When is life insurance the cheapest?
That question comes up fairly often. The answer is simple. Buy it the month before you die. No matter the premium that will provide the greatest return for your estate.
Cheap is not always the best choice
Buying the month before you die contains one blemish. You might not be able to buy insurance then. Insurers are fairly competent at eliminating the people who may not live a normal lifespan.
Sometimes term insurance looks cheap. It is low priced, not cheap. All term insurance is designed to be cancelled without a claim, or to expire before the insured. People should use low priced insurance to cover large needs early in life. It is too costly to keep at ages anywhere near life expectancy.
Buying early provides two benefits
- Your estate will get a lot of money if you die too soon. Not a high probability, but worth something.
- You will not have to qualify medically for the insurance late in life.
Most people have estate needs that life insurance can solve more inexpensively than any other option. People should not overlook that aspect. An old participating policy is a valuable estate asset.
Wrong thinking leads to error
Most people see life insurance premiums as an expense. They are not.
If I have a problem that has a price to fix, is the fix the cost or is the problem the cost? Thinking about this question the wrong way leads to error. People must think about how to minimize the problem and how to provide a solution. If they see the solution as the cost, they make weaker decisions.
- Establish the amount of cash needed now if you died.
- Estimate how that need will change over the next 10 years or so. Buy options to change to another kind of insurance or maybe to add more.
- Estimate what will be needed beyond ten years. Most people can buy new insurance when the premium jumps after 10 years. But, not all. Assess how you will deal with it. Maybe 20-year term is more appropriate.
- Try to avoid thinking that asset value is the only criteria to worry about in an estate. Many estates shrink precipitously when they try to acquire liquidity to meet obligations like taxes. Most assets do not sell for full value. Some not close to that.
- Establish a budget to meet the immediate insurance needs.
- Acquire product that fits within the budget and meets the need. It is important to control the product. Bank offered creditor life insurance may or may not be there if you have a claim. It is incredibly expensive compared to individually owned product. If the problem matters, be sure you control the solution.
- Change the insurance format to meet the needs as the budget permits.
Life Insurance Works
Own life insurance because it is the least costly way to solve estate liquidity needs. No one wants it because the insured seems not to be able to win. “Like betting against the home team.”
On the other side, there are things you can do that you could not do without insurance. Owning an option on liquidity lets you invest in other things that you might have avoided because of their illiquidity.
Balance the use of cash flow.
Don Shaughnessy arranges life insurance for people who understand the value of a life insured estate. He can be reached at The Protectors Group, a large insurance, employee benefits, and investment agency in Peterborough, Ontario. In previous careers, he has been a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business.
Please be in touch if I can help you. firstname.lastname@example.org 866-285-7772