Life Insurance - Helpful Information

Gregory J. Cook, EA, CPA

Planning for the future of your family can involve many complex issues. Some issues may not be very evident, or as evident today as they will be five or ten years from now. Life insurance should always be one of the topics you address in financial, retirement and estate planning.

At age 49, I can tell you that shopping for life insurance after age 40 is expensive. The problem is that we usually reach our most financially productive years of life around age 35 and continue until age 55. At this stage in life you may find yourself taking on projects or ventures where you need additional life insurance protection.

If you did not over-plan for your life insurance needs when you were younger, and lock in the lower rates, you will learn what I'm talking about. At age 25 I had no idea that I would buy a multi-million dollar business at age 34. When I was 38, I didn't know that in ten years I would build a colonial style home on a five acre estate. Sometimes I think we get so involved with our day-to-day and perhaps year-to-year plans, we don't consider what we might be doing ten years down the road.

If I had planned properly, I should have over-planned my life insurance needs. Looking back, I recall a couple of clients (good friends) advising me to get more life insurance. I think at the time I shrugged it off. Why did I shrug it off? I was unmarried and couldn't see what the future held. Instead of only considering my current need for life insurance back then, I should have anticipated my future needs.

Anticipating future needs can be difficult, but when it comes to life insurance, I think this is one area you should over do things if possible. If I could go back in time, here's what I would do differently when it comes to life insurance.

First I would have bought a minimum of $1 million dollars death benefit. I would not buy just one big policy. I would buy four policies for $250,000 each. Breaking the death benefit up into separate policies would have given me the flexibility to; drop or cash out a portion easily, assign one or more individual policies to a lender, perhaps change ownership of individual life insurance policies to a trust and utilize other policy benefits in different ways on different policies (i.e., paid-up life insurance, extended term, etc.).

I would buy permanent life insurance, not term policies that expire or increase the premiums with age. I dropped a term life insurance policy this year because at the policy anniversary date, the premium became prohibitive. A lot of insurance advisors will tell you to get the cheapest coverage during the time you need it the most. Well, the time most of us will need it the most is at age 72!

The biggest cost factor I've witnessed first hand is the difference between smoker and non-smoker rates. The smoker rate was more than double the non-smoker rate for life insurance. The other factor that affects the premium of life insurance is medical problems. When we're young and healthy we take our health for granted. Blood pressure and blood sugar problems are things that happen to the other guy.

For example, I always had very good eye sight and never pictured myself needing glasses. Well at age 45 I had to get reading glasses. At first I was devastated. Luckily I have a client that is an eye surgeon. I went to him and he fixed me up with some very cool reading glasses that I enjoy (as much as that is possible).

Life insurance is one of those things that is easy to brush aside when you are younger, but it is one of the things that takes on greater importance in our more financially productive years. Anticipate your needs if you can, and if there is one thing that you "over do" in your financial planning, make it life insurance.