I’m not dying anytime soon.
We hear it all the time.
People come to us all the time asking when is the best time to buy life insurance. There is generally a cost of waiting to buy life insurance, but not always.
Though I make a living selling life insurance, you may be surprised to learn that I tell many clients that in some instances, it may be best to postpone applying for coverage.
Let’s start there…and good news…if you fall into one of the categories below, you may be done reading!
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1) A pending surgery (other than something minor or giving birth)
2) A recent illness your physician is still diagnosing
3) You’re in a waiting period due a past major health treatment (we’ll help you determine)
4) Leaving the US for an extended time period
5) Finishing pain meds or other short duration prescription. (we’ll tell you the waiting period)
6) You recently lost a lot of weight. (insurance companies factor 1/2 of it back in for a year)
7) You’re replacing a policy, and it makes sense to ride out your old one and make use of its “conversion option”
8) You’re finishing up a high risk profession or activity
Call us about these situations and other factors. We have no sales quotas. If it’s in your best interest to wait, or not buy life insurance at all, we’ll give you the same advice we give family members.
Most people calling us don’t fit in the categories above, so let’s talk about saving you money today.
For most of us, life insurance is a long term expense….similar to other types of insurance we carry. By planning ahead and knowing some “insiders secrets” for affordable life insurance, you will be able to lock in lower rates when you are young and healthy, saving yourself thousands of dollars in the long run.
The amount of life insurance you purchase should be dependent on your need for coverage, not your age. Most of the clients we work with purchase life insurance to provide a replacement income to their family or to pay off major debts like their mortgage.
Let’s face it, we don’t know when our time is going to come, and we don’t know what our health will look like in the future. If we did, life insurance probably wouldn’t exist. Be practical….Plan for the worst, hope for the best.
Let’s a look at term insurance rates for healthy males at different age bands to see the changes in price with age. Take note that rates for a healthy female are typically 20-30% lower than for their male counterparts.
Each of these rates for males are for the top health or “preferred plus” category. Please note only 5- 8% of Americans are in the top health category and health will generally decline with age
These monthly “level term” rates are guaranteed to remain the same for 30 years. (30 Year Level Term) The following listed rates are from companies rated A (Excellent) or better by A.M. Best. Learn more about A.M. Best here.
|Male, age||$100,000 Term Insurance||$250,000 Term Insurance||$500,000 of Insurance|
|60||30 Year Term N/A||30 Year N/A||30 Year N/A|
* rates are valid as of 05/2014. Life insurance rates can increase or decrease at any time.
There are 10, 15, 20, 25, and 30 year options available from top rated carriers through age 59. For men and women applying age 60 or later, we recommend looking at Guaranteed Universal Life policies. Read more about the different types of life insurance available at MSN Money.
The rates below for very healthy males are guaranteed to stay level for 20 years and are based on monthly cost. (20 Year Level Term) The rates listed are from companies that are rated A (Excellent) or better by A.M. Best.
|Age||$100,000 of Insurance||$250,000 of Insurance||$500,000 of Insurance|
|75||20 Year Term N/A||20 Year Term N/A||20 Year Term N/A|
Read this article for more sample term life insurance rates by age.
Buy Young, Pay Less
As you can see from these charts, the younger (and healthier) you acquire life insurance, the less it costs, sometimes by a significant amount. In fact, comparable policies are roughly double in cost between to people applying 5 years apart after age 40.
If you need a policy to take you to retirement age, the difference between buying $500,000 of coverage at the age of 45 vs. 50 in excellent health is about $350 dollars a year. That’s 36% more for only being 5 years older. Over 20 years that a difference of $7,000 dollars. That money could be growing in your IRA, accelerate your mortgage pay-off, or starting a 529 account for your children’s college tuition.
The vast majority of American’s want to lock in coverage at least until they reach retirement age, or perhaps a few years beyond.
For the average American, retirement age is typically 62 to 65, however, over the last few decades the average retirement age has been steadily increasing.
According to an article in US News by Emily Brandon, most men aged 40 or older don’t expect to retire until the age of 68. Read the full article here. Projecting forward, it’s probably a good idea to lock in your term policy to at least age 70. You can always cancel it if you don’t need it. Running it to age 60 or 65 could create a “risk gap”.
If you’re one of the lucky ones who may be eligible for a pension, you may want to go out further, or talk to your agent about the Term to Universal Life “conversion option” which is likely hidden in your policy.
Let’s say you want to lock in coverage until the age of 80 because the average American man lives to be 77. We can compare the difference in cost using the chart above. If you buy a 30 year level term for $500,000 of coverage when you are 50 years old, and you’re in excellent health; you will end up paying $1654.00 per year for coverage or $137.00 monthly. If you decide to wait until you are 60 to buy the same amount of insurance, you’ll see a completely different picture.
Cut Off Ages for 30 Year Term Insurance
At the age of 60, the option for a 30 year term is no longer available. You can still lock in coverage until age of 80 by purchasing a level 20 year, $500,000 policy. At the age of 60 however, the annual cost is almost 40% more at a rate of $2,620.00 per year or $218.00 per month.
You may say to yourself, “But if I wait to buy my insurance until I’m 60, I won’t pay any premiums from the age of 50 to 60.” That could be correct if you buck the trend and maintain your same mortality risk, however; even after adding the additional 10 years of premiums, the person who bought the policy at the age of 50 will still save about $3,000 over the course of the policy.
Buying Insurance While You Are Healthy Can Pay off BIG
Buying at a younger age is one consideration. Naturally, you also want to consider health. Health can change dramatically overnight, and it will affect the cost of your new policy, especially if you have a family history of cancer, heart disease, diabetes, or strokes. Even with favorable family history, as we get older we tend to have more health issues and any health issue will likely affect your rates, easily doubling over night.
These rates are illustrative, but they are actual competitive rates for the excellent or “preferred plus” category from top-rated life insurance companies. If your health declines between the ages of 50 and 60, you can easily become uninsurable. If you are insurable, you may have to pay a lot more. Again, here’s that cost of waiting.
In addition to saving money by locking in your insurance and locking in a better health category, you also want to consider income multipliers. Many of our clients believe they can buy as much life insurance as they (or their family paying for the policy) can afford, and are surprised to learn the amount of insurance you can qualify for is directly proportional to your earned income or your household income.
The reason, insurance companies do not want you to be worth more dead than alive. In other words, the insurance company will not allow someone to buy an insurance policy unless it makes financial sense to the insurance company’s underwriter.
Life insurance is designed to replace income or serve as a safety net. If you make $50,000 dollars a year and you are in your 40’s its completely reasonable to have a million dollars of life insurance.
The reason behind this logic is that you have about 20 working years left and you make about $50,000 a year. $50,000 (your current income) x 20 (working years left until retirement age) = $1,000,000. If you passed away today, your family would be out roughly $1,000,000 of income. If you were applying for a $5,000,000 dollar policy in this scenario, the insurance company would want to see at least $200,000-$250,000 of gross income each year to consider.
There are exceptions to this rule, factors like a high net worth may allow you to qualify for more insurance coverage. Please call us if you have specific questions and we can find the best company for you.
If you make about $50,000 a year and you wait until you are in you mid to late 50’s, with only 10 years of “income earning” years left, you might not qualify for more than $500,000 of coverage. In fact, most clients past the age of 70 have a hard time qualifying for more than $100,000 of coverage. However, in some cases we can get the insurance company to make an exception if it is reasonable or if the coverage is needed for a business or estate protection.
Why it’s Important to Shop the Market
Everyone’s need for insurance and health category are different, but some companies are much better with some issues than others. At JRC, we have access to over 40 top-rated life insurance companies for our clients (most call centers work with fewer than 10) and this allows us to find the company that is the best for you. Some insurers are more lenient with “income multipliers”, diabetes, weight, cancer or heart history, tobacco use….let us help by being your matchmaker. There’s no cost for our service….we’re paid by the company you choose…but if you’re looking for your best value, you need to speak to us or another agency working as your trusted advisor.
Q: When is the best age to buy life insurance?
A: At the time a loved one would suffer a financial loss by your death.
Q: Why should I spend money on life insurance now when I can just wait until I really need it?
A: If you wait until you “need” it, it’s probably too late to buy it at an affordable cost.
Q: What is the cost of waiting to buy life insurance?
A: It could be minimal…it could be significant…or you could lose the opportunity completely.
Q: Can I get affordable term life insurance without a medical exam?
A: Yes, however you’ll pay more…the cost of convenience.
We are here to help review your needs and find the most affordable policy on the market for you. If your needs change over time because of additions to your family, a new mortgage, or whatever; we are here to help you. We reach out to our client’s every year to make sure they are still getting the best deal on their life insurance and to make sure they still have the amount of insurance they need. Our company is owner operated so you know you’ll get the best customer service in the industry. Our agents have multiple years of experience with hundreds of satisfied clients.
Do you still have questions or do you want to see what your rates would be? Please feel free to call us, get a free quote, and we’ll call you at your convenience. Let us earn your business…for life.
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