How Much Life Insurance Is Enough?
Question: I have been thinking of changing my life insurance policy to one that’s less expensive. Presently I have a supplemental life insurance policy from the California Correctional Peace Officers Assn., of which I am a member due to my past employment. They said this is the only one I qualified for due to my retirement status. The policy is for $17,500 and I pay $13.15 a month. They told me the face amount decreases as I get older, and the monthly premiums stay the same.
I feel that this is not a very good policy, and there are no dividends either. I have just sent for information on two policies I have seen advertised on TV. Both are advertised by well-known people and both are for $6.25 a month. I have been told that these are also bad policies.--R.L.
Answer: I didn’t include the names you mentioned of the two personalities advertising these policies, because there is quite a battalion of them all doing the same thing, and they all have the same expertise in life insurance that I have in nuclear fission. To mention two of the half dozen or so engaged in this selling frenzy might imply that the others have more validity.
As far as Robert Hunter, president of the Alexandria, Va.-based National Insurance Consumer Organization is concerned, “I have yet to see one of the TV specials that I consider any good at all.”
There are a few points almost universally glossed over in these sales pitches, Hunter adds. First, he points out, most have (commonly) a two-year waiting period before they pay any benefits. If you die before then, your heirs get back only the premiums you paid. Second, that bargain-basement price of $6.25 is usually for a “unit,” and a unit normally translates to about $1,200 of coverage.
Once signed up, the mail barrage is likely to begin to sign you up for additional units--commonly, again, five units--which means that you are paying $31.25 a month for $6,000 of coverage. That premium is far more than you are now paying for almost three times the coverage. And third, like your present policy, most TV specials are also decreasing term.
“At some cut-off point,” Hunter says of decreasing-term insurance, “the $1,200 unit starts shrinking, and, by age 80 or so, there are no benefits left. So, you can’t die in the first two years, and you can’t live too long, either.”
As in the case of any life insurance policy taken out later in life--at retirement age, for instance, which seems to be your situation--”the fundamental question to ask yourself,” Hunter says, “is, ‘Do I really need any life insurance?’ If you have some retirement benefits and if you have Social Security and if the children are grown, then chances are good you don’t need it.
“Dependents,” he continued, “are really the key. If they aren’t grown, or if you have a handicapped child, then you can put it in a different light. Otherwise, most people need only enough life insurance to take care of final expenses.”
