Mike’s Life Insurance Advice

Hi Eleanor,

In all the years I’ve been in this business you’re the first person who has asked me this question. I had to do a little research to answer it, and this is what I found.

Somewhere around 5,000 B.C. when the Chinese shipping industry was still quite young, it was relatively common for sailing vessels to be lost at sea. At that time most farmers in China relied on boats to transport their crops to other markets. They wisely took a simple measure that insured themselves against unexpected catastrophic situations. In order minimizes their risks and not to lose everything if the ship went down they spread their crop among a several ships.

This way if one did sink they would still be able to realize enough of a profit to feed their families and keep a roof over their heads.

In another part of the world, at another time, the people of ancient Rome wanted to insure that they would get a proper burial. Citizens who did not have enough money to ensure that they could be buried when they died joined a burial club called a “Fratre”. New members of the club had to pay an entrance fee, donate a certain amount of wine, and make monthly payments. Payments were made at monthly festivals where the members ate, drank, and performed sacrifices.

If a member did not pay their dues for six months they weren’t allowed to make a burial claim. Also those who committed suicide would be buried in a separate cemetery from others in the community. Their families couldn’t make claims for the financial assistance that was available to other members of the club.

Later, in the 13th century, the ancient Babylonians devised one of the earliest forms of insurance in recorded history. Affluent individuals offered a guarantee to merchants who shipped their goods that they would not lose any money if the ship sank. In return the merchants agreed to exchange a percentage of the value of their cargo for this protection.

Over the course of time these ideas evolved into the various insurance products that are available to almost everyone today. One thing that hasn’t changed, though, is that when people have insurance coverage their peace of mind makes it easier for them to sleep at night.

I hope this helps answer your granddaughter’s questions.

Mike

Hi Mike,

You know, I own quite a bit of life insurance and I’m happy that I do. When I was telling my family members about this my granddaughter, still always curious about everything, asked me how life insurance came into being.

Do you know anything about its history?

Thank you.

Eleanor P.

Hi Luke,

That’s a very good question. If you’re thinking of buying senior life insurance then you may be among the millions of people that have been so adversely affected by recent economic events.

Many people, both young and old, are now in some pretty precarious financial situations. They probably never would have imagined that they could have so much trouble dealing with credit card bills, car loans and unpaid mortgages in addition to their everyday costs of life, such as food and shelter.

You, like so many others, may be worried that you might not be able to pay for your children’s or your grandchildren’s future education – or even your own medical bills and, of course, there is also a cost that goes with dying.

I don’t think that most people know, but the average funeral cost more than $6,500. Social Security only provides $225. That is a pretty big difference that your loved ones will be expected to pay.

So, what can a senior citizen do to protect whatever assets they may have and yet still have enough money to take care of their final expenses?

One answer is that you can get a senior life insurance policy. There are a wide variety of affordable plans and options to choose from. You can find one that will fit your budget and give you the protection you’d like.

For example, if you are a senior citizen and you don’t want to burden your family with your final expenses then you can purchase the amount of senior life insurance that will cover the costs of your funeral and your burial. The monthly premium will likely be less than the cost of a meal at a fast food restaurant.

Even if you are fortunate enough to be able to provide your family with a substantial nest egg, the probate process will freeze your assets for between six to eighteen months. During that time your loved ones may be responsible for having to pay for your outstanding debts along with some of your other expenses.

If you decide to purchase a senior life insurance policy you will be happy to know that there aren’t any restrictions on how your beneficiaries can use the money. In most cases, they will receive these tax free funds within a couple of weeks. This money can then be used for your final expenses. This way they will not have to take anything out of their own savings or go into debt to take care of this responsibility.

It is very easy for seniors to qualify for this type of insurance. There aren’t any medical exams that need to be passed. Many online insurance companies only require that you answer some basic health questions in order to get your policy.

Mike

Hi Mike,

For a while now I’ve been seeing ads on the Internet for senior life insurance that costs as little as a dollar or two a month. I’m thinking of buying it, but before I do I was wondering – do you think this is a good investment?

Luke R.

Hi Ben,

That’s a great question. And you’re absolutely right – term insurance is actually the most affordable way to purchase substantial death benefits.

If you’re wondering if the insurance companies use a different method to calculate the cost of insurance for term instead of permanent assurance you can relax because insurers actually use exactly the same mortality tables to calculate the cost of insurance as well as the death benefits.

And, as long as the premiums for either type of policy are current and the policy is in force when the policy holder passes away, all the death benefits are income tax free.

But there is are a number of reasons why term life insurance policies cost substantially less than permanent life policies.

One reason is that a term life insurance policy will provide you coverage for a limited period of time. Often the term of coverage is for 10, 15, 20, or 30 years. The premiums you will pay for any of these terms will remain the same for the duration of your coverage.

The actual cost is based on the total cost of every year’s annual renewable term rates with an adjustment made for the time value of money. Therefore, the longer the term of the policy, the higher the premium. That’s because as people get older it is more expensive to insure them. And all of this is averaged into the cost of the premium.

However, a term insurance program could very well expire without the insurance company having to pay out any claims. That’s primarily why they are so much lower in cost.

Studies done by the insurance industry show that this is a very attractive program for them to offer because there is a very low probability that death benefit claims are made for term insurance policies. One study showed that the probability of an insurance company paying a benefit is as low as one percent.

However, because permanent life insurance programs last for “a lifetime”, at some point in time the insurance company will absolutely have to pay out death benefits.

Hope that answered your question.

Mike