term life insurance

The habit that costs more than protecting your family

DaveGragg Life insurance , ,

The turning point for me came when I had to fill out a health insurance application about four years ago.

Nonsmokers got better rates, therefore I became a nonsmoker.

And if I had it there, in a contract, I was going to stick to it.

Somehow the cost per pack didn’t faze me as much as the increased cost of my health insurance.

So I understand the problem. Many smokers — especially young smokers — feel fine and enjoy smoking. They can quit any time they want to. The near-certainty of future health consequences loses out to the immediate gratification of taking a drag. And the ones that don’t feel fine figure it’s too late to quit anyway.

I’m using smoking as shorthand for all nicotine users. It’s killing you, regardless of whether you smoke it, chew it or inhale it in a vapor. Image courtesy of Mister GC at FreeDigitalPhotos.net

I was in the same trap. I’d quit later, I just didn’t feel like it yet. It wasn’t until I was going to get hit with an immediate consequence that I decided to finally and permanently quit.

So just in case you need another reason to quit, I’ve got some numbers to throw at you.

And I want you to weigh those numbers against the price of protecting your family.

The first number is the obvious one. How much are you paying for cigarettes?

Missouri is one of the cheapest states to buy smokes and it’s still $5 a pack.

At half a pack a day, that’s $75 a month.

I can get most folks — even smokers — a pretty good life insurance policy for $75 a month.

Yes, I’m going to turn this into a pitch for life insurance. Protecting your family is the most important job I have. Life insurance is how I do that.

If you’re smoking a pack a day, that’s $150 a month. Depending on how old you are, we can get you an amazing policy for $150 a month. The kind that helps pay for things while you’re still alive.

Just for fun, here are some more numbers. This is how much it would cost to start a $250,000 10-year term life insurance policy for a woman throughout her lifetime, assuming she’s in average health. (BTW, I sell life insurance through Farmers, so those are the numbers I’m using here.)

A smoker is paying almost double the rate of the nonsmoker.

Why? Because she’s almost twice as likely to use the life insurance (the technical term here is “dying”).

And as she gets older, the smoking woman is more likely to develop health issues that make it harder to get life insurance.

I had a couple in my office earlier this week tell me that protecting their family was less important than their nicotine fix.

No, they didn’t actually say that. They said they couldn’t afford life insurance, but they were spending about $60 a week on cigarettes.

$60 a week? Did I hear that right?

Both the husband and wife smoke, so that’s a little less than a pack a day for each.

He probably didn't actually say this. But it's still a good quote.
He probably didn’t actually say this. But it’s still a good quote.

And no, I don’t want you to wait until you quit smoking to get life insurance. Remember, the noxious weed makes it almost twice as likely that you’re going to die, so you really do need it now.

I want you to get life insurance and quit smoking. Pay for the life insurance with the money you’d set aside for cigarettes. Once you’ve quit for a year. Really and truly quit, call me again. We can send in a nicotine questionnaire and it will reduce your life insurance premium.

Then you have life insurance and money in your pocket.

And yes, I know it’s not easy to quit smoking. Even four years later, I still have cravings — I used to be a newspaper reporter and editor. A cigarette was my excuse to to go outside and gather my thoughts before I wrote or edited. So, of course, the cravings are worse when I’m writing. (Now, for instance.)

But it’s possible. 

 

 

How much life insurance can I buy?

DaveGragg Insurance agent, Juvenile life insurance, Life insurance , , , , ,

A 71-year-old client called me a couple of days ago to talk about life insurance.

He and his wife are refinancing their house and he wasn’t sure they’d make it to see the end of the 30 years.

He and his wife are the second and third 65+ clients who wanted to talk about life insurance in the past month.

Life insurance is almost always a great idea, but we would have had a lot more options if we’d had these conversations 20 or even 10 years ago.

Let’s take a look at what would happen if you had $250 a month to spend on life insurance — it seems like a lot of money, but let’s see how much coverage you get for that money.

Similar to For the best value, get life insurance when you’re young, I’m just using premium estimates for Farmers life insurance and a non-smoker in average health, but the numbers are going to be similar regardless of where you look. And age isn’t the only consideration, but it is a large factor in answering our question, “how much life insurance can I buy?”

For a 21-year-old, $250 a month buys a crazy amount of insurance. He’d be able to get almost $4.3 million with a 10-year term (blue line). Why? Because most people live past their 31st birthday. (Even it’s a 10-year term, get life insurance when you’re young — your older self will thank you for it.

If he pays $250 for a 20-year term (red line), he’s going to get $2.1 million. With a 30-year term (orange line) he’s going to get almost $1.9 million. Again, most people live past their 51st birthday.

The green line is the line for whole life insurance. It’s dwarfed by the term policies, but $420,000 is still a whole lot of money to leave your family.

It’s not really fair to compare a whole life policy to a term policy in a chart like this — permanent policies have a lot more benefits than this chart shows — but I want to show how options dwindle as people get older.

Our hypothetical wage-earner doesn’t get as much when he’s 40, but he’s still getting a whole lot of bang for his buck. Almost $2.4 million for a 10-year term and $193,000 in whole life.

He can still get a 30-year-term life insurance when he’s 50. But he can’t at age 51 — from an insurance company’s point of view, there’s too much risk that he’s going to die before he turns 81.

The 20-year term is still an option at age 60, but not at 61.

At 70, a 10-year term is still an option, just not for the $250 a month we said we wanted to spend. A $150,000 10-year term on a 70-year-old is just under $400 a month.

That green line is still hanging around, though. Our hypothetical man can still get life insurance up to age 80, but by this time we’ve moved out of the realm of taking care of his family and into having enough money for burial expenses.

Questions? Let me know, I’m always happy to help.

You can email dgragg@farmersagent.com or call my office at 417 708 9583.

For the best value, get life insurance while you’re young

DaveGragg Life insurance ,

I’ve said it before, life insurance is an emotional decision, for you and the ones you’re leaving behind.

But let’s take a look at some cold, hard numbers for just a couple of minutes.

Let’s look at life insurance and the timing as an investment. How much does it cost versus how much does your family get when you die? Are you better off waiting to buy life insurance?

The above chart shows the rate of return on term life insurance policies for a man at three different points in his life.

(These estimates are all with Farmers New World Life, but it’s going to be a similar picture for whatever company you decide to go with).

The blue line is the rate of return for the man buying a $150,000, 30-year term policy when he’s 45 years old. So if he buys it and dies the next day, he would have spent about $100 (a single premium payment) and his family will receive $150,000 for return on investment of $149,900.

If he dies at the age of 75, he will have spent about $33,000 on life insurance and his family will receive $150,000 for a return on investment of $116,000 — a pretty nice chunk of change and a lot better ROI than anything you’ll get in the stock market.

The red line shows what would happen if the same man waited until he was 55 before he bought a $150,000 policy. Since he’s 10 years older, he can’t get a 30-year term anymore, so he buys a 20-year term that will take him to age 75.

At first glance, the return looks better, especially at first. If he dies at 56 he’ll have only spent $1,600 for the $150,000 payoff. Meanwhile the 45-year-old sucker has paid an extra $10,000 for those 10 years of coverage.

But there are some rather large caveats here: 1) It assumes he didn’t die in a car accident at age 50, in which case his family would have absolutely bubkis. 2) It also assumes he didn’t develop cancer. Or diabetes. Or high blood pressure. Or asthma. Or any number of other ailments that would make it more expensive or impossible to buy life insurance at age 55.

In addition, the better rate of return flattens out rather quickly. At age 55, the difference is $10,000. At age 75, the difference is barely $1,000.

The 65-year-old version of our example is in orange. If he dies at 66, he’s saved $16,000 over the 55-year-old version and a whopping $21,000 over the 45-year-old version.

But now he’s had an extra 20 years to die in a fiery collision or develop medical issues. He could save that $21,000, or he could spend it to make sure his family is taken care of.

Again, the better return drops to about $11,000 when he reaches age 75.

That’s a whole lot of risk to save $11,000 on a $150,000 payoff.

Please don’t think this is an excuse to not buy life insurance because you’re “too old.” In fact, the whole reason I got to thinking about it is because I have a 69-year-old client who wanted to make sure his wife was taken care of after he died.

I’ve just heard the “I’m too young for life insurance” or, “It’s OK if I wait for life insurance,” excuses a lot.

I have some more charts that talk about whole life later. Questions? Shoot me an email at dgragg@farmersagent.com