Personal Finance After 50 For Dummies. Tyson MBA Eric

Here’s one important caveat: You must be in good health to get life insurance on your own (at a competitive price, if at all). If you have health problems, group coverage may be your best bet.

       Social Security survivor’s benefits

      Social Security can provide survivor’s benefits to your spouse and children. However, if your surviving spouse is working and earning even a modest amount of money, she’s going to receive few to no survivor’s benefits.

      Prior to reaching Social Security’s full retirement age, or FRA, your survivor’s benefits get reduced by $1 for every $2 you earn above $15,720 (the limit for 2015). This income threshold is higher if you reach FRA during the year. For example, for those reaching FRA during 2015, their Social Security benefits are reduced by $1 for each $3 they earn above $41,880 until the month in which they reach FRA. (Check out Chapter 10 for more on FRA and Social Security benefits.)

      If you or your spouse anticipate earning a low enough income to qualify for Social Security survivor’s benefits, you may want to factor them into the amount of life insurance you calculate in Table 2-1. For example, suppose your annual after-tax income is $30,000 and Social Security provides a survivor’s benefit of $12,000 annually. You calculate the annual amount of life insurance needed to replace like this: $30,000 – $12,000 = $18,000.

      

Contact the Social Security Administration (SSA) to request Form 7004, which gives you an estimate of your Social Security benefits. To contact the SSA, call 800-772-1213 or visit www.ssa.gov. You also can set up a “my Social Security” account on the Social Security website that lets you obtain updated benefits estimates, verify your earnings, and take other actions.

       Figuring out what type to buy

      When looking to buy life insurance, you basically have two choices: term life insurance and cash-value insurance. The following sections outline these two options and their differences and help you determine which may be better for your circumstance.

       Term life insurance

      Term life insurance is pure life insurance protection. It’s 100 percent life insurance protection with nothing else, and, frankly, in our opinion, it’s the way to go for the vast majority of people. Agents typically sell term life insurance as temporary coverage.

      Remember that the cost of life insurance increases as you get older. You can purchase term life insurance so that your premium steps up annually or after 5, 10, 15, or 20 years. The less frequently your premium adjusts, the higher the initial premium and its incremental increases will be.

      The advantage of a premium that locks in for, say, 10 or 20 years is that you have the security of knowing how much you’ll be paying over that time period. You also don’t need to go through medical evaluations as frequently to qualify for the lowest rate possible. Policies that adjust the premium every five to ten years offer a happy medium between price and predictability.

      

The disadvantage of a term life insurance policy with a long-term rate lock is that you pay more in the early years than you do on a policy that adjusts more frequently. Also, your life insurance needs are likely to change over time. So, you may throw money away when you dump a policy with a long-term premium guarantee before its rate is set to change.

      

Be sure that you get a policy that’s guaranteed renewable. This feature assures that the policy can’t be canceled because of poor health. Unless you expect that your life insurance needs will disappear when the policy is up for renewal, be sure to buy a life insurance policy with the guaranteed renewable feature.

       Cash-value coverage

      Cash-value coverage, also referred to as whole life insurance, combines life insurance protection with an investment account. For a given level of coverage, cash-value coverage costs substantially more than term coverage, and some of this extra money goes into a low-interest investment account for you. This coverage appeals to people who don’t like to feel that they’re wasting money on an insurance policy they hope to never use.

      Agents usually sell cash-value life insurance as permanent protection. The reality is that people who buy term insurance generally hold it as long as they have people financially dependent on them (which usually isn’t a permanent situation). People who buy cash-value insurance are more likely to hold onto their coverage until they die.

      

Insurance agents often pitch cash-value life insurance over term life insurance. Cash-value life insurance costs much more and provides fatter profits for insurance companies and commissions to the agents who sell it. So don’t be swayed to purchase this type unless you really need it.

      Cash-value life insurance can serve a purpose if you have a substantial net worth that would cause you to be subject to estate taxes. Under current tax law (which could, of course, change), you can leave up to $5.43 million – free of federal estate taxes – to your heirs. Buying a cash-value policy and placing it in an irrevocable life insurance trust allows the policy’s death benefits to pass to your heirs free of federal estate taxes.

       Choosing where to buy life insurance

      If you’re going to purchase life insurance, you need to know where to go. You can look at the following two places:

       ✓ Your local insurance agent’s office: Many local insurance agents sell life insurance, and you certainly can obtain quotes and a policy through them. As with any major purchase, it’s a good idea to shop around. Don’t get quotes from just one agent. Contact at least three. It costs you nothing to ask for a quote, and you’ll probably be surprised at the differences in premiums.

      

As we discuss earlier in this chapter, many agents prefer to sell cash-value policies because of the fatter commissions on those policies. So don’t be persuaded to purchase that type of policy if you don’t really think it’s right for you.

       ✓ An insurance agency quote service: The best of these services provide proposals from the highest-rated, lowest-cost companies available. Like other agencies, the services receive a commission if you buy a policy from them, but you’re under no obligation to do so.

      To get a quote, these services ask you your date of birth, whether you smoke, some basic health questions, and how much coverage you want. Services that are worth considering include

      • AccuQuote: www.accuquote.com; 800-442-9899

      • ReliaQuote: www.reliaquote.com; 800-940-3002

      • SelectQuote: www.selectquote.com; 800-963-8688

      • Term4Sale: www.term4sale.com

Protecting Your Employment Income: Disability Insurance

      Long-term disability (LTD) insurance replaces a portion of your lost income in the event that a disability prevents you from working either permanently or temporarily for an extended period of time. For example, you may be in an accident or develop a medical condition that keeps you from working for six months or longer. During your working years, your future income earning ability is likely your most valuable asset – far more valuable than a car or even your home. Your ability to produce income should be protected or insured.

      

Even if you don’t