Do I need term life insurance or whole life insurance?
I am 63 years old and in need of insurance that is guaranteed to pay off my house when I pass. I currently have level benefit term life insurance, and am trying to find out if this is the right kind of insurance for what I need. Do I need whole life insurance instead?
Well the very simple answer is how long do you need/want life insurance for? There seems to be a very specific term you and exposure you are looking to cover. What are the cost differences of those two plans? Why do you want your house paid off when you pass? These would be the simple questions to ask yourself and to analyze in making the decision. If term does the trick that would most likely be the cheaper option. If term runs out too early for your needs than you'll be forced to go the route of the whole life or permanent type of insurance plan. That would be how I would view it and analyze this thing.
No, at 63 years old (and at most ages) it makes more sense to have term life insurance. Whole life insurance would be very expensive and would really only benefit the broker selling it to you. I don't know how much longer you have on your mortgage, but you would of course recognize that the mortgage will diminish as you make payments. You may consider two policies. One that could expire (or you stop paying) once you don't need the extra insurance and one for the length of the mortgage if available. Of course if you've been paying on your current policy for many years then it likely makes more sense to stick with what you have, but there is no harm in getting quotes to be fully informed.
Good luck to you,
Matt Ahrens, CIMA®
We need to know more in order to give you the best advice. But lets take this simple approach to have you understand basic life insurance.
If you promise to die on time, term insurance will work. But keep in mind that less then 1% of term insurance ever pays out. (industry statistic)
A universal life if funded correct or a whole life plan will last for as long as you live. Why is it inportant to you to pay off your home?
Do you have other assets you want to leave to your heirs? There are many other questions to ask you. why dont we schedule a webinar time to talk.
Brett M. Sause, LUTCF®, LTCP®, CLTC®, RFC®, LACP®, FSCP®
Principal & CEO
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Here is where this conversation gets rough. The term insurancew you have willl only last so long- before premiums start to skyrocket. Of course the longer your live the less you are likely to owe on your home.
You didn't mention how long your term insurance has level premiums. Essentially what is left on the "term". Is this longer than your mortgage? Then you should ok. Either you will pass before the mortgage is paid off, and still have the insurance. If not you may need to get another term policy- or look at Permanent insurance.
If you need to get permanent insurance - the cost is likely to be similar for Term and Universal Life. With the universal life (or whole life) you would be able get a policy that should have level premiums that will last the rest of your life.
You may want to dig into this futher with a fee-only financial planner who doesn't actually sell Life Insurance. If you are speaking with someone who is paid for selling insurance, they are likely going to recommend you buy insurance. In this case that sounds like it would likely be a new whole life policy. Doesn't mean that is the wrong choice for you, just means that you are likely getting biased advice.
Side Note: if you shop around you may be able to find Universal Life with additional coverage for things like Long Term Care of Terminal Illnesses.
A few considerations for you...
The term life insurance you have is probably the least expensive policy for the amount of death benefit it provides. So, all else equal, you should keep that policy in place.
If the term of your mortgage is longer than the term of your level premium period, you might want to add coverage for the later years. The problem, as one of my colleagues pointed out, is that as we get older (even with perfect health) life insurance gets more and more expensive. Further, if health issues arise, the cost could become prohibitive.
Some term policies have a conversion option to convert all or part of the policy to a permanent policy (without any medical examination). Check your policy to see if this is the case. If the term of your policy will expire before your mortgage is paid off, consider switching your term policy to a permanent policy. This would be much more expensive, but it might get the job done.
Consider an insurance product that has a decreasing death benefit. These policies are designed for things like mortgages that decline over time. The problem is that price competition among providers of level term insurance (like you have) might give you a benefit that does not decline for a similar price to one that does decline. If you can get more coverage for the same money, it makes sense to stay with level term.
It might not be in the budget to get coverage that would completely pay off your mortgage. If that is the case, you can either increase income (not sure this is workable - might need to think outside the box) or drop the idea of buying life insurance that would completely pay off the mortgage. If you drop the idea, make plans with family members to prepare them for what would happen if you die before the mortgage is paid off. Maybe they would sell the house. Communicating ahead of time would be far better than surprising loved ones at a time they are already grieving.
I hope these thoughts help you with your decision.