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Question for the Money Doctors

Question submitted on Apr 27, 2013.

Question

I am considering buying a term life insurance policy just to cover the basics of cremation and funeral costs. I am 52, have no children ,but do have a partner. I don''t have a lot of cash coming in right now and don''t have a lot of money saved due to going through bankruptcy recently. I have about $40,000 that I recently inherited. So I guess I''m wondering how to make sure I get a policy that is best suited to my basic needs without paying more then I need to. I got one quote from a Primeamerica person who said I could get a $25,ooo policy for 20 years for about $32/month. the policy would continue to pay for itself if I was disabled and wouldn''t have any rate increases during the period.
what other questions should I be asking?

Answer

You are still relatively young – chances are you will outlive a 20-year term policy, so some questions you may want to ask are:

Is the policy renewable? A renewable policy will let you extend the terms of the policy at expiration. However, the premiums will be based on your age and health at the renewal date.

You may be able to convert to a permanent policy before age 70. Again, the premiums will be based on your age and health at the time of conversion and could be very expensive.

If you outlive your policy, the Return of Premium will give back every dollar you paid in premiums. You will only receive what you paid, with 0% interest. However, this rider will increase your premium over the years covered.

If you are unable to renew, convert, or receive a return of premium when the term policy ends, then you will have paid 20 years of payments with nothing to show for it. You might be better off depositing the $32/month into a savings account. The money can be designated for funeral expenses or could be accessed in case of financial emergency.

Another option if you think life insurance is best for your situation would be to consider a non-cancelable universal life policy as the coverage can last until age 100 or later, depending on the policy design. The premiums will be more expensive than a term policy but you will have the coverage much longer as long as you pay your premium. You could also consider if $25,000 is too much coverage if your objective is basic cremation and funeral costs. Perhaps $10,000 would be more appropriate and would then make a universal policy more affordable.


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