Life insurance beyond age of 60 a new factor for baby boomers

Those who work longer might need coverage

Dollars & Sense

November 16, 2003|By THE DALLAS MORNING NEWS

As the baby boomers age, retirement planning is evolving to include a new consideration - life insurance for those age 60 and beyond.

People are living longer and having to finance a longer retirement period, but their sources of income - Social Security, pensions and savings - are under pressure. Also, many boomers plan to work well into their retirement years and may need to find an alternate source of income for spouses and dependents if they die.

So planners, insurance agents and brokers are urging even middle-income, middle-age consumers to consider life insurance - and there are several types from which to choose.

But consumers first must size up their situations to find out if they even need life insurance.

"It's more of a block-and-tackle analysis," says Mike Cohen, head of the life group at A.M. Best Co., an insurance rating company. "Are there people who rely on you for their financial well-being? If the answer is, `Yes, your death would be a financial problem for them,' you should have life insurance."

But insurance agents get huge commissions for selling cash-value policies - from 50 percent to 70 percent of your first year's premiums. If you drop these policies in the first 10 or 15 years, you can face daunting charges. And such policies typically don't build up much cash for the first three to five years.

Experts say consumers should stay focused on their individual situations. "It all depends on what you are trying to accomplish," says Lynn McIntire, vice president and financial planner at First Horizon Financial Center. "What is your debt obligation? Would your estate have a debt obligation that you couldn't cover?"

The life insurance universe is complicated.

Term life is the most basic type. Some consumers - and most consumer advocates - prefer term life, which doesn't include an investment component and is meant for short-term coverage.

"Term insurance is the appropriate choice for the vast majority of people," says Glenn Daily, a fee-only insurance consultant in New York. "It's easier to understand. It's more affordable."

Cash-value policies, on the other hand, are permanent polices that stay with you until you die. These policies double as savings vehicles because of the cash that accumulates tax-free. You can tap the cash for a low-interest loan.

But many people don't understand permanent insurance. It can take experts and complicated computer programs to figure out the policies. Since the premium goes to provide insurance and cash accumulation, the flow of money is difficult to follow.

"It's like buying a bag of apples and oranges," says Jim Hunt, a life insurance actuary and a consultant with the Consumer Federation of America. "But you don't know what each costs and how many of each are in the bag."

Here are some of the issues older consumers are running into regarding life insurance:

People typically drop policies after they've paid off debts and their children finish college. But it doesn't always make sense to drop a cash-value policy that you've had for, 20 or 25 years.

While you get the cash value you've built up, you can face a tax liability, and the death benefit will no longer be in effect.

First, get the policy examined by an objective third party to determine its costs, its value and its appropriateness.

"People fail to understand that they make an irrevocable choice" when they surrender their policies, says Hunt,

If you don't want to keep paying premiums, you could allow the cash value in the policy to pay the premiums for the remainder of your life. Or you could convert it into an annuity. But there's a price tag for every option, and you should study it.

Should you exercise your option of converting a term policy into a cash-value policy, particularly when you can do it without a medical examination?

Experts say it all hinges on need. If you don't foresee a need for insurance, finish the term and move on. Invest separately in a tax-deferred 401(k) or individual retirement account.

"It's silly to take life insurance as an option until you have maximized your qualified retirement plans," says Anthony de Bruyn, president and chief executive of Capital Plan Inc., a Dallas firm that provides, monitors and administers life insurance. "Those are the first things you load up on. Life insurance is secondary."

But if you do plan to convert, the younger you are, the cheaper it will be.

Many consumers have term life insurance provided by their employers. If that's the case, find out if the policy will be valid if you get laid off. You don't want to be in a position where the company lets you go and you are uninsurable for medical reasons.

If you want to get a policy outside of the group plan, again, do it sooner rather than later.

As far as life insurance goes, it's best to buy it with expert advice. It's extremely painful to shop on your own and try to compare a term policy with a cash-value policy. Three types of professionals can help:

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