Are You Too Old for Permanent Life Insurance?
Universal Life Insurance Company (Photo credit: Thomas Hawk)
When is a good time to buy permanent life insurance? Some people would argue that it is best bought when you are young, or starting a family. That way, it can accumulate over the years and serve as some sort of retirement money back up. Remember that permanent life insurance usually needs at least 15 years to start showing some substantial growth, so you’re going to be holding on to that permanent life policy for several years from the date of purchase if you’re looking for positive cash value returns.
Before we begin, let’s get one thing clear: people who’ve bought permanent life insurance usually don’t buy any unless they have a need for permanent death benefit, or they are convinced that they need a savings vehicle like permanent life that offers them a guaranteed rate of return that is slow but stable. How slow is the rate of growth? This can really depend on the moods of the market at the time of purchase, and how the economy fares over the years. So here we are, looking at the typical purchase scenario for permanent insurance, and it tells us that it’s bought by young individuals or young families as a sort of combination offer to help with retirement years. So does permanent life insurance make sense if you’re older?
Some people tend to think so. Kimberly Lankford at Kiplinger writes that buying permanent life makes sense when when your term life policy is ending but your need for life insurance continues. For many older folks, savings that were meant to be used for death benefit purposes and expenses around death are getting used up earlier because life expectancy is increasing. Not only that, money that you thought you’d eventually be able to save is still being used on accounts that you may not have anticipated to be around in your 50s or 60s, like the mortgage, or helping a child out with their student loan because of their bleak job prospects.
If you missed out on signing up for permanent life insurance when you were younger, your expiring term life insurance policy will give you a chance to make up for it. Lankford points out that the tax advantages and savings component are great additions to the permanent death benefit feature of cash value policies. Of course, this doesn’t mean that there are no disadvantages to permanent life insurance. There is the glaring singular fact that it is more expensive than term life insurance. At the ages of 50 and above, you’ll be paying at least ten times more in premium as a healthy applicant, compared to the rates you’d have to pay for term life.
However, the cash value component allows your money to grow over time at a steady rate that can be considered “better performing” than other riskier ventures. You’re going to have to let your money stay put for at least 15 years though, to start seeing any positive returns on them. “From 1991 through the start of 2011, according to Blease Research, a life- insurance data provider in Easton, Pa., the annualized cash value returns for representative policies from major companies, such as Northwestern Mutual, New York Life and Thrivent, ranged from 2.62% to 4.44%”, Lankford writes. This doesn’t compare to, say, how well your money would have done in a money market fund. But compared to how the markets have been behaving, many people are coming around to the permanent life insurance style of investing. It’s slow, but it’s reliable. And when you’re older, are ready to put aside your money in savings and don’t have the stomach for risk, permanent life can be exactly the solution you’re looking for.
What some older parents also realize early enough is that permanent life allows them the option to withdraw their own accumulated savings through a line of credit allotted to them, which works out great in emergency situations especially connected with school or going to college. Knowing that you have access to that money at any time is undoubtedly a relief. As long as you put the money back (or else, it will be deducted from your death benefit), it does actually function as a savings account for emergencies!
So the next time you’re averse to trying out permanent life because you think you’re too old for it, reconsider these options and speak with your financial adviser about it. Get a life insurance quote to decide how much you need, and if plain vanilla whole life is a better option, or more complicated policies like Indexed Universal Life make sense for you and your loved ones.
Author Bio– Pat Cassidy is an industry expert on life insurance and a regular contributor to articles on various social media platforms in the field of his expertise. Having extensive knowledge of the way life insurance companies work and the underwriting processes used to calculate term life insurance quotes, Pat writes articles to help readers better understand their life insurance options.
Resources:
http://www.kiplinger.com/article/insurance/T034-C000-S002-life-insurance-after-50.html
Share this:
Category: Life Insurance
