They said buy term and invest the rest. A true story about life’s realities.
We have all heard the radio guru’s that encourage us to buy term life insurance and invest the rest in the stock market, IRA, 401K, etc… what they aren’t telling us is the truth about what really could happen.
This is a true story about a client of mine and the names are changed but the reality is this could happen to you too. My client, Bob and his wife, Sue, were in the ministry and traveled the U.S. preaching, teaching, and singing for most of their adult life. Both of their first spouses passed away and they got married and continued to minister. They made decent money and were able to put away a modest savings for the eventual retirement they hoped to enjoy. All seemed to be going as planned, and then their life went through some changes.
She developed a medical condition that prevented her from being able to minister and sing for months at a time. He wasn’t able to go out as much due to her medical needs, doctor appointments, and helping around the home which naturally cut down on their income. He started to have some medical issues himself, which tends to happen as we get older. Ulcers, insulin dependent diabetes, and high blood pressure: any of these by themselves aren’t a problem, but combined, can be. They weren’t too worried because they had very little debt other than the home, and he had a term life insurance policy in case the unexpected happened. They would be ok, right?
Now fast forward to today: They still have the health issues and medicare has reduced the health care costs, but the truth is they have had to spend most of their savings to supplement the small social security they receive. He even had to sell his classic truck, the motorcycle, and one of the cars to pay cash for a newer car that would last them for the rest of their life, hopefully.
Unfortunately, his term policy has expired and while they can keep the policy in force, the premiums have already increased over 50% and will continue to go up each year until they can’t afford it anymore. Then what? This is where I came in. They called me and asked me to help them get life insurance to provide her the funds if he were to pass before she did.
We discussed the need for a permanent policy that would last for the rest of his life, but they decided on another term policy due to the higher cost of the permanent policy. What they wanted was a larger benefit like the original term had, but they wanted it to be effective whenever he passed and it had to be affordable! I did my preliminary interview, asking all the pertinent questions about health, medications, finances, and beneficiaries. I called the underwriters at several companies and described his conditions. They initially felt that he would be a candidate for a standard rating and at least a substandard rating of B or C. This substandard rating means the premiums are higher than normal, but allows the client to get the insurance he is looking for. We chose a company, filled out an application and ordered the paramed exam. This exam is performed at the clients home and usually requires a blood sample, urine, and blood pressure test. Then the samples are sent to the lab and the lab sends the results to the insurance company. This gives the company a much truer picture of the clients health than just answers on the application. So far so good.
We knew it would take several weeks for the insurance company to determine the rating and we really weren’t too worried about it. Then I got the email: DECLINED. What? …Why? … How can that be true? All of the normal questions I knew Bob would have and frankly, so did I. I called the underwriters and they explained how the combination of the conditions along with his age, prevented them from issuing a policy. So, even though he seemed to be in pretty good health, from the insurance company point of view, the risk was too high. Now what to do?
I called Bob and shared with him the information I had received. Of course, he was disappointed, but said he understood. Then we talked about the other options, including a smaller, simple issue, final expense policy. These policies are usually pretty easy to get, by simply filling out the application, doing a phone interview with an underwriter and letting them check the medical and prescription history. In most cases, the company will approve it within a week. The downside to these policies is the amount of death benefit is normally limited up to $20,000 and the premiums are higher than a fully underwritten policy. Bob didn’t really like the small benefit because while it would pay for the funeral, it wouldn’t be enough for Sue to live on.
So, here we are today:
- Bob and Sue are still concerned about the finances and how one will survive when the other passes away
- They are confused because they thought they were taking all the right steps with their finances and yet, the “buy term and invest the rest” mantra they heard from the radio show gurus didn’t work like they said it would
- They still don’t have a permanent plan in place and the term policy cost is continuing to go up
Could this happen to you? Absolutely! If you followed the “buy term and invest the rest” idea, you may find your finances didn’t last as long as you hoped they would. You may have found your investments didn’t perform like they did in the past and taxes and inflation have taken more than you planned on. Your medical costs have gone up and your Social Security increase wasn’t enough to keep up.
I hope this doesn’t happen to you, and you can prevent this by taking some proactive steps today. Talk with your insurance agent or financial planner and review all of your policies. You are as young and probably in as good as health as you will ever be and the time to get your family properly protected is now. The truth is, the likely hood that you would be in the same situation as Bob and Sue, go up every day you wait.
If you have any questions, please feel free to contact me to discuss your situation and we will work together to protect your family in the most efficient way possible. Your friends and family may like to read this or have questions of their own, so share this with them and they can contact me as well.
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