Buy Life Expectancy Insurance
When you buy life insurance, you expect that policy will last the rest of your life, right? This was a given back in the day when whole life policies were far and away the most common. Now, though, we are seeing more policies being issued that give the purchaser increased flexibility with premium and death benefit options. While a fully guaranteed policy may be the most desirable, it will also be the most expensive. We would like to share some reasons why a fully guaranteed policy may not always make the most sense. Let’s take an example:
John and Rita, aged 70 and 75, would like to purchase a $10 million life insurance policy for estate liquidity purposes. The cost for a fully guaranteed policy is $190,000 per year. While they can afford it, the premiums are steep, and they feel it may be unnecessary to pay for guarantees through age 120 when their family history indicates they will live closer to 88. So they decide to structure a policy that lasts through ages 90 and 95 instead. Based on those new parameters, the premium drops from $190,000 per year to $90,000 per year. In the event one of them lives past the 20 years, higher additional premiums will keep the policy in force.
There are a few important considerations here:
- If they do live past the 20 years, the new premiums could be a few hundred thousand dollars per year. In this case, they can afford it, and it would take several years before the added cost catches up with the originally projected premiums of $190,000 per year.
- Twenty years from now, the beneficiaries — if they are John and Rita’s kids or other designated individuals — may be willing to pay part or all of that premium increase to keep the $10 million death benefit in place. This is especially true since the increased premium may only be needed for a few years at that point.
- The life settlement industry creates the opportunity to sell that policy in the future as a possible exit strategy, if necessary, so that those premiums don’t go to waste. In all likelihood, John and Rita would still receive a positive return on the annual premiums they paid.
There are other applications for this concept of life expectancy insurance as well. For example, you can use it to buy reasonably priced policies on your kids. Let’s say you have a 40-year-old son, you may be able to buy a fully guaranteed $1 million policy on him for $100,000. If you bought the policy to age 85 instead of 105, it may only cost $50,000. Think of the peace-of-mind you are creating for not only your kids but your grandkids, too, when you set them up with a policy like this. Regardless of what happens down the road, you will have funded a life insurance policy that gives them several options in the future.
These strategies are designed to create fairly priced estate planning solutions that take you out to life expectancy, rather than overpaying for a fully guaranteed policy. For many of us, this makes sense. Most importantly, we want you to know you have options. Contact us today at 800-DIE-RICH and let’s talk about the specifics of your situation.