Insurance needs vary at different ages


NEW YORK -- If you're a buyer of term life insurance, at some point you'll ask yourself, "What now?" Should you keep your policy, even though it's getting more expensive; should you drop it; or should you switch to permanent, cash-value insurance?

When you're young, term policies make sense. They provide your family with a big death benefit at a low out-of-pocket cost. But as you get older, term premiums rise. By your late 40s or early 50s, out-of-pocket costs are still reasonable but future costs look prohibitively high. Some term policies can't be continued past age 65 or 75, even if you can afford them.

Your insurance agent will typically urge you to switch to a cash-value policy. Its premiums will be higher than you're currently paying for term insurance, so you might have to reduce your coverage. But if properly structured, the new policy can last for life.

The question is, do you really need coverage for life? Every policyholder will answer that differently.

If your term policy was bought to ensure your children's support and education, you can cancel the coverage as soon as the kids are on their own.

Even a man whose kids won't finish school until he's 65 might find it cheaper to stick with term. At 55, a nonsmoking male in good health might pay $444 a year for a 10-year $100,000 term policy from John Alden Life, compared with $1,780 for cash-value coverage, says fee-only financial planner Michael Chasnoff of Cincinnati. If he's in good health at 65 and still needs the coverage, he can buy John Alden's 10-year term again for only $1,150 a year (these are low-load policies, with minimal sales expenses).

If the insurance protects a spouse, take a close look at whether the spouse still needs it. You can do without, if your husband or wife s self-supporting or if your pension and savings can provide an income for life. If you're building investments at a satisfactory rate, you might keep your term policy until you're 60 or 65 and cancel it then.

If you decide that term coverage indeed remains the right choice, shop for a cheaper policy every five years (as long as you remain insurable). Different insurance companies offer better rates at later ages. Three sources of competitive term-insurance quotes: SelectQuote in San Francisco, 800-343-1985; TermQuote in Dayton, Ohio, 800-444-8376; and Wholesale Insurance Network (for policies with low sales expenses) in Tampa, Fla., 800-808-5810.

Some good advice from Chasnoff: Buy term insurance that gives you the right to convert to a cash-value policy, with no medical exam, up to age 65 or even 75, should the need arise. "Some outstanding term-insurance providers have very poorly performing permanent policies to convert into," he says.

There are several good reasons to convert. Maybe you have a handicapped child who will never be able to live independently. Maybe you can't save enough to leave a dependent spouse with a decent income. Maybe you started your own business, which has tied up your assets.

You might also consider permanent coverage if you're worth significantly more than $600,000, which is when the federal estate tax kicks in. Life insurance is essential if those assets are illiquid -- for example, tied up in real estate or a small business. You need proceeds from the policy to pay the tax, so the assets won't have to be sold. If your assets are liquid, however, life insurance is optional. Your estate could pay the tax by selling some of your securities. In this circumstance, you'd buy life insurance only if you wanted to leave more money to the kids.

High-income people have yet another reason to choose cash-value coverage: They can invest spare money in their policies, tax-deferred. For this purpose, today's insurance of choice is a variable universal life policy, invested in stocks.

For the best buy, don't switch automatically to the cash-value policy of the company that previously sold you the term insurance, says John Sullivan, an insurance adviser in Roswell, Ga. Other insurers often offer better policies, especially if you're not considered a top health risk.

Jane Bryant Quinn is a syndicated author. Write her at: Newsweek, 444 Madison Ave., 18th Floor, New York, N.Y. 10022.

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