be in tune to what actual life insurance is.
Life insurance is one of the tools in the financial toolbox and can have excellent utility if used properly. One example is pairing a universal life policy with a life only annuity or pension. The insurance protects the annuity or pension from premature death and the tax-free lump sum gives the survivor liquidity. Planners used to call this pension max. Now it is called pension 2.0. Of course, the $9.95 per month policy is useless in this case, but a real no load policy can work very well.
Key words… “if used prperly.”
10K for a funeral? Our families, both my wife’s and mine, are way too frugal for that kind of extravagance. My plan is to be cremated, then residing in the cheapest plastic container available until my ashes are (most likely illegally) placed in the stream where the grandfather, who I was named after, resides and the other half in a tidal river near a particular rock, which is is visible at low tide, where my twin brother resides. As to a get together that is up to my wife and children if they so desire one, I myself really don’t care.
As to the insurance aspect of your article, we dropped our life insurance in our sixties when our portfolio exceeded seven figures, and our children were out of the nest.
I think I read here about how someone has a 10 year TIPS bond ladder set up that is reinvested as the bonds mature. I think this is a brilliant idea where the money stays in my control. I am planning to bring this up with our fee only advisor once we claim Social Security at 70 and plan to undergo a full review of our finances for the first time in about five years. This is partly to consider how to best set us up for moving into a CCRC somewhere around the end of the decade.
David, we had Spouse’s dad’s death recently. I wanted to let you and the others know that Stepmom has paid about $6k for a simple cremation type funeral with a 2 hour visitation followed by service the same day. We will be traveling for this next week. This does not include the dinner she is hosting at a local BBQ place after. They live in a LCOL area. Chris
I’m with you David including on the taking SS at 70 for me as the higher earner and 67 for my spouse. The only point we diverge on is I’m opting for the cheapest paper tube for my ashes. If you go with the plastic one, make sure it’s reusable for the environment’s sake. 😇
Paper tube? I didn’t even know that was an option! 👏
According to the ads $10k is the average cost of a funeral.
I hesitate to ask this, but with seven figures in assets and no need for life insurance, why delay SS to age 70? I guess the logic for many people is higher survivor benefits, but that’s where a see the value of insurance while not draining assets as much before age 70.
I’d like to hear what an advisor says about it all. 😁
Whats the present value of the premiums out till age 70?
I’m delaying as I will receive higher benefits and my wife, with her family’s history, has a good chance to live to 100+. My philosophy in delaying both of our claiming is we are essentially buying an inflation adjusted annuity.
As to draining our assets as I have written in numerous posts we have gotten through six years of retirement and our portfolio is roughly where it was when we retired, so no draining there.
Also once we claim Social Security it will cover more than our basic expenses, so at that point our significant portfolio assets are essentially play money, and most likely will continue to increase.
I’m curious, is, “our portfolio is roughly where it was when we retired,” the nominal value or real value (i .e., factoring in inflation)?
Personally, I don’t carry life insurance. It’s not that the cost is prohibitive — it’s that we simply don’t need it. Between our own resources, we can cover funeral expenses without issue, and my wife has her own portfolio to sustain her while the estate is being settled.
The idea of insurance is that everyone pays a little (in premiums) so that nobody has to pay a lot (in order to cover a catastrophic loss). If the cost of a funeral doesn’t represent a big hit to your resources, insurance isn’t necessary.
Makes sense, but why use your own resources if insurance at a good price could do the job? Are their tax advantages for insurance proceeds as there are here?
It may not be everyone’s answer, but here’s mine. On insurance my usual approach is to pay to insure against only those problems that it would really hurt financially to address using my own resources. (I think this was Jonathan’s philosophy on insurance as well.)
For example, I wouldn’t buy insurance to cover a $10k funeral, and we carry no collision insurance on our 2008 vehicle. But, if I owned a home, I’d definitely carry flood insurance, and if I were a doctor, I’d definitely carry malpractice insurance.
Why in the world does this question deserve five down arrows? Is it a game? At least have the honesty to comment and explain.
Dick,
Looks like your question was motivating…as I read your comment you are at 17 and 21 in the green 😂.
The financial logic just doesn’t add up for me. A 20-year term policy runs about $125 a month, and since I’m optimistic I’ll still be around at the end of that period, I’d essentially be spending $30,000 in total premiums to cover a $10,000 expense I could easily handle out of pocket.
The tax-free payout is the one angle that might have changed my thinking , specifically if I were worried about capital gains liability, but since spousal inheritance transfers are already tax-free, that benefit doesn’t really move the needle.
Not sure I would use term insurance at later ages. I think more of paid up policies that can’t decrease in coverage or increase in premiums. Many of our employees purchased life insurance in lieu of a survivor annuity on their pension, especially with a younger spouse. Their pension was higher and unlike the pension, if the spouse predeceased there would be a benefit for someone else.
Does life insurance play an important role in your financial plans?
The life insurance question: For me, at a youngish 55, depending on who is judging, I have several low cost term policies that were purchased at different times as our circumstances changed. One will lapse at 61 and the last will lapse at 65. The money we saved was invested and has grown quite nicely. The Missus will likely retire in the next two years, and maybe three for me.
We do not need the insurance proceeds should the worst happen, but 20 years ago, with three young children and limited assets, it helped me sleep better. I also have coverage through work.
I need to discuss with my planner what makes sense with these policies strictly from an optimization standpoint, and not simply because we would need the payout to maintain our lifestyle. Yet still, if there is the opportunity to further optimize, I’ll take it.
Precisely.
Life insurance was critical when we were younger. We had little savings, kids to support, and a mortgage.
Now the kids support themselves and we have maxed out 403(b)s and IRAs. Our first SS payment will be late summer.
Our term life insurance will end the day we leave our jobs, but we don’t need it.
What would you pay for the group term life insurance if you have the option to keep it? I pay $0.50 per $1000 of coverage.