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Should I Get $50,000 ($50k) Life Insurance Policy? Probably Not!

by Scott G on April 4, 2013 · 3 comments

$50,000 ($50k) Life Insurance

$50,000 ($50k) Life Insurance

I’ve been receiving a lot of requests recently for a $50,000 term life insurance policy. Today, I want to address some misconceptions and problems with choosing this amount of coverage and recommend a better idea.

When I ask a potential client “how much life insurance are you looking for,” I often hear “$50k.” Seems like a good amount, right? This will take care of final expenses, which are approximately $7k to $20k, pay off some bills and leave a little money for the kids or grand-kids. However, due to life insurance price bands and your needs, this usually isn’t the best option. Let me explain why.

For most life insurance companies, $100k is the starting point in which term insurance is offered. One reason why they don’t go below this amount is due to cost. Life insurance underwriting can be expensive. The company has to pay for the health exam, underwriters and sometimes for acquiring medical records. So if the premium is too low or the client cancels the policy early, they may not recoup those expenses.

There are companies that offer $50k of term life insurance. However, acquiring $100k of term life or $25k to $50k of universal life will usually be a better option.

Here are the sample costs for 2013, 60-year old male;non-smoker, preferred rating class

Company $100k 10 Yr Term $50k 10 Yr Term $50k UL $25k UL
SBLI $34.10 - - -
Protective Life $34.09 - - -
Transamerica $41.91 $54.43 $114.50 $57.25
North American $42.00 - $89.05 $47.18
Genworth $47.52 $32.38 $94.86 $56.24
Banner Life $45.33 - $101.23 -

Term vs. Permanent coverage

As one gets older, especially over the age of 55, term insurance may not be the best policy. Term life is temporary, meaning at some point it will expire. Term coverage is ideal for someone who is younger and needs family protection for the next 10 to 30 years. Typically at a later stage in one’s life; the kids are grown, the house is paid down or off and the financial obligations are less than that of when you were younger.

When you are older however, needs change. Now the focus shifts from protecting your family to taking care of final expense costs. Nobody wants to leave their family with the burden associated with final expense bills. Unless you have the money set aside, you’ll need to purchase life insurance.

So which insurance should I buy? (Especially for seniors)

The downside of a term policy is that if you outlive the term period, you will be without affordable coverage when the policy expires. Also, depending on your health, a new policy may not be an option.

If you choose a permanent policy (a no-lapse guarantee Universal Life- UL for short) then the policy is guaranteed to pay out the coverage benefit regardless of how long you live, as long as you pay the premiums. Of course budget is going to be a factor as well. A permanent policy will be more expensive than its counterpart- term policy, since it is guaranteed. I recommend you weigh all your options, receive a quote for both term and universal life and work with a knowledgeable agent who can find a policy that meets your needs.

Bottom Line

Weigh all your options before choosing a life policy. As you saw above, $50k of term life will not be as economical as $100k. Also, if you are looking to cover final expense costs, you may want to consider opting for a permanent policy. This will assure that you cannot outlive the policy and will guarantee that your beneficiaries will receive the full benefit amount whenever you pass.

*Rates as of 4/04/2013. The information in this post is for informational purposes only and is not a guarantee of rates and insurability. Rates and eligibly are subject to the underwriting guidelines of the insurance companies and state in which you live.

Photo: cambodia4kidsorg

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