Recently, I had a conversation with Tom (of course that isn't his real name – and why do publications always put an asterisk noting
that? Just state the obvious!)
regarding some life insurance. Like many
people, his hope wasn't leaving a pile of money to his son. Instead, he simply didn't want to burden his
son with any final expenses.
He had seen a commercial on TV showing life insurance can be
as low as $10/mo. So he thought that he
could get some at that low cost and would fit his needs nicely. Those advertisements typically are for 30 –
40 year olds, for smaller dollar amounts, and for short periods of time. And those sample individuals are in optimal
health.
The problem? Tom is
65. Overweight. Poor health.
And smokes like a chimney! And he
wanted the policy to last until age 85.
Conclusion? Life
insurance for Tom is not $10/mo.
With his health, age, and desired length of time, different
policies were going to cost in the high $200/mo range. By the way, if Tom wasn't overweight, his
cost would have dropped by $80 per month!
Anyway, he was shocked at what I told him. He was fully expecting the $10/mo that he saw
on TV. His inclination was to simply save
that money in a bank account. At
$200/mo, after 20 years (to age 85), he would have almost $50,000 to leave his
son.
At that point, I asked him to consider some questions:
§
What happens if he doesn't make
it to age 85?
§
How soon would he like to have
his son get the money?
§
How much money does he want to
make his son spend to get the money?
He asked me what I meant by those. Well, if Tom saves 1 month ($200) and passes
away, his son would get…$200! Would that
really help?
For the second question, life insurance is a contract and
pays directly to beneficiaries, the payout would bypass probate and within a
week or so, the son would have his check.
Lastly, Tom didn’t have a will. His estate would go through probate, and his
son would need to petition to the Probate Court to be assigned executor. The son would need to hire an estate attorney
to help with the proceedings, which can take months. Until someone is appointed, all assets are
frozen while the son would pay out of his own pocket for this expense.
Further, the amount of money the son would receive would be
reduced by whatever debts the estate owes.
The son could end up with little to nothing going through probate.
After discussing these options, life insurance didn't look
so bad. His objective is to not leave a
burden for his son, and certainly not make it difficult for the son to get the
money. In this case, the choice is
clear.
What choice would you have made?
