The More Things Change The More They Are Not The Same

You need to notice.  Things change and old solutions may no longer be efficient.

Everything changes and so should your solutions. Except that; life is busy and change is both time consuming and inefficient. Nonetheless, it often pays well to review and revise. If you can make the time, you will find there are some fruitful areas to inspect. Take life insurance:

Back when you first took it out, paying monthly was convenient and it may be still, but paying monthly is a costly convenience. The surcharge is equivalent to an annual interest rate of about 18%. Paying annually for life insurance, (other than Universal life), disability insurance, critical illness insurance and long term care insurance will save roughly one month in twelve.

When you were young, you bought term insurance. The compelling reason then was you could afford the coverage that you required. Insurance actuaries are a clever lot. They have noticed a few things that matter to you. First, if you can pass an insurance medical, the chance of dying within ten years is minimal. Near zero. So the first ten years are cheap. But after that, the expectation is fuzzier so they are conservative. The premium for year 11 is likely 4 to 5 times greater than it was in the beginning and for renewals in year 21 and beyond it becomes “interesting.”

There are three things to review. If you are near or past year 10 and are medically sound, new insurance is a worthwhile choice. It will likely be about 60% of the year 11 premium. While you are at it, you should use the experience of having lived 10 years, and decide if the coverage is the right amount and if the policy is the right format for you. In general, term insurance is the most expensive way to deal with a permanent need. You may wish to choose some other format to cover things like estate costs or taxes at death or even a disabled child.

Possibly the original issue of your policies came with an extra premium. Maybe blood pressure issues. New coverage may be rated too, but not for sure. It could be worth your trouble to find out.

Life insurance premiums have changed radically over the years. The raw cost of insurance today for a young adult is less than 20% of what it was 60 years ago. Most of it is medically related. In the 50’s if you needed heart surgery, you were in big trouble. Today, if you have a bypass, your disability insurer will expect you to be back to work in 60 days and will wonder about the complications if you are not.

Make sure the beneficiaries make sense. Many old policies still have a former spouse as the primary beneficiary. Watch especially for group insurance and pension designations.

Last point, and not least, be sure your family or estate trustees know that you have insurance. Some policies become paid up after 20 years and if you have not paid the premiums for years, were careless with the communications from the company, or changed your address, finding it will be unlikely.

Old solutions may no longer work.  Efficiency requires a little vigilance. If you don’t want to do it, find an adviser to help you.


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Contact:  |  Follow Twitter   @DonShaughnessy

Don Shaughnessy is a retired partner in an international public accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.

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