Ed Hinerman On Life Insurance

AARP Speaks Out Against Companies That Do What AARP Does!

With each new magazine or bulletin, my love/hate relationship with AARP is souring. I’m having a hard time feeling the love these days.

I got their most recent bulletin (cheaper than a magazine advertising mode) today. An article caught my eye that had to do with a 2004 regulation passed by the Equal Employment Opportunity Commission that allows employers to reduce retirement health benefits when the retiree becomes eligible for Medicare or some other government health plan.

Senior AARP attorney Laurie McCann said, “This is very scary for the future. These retirees have relied on this coverage, and they’re not in a position to get other employment or other insurance. They’re also generally not in a position to alter their savings strategies for retirement.”

Well Ms McCann, I know your job probably isn’t to monitor the ethics of those folks that write your paycheck, but I just wonder how your statements about others treatment of group benefit programs would stack up in an analysis of AARP’s life insurance program. Underwritten by New York Life, I think it would be a monstrous understatement to say “This is very scary for the future….these retirees have relied on this coverage, etc.”

Just a quick overview of AARP’s New York Life portfolio is enough to give any independent agent who is current on their ethics for elder sales continuing education a real nauseous feeling.

Their TERM INSURANCE is overpriced, the non guaranteed rates (”Premiums are not guaranteed. However, your rates may change only if they are changed for all others in the same class of insureds under this group policy. For example, a class of insureds is a group of people with the same issue age and gender.”) WILL go up every 5 years unless they raise them sooner, and the product ENDS at age 80 when most of us are just going to be reaching that age when we should be glad we have the insurance. AARP’s beginning rate for me at age 55 for $50,000 of term insurance is $74.58 a month. Remember, that goes up every 5 years until you yell Uncle and even that is . If I bought the insurance on the open market I could get $50,000 with a premium GUARANTEED level for 20 years for under $40 a month. I could get it GUARANTEED for life for $74.35 per month.

Of course they do offer you a chance to convert it to their whole life plan. If you can afford to do that, you should consider self insuring. Their whole life product guarantees that you will pay to age 95. It doesn’t guarantee what the rates are, but compared to what’s available from other companies, it starts too high. At my age 55 their permanent plan is $187.67 per month for $50,000. If I had one of their term plans and converted it to a permanent plan at age 75 it would cost me $462.58 a month based on their current NON GUARANTEED (”Premiums are not guaranteed. However, your rates may change only if they are changed for all others in the same class of insureds under this group policy. For example, a class of insureds is a group of people with the same issue age and gender.”) rates. Remember, I could have $50,000 of a GUARANTEED no lapse universal life for $74.35 a month.

Bottom line. This is no small deal. AARP claims to be the biggest advocacy group for us seniors in the country and they are knowingly ripping us off. This isn’t just an oversight. They’ve had this far too cozy relationship with New York Life forever. And in today’s bulletin I see that there is now an AARP retirement annuity offered through New York Life. Like we have anything left to put into a retirement program after buying their life insurance?

Add comment July 7th, 2008

What Happens If I Outlive My Term Insurance?

This is certainly in the top 10 questions I get from clients considering what product will best serve their life insurance needs. When I explain that a 10 or 20 year term is really not designed or priced to go beyond those guaranteed periods I usually get the stock, “So I’m betting I’m going to die and the insurance company is betting I’ll live” line.

First, let me put that line to rest. Of course the insurance company believes you’re going to live. If they didn’t, they wouldn’t issue the insurance. Try to keep the focus that term life insurance is not about whether you are going to die (because we all do eventually), but rather is there a chance that you will die prematurely? And more importantly, will you die while there is still a need for the life insurance? In spite of companies like New York Life who don’t believe there are temporary needs for life insurance, the truth is that the larger amounts of insurance in our lives aren’t covering permanent needs. We do outlive them.

So, what happens if you outlive your term insurance? Well, job well done! You’re still around and you were able to provide insurance against the possibility of your demise during those years it was most needed. And you did it in affordable way. Do you get a prize? Again, you’re still around. That’s pretty cool stuff. This is way better than car insurance where you pay the premium and if you don’t use it, all you get is a used car with no repairs.

For those who just can’t get over the idea of spending money to protect their family and not getting anything back, there is always a permanent insurance like universal life or if you agree that the need is temporary, a return of premium term insurance policy. Again, I’m not convinced that the majority of life insurance needs are permanent so we’ll leave that discussion until another time.

So, if you can afford it, having your cake and eating it too with term insurance can be done through return of premium products. It is as simple as it sounds. When you get to the end of your 15, 20 or 30 year term, you get back all the premiums you’ve paid in. Keep in mind that while this sounds attractive, it comes with a glitch. The premium you pay is much higher than what you have to pay just for the insurance. I ran quotes on a customer this morning whose $500,000, 15 year term price was $875 annually. A $500,000, 15 year return of premium policy was a little over $2900 annually.

If you can safely budget 3 times as much money, and don’t feel like you can do better investing the difference on your own, this may be a way to consider. The gentleman I was providing quotes to this morning asked why anyone would buy straight term insurance when they could be guaranteed their premium back, and the honest answer is budget. I think it is always, and especially in these economic times, very important to buy what you can safely budget.

Bottom line. There is nothing wrong with having nothing at the end of your term insurance policy. You’ve done a good job and you’re still are around to enjoy the family you’ve protected.

4 comments July 7th, 2008