Ages 48-54: Should we bother converting Term-to-75 to Level Term 20 policies?

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CT-Scott
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Ages 48-54: Should we bother converting Term-to-75 to Level Term 20 policies?

Post by CT-Scott » Thu May 21, 2020 10:23 am

Many years ago my wife and I purchased Life Insurance through Northwestern Mutual. We purchased "Term to Age 75" policies which have premiums that increase every year. We're currently aged 48 and 54. Within the last couple of years, we've been getting phone calls and letters from NM telling us that our rates will keep increasing and we should switch to a different type of policy to save money. Their big push is with Whole Life, and I also figured that it wouldn't be in their interest to try to "save us money", so I've largely ignored them. But here's a snippet from the letter they just sent my wife (age 54):
As you are aware, your Term to Age 75 policy increases in cost every year and expires at your age of 75. If you continue paying premiums for the next 19 years, it will cost you a total of approximately $49,167. If you were to replace this policy with a Level Term 20 policy, your cost over the next 19 years would be approximately $17,710. This would result in a cost savings to you of roughly $37,457. (These figures are not guaranteed and depend upon future dividend changes and new underwriting).
So, part of me is wondering if I should convert to the Level Term 20 policy. But I'm also thinking that we may not even need these policies at all, anymore. Our only child just graduated college. We both work (and make similar money), and have no debt, other than our mortgage. I suspect that if we were to convert to a Level Term 20 policy with NM that our premiums for the next couple of years would actually be *higher* than they are today, and that the big savings doesn't start to show up until several years out, at which point we'd be in an even better position to drop the policies altogether. It should be a relatively simple matter for me to request that they tell me what our total costs are projected to be for the next 5 years (rather than the 19 years that they used), so I'll probably go ahead and do that.

FWIW, I do anticipate that it will be tough to convince my wife that I can drop *MY* life insurance anytime soon. We do still have a sizable mortgage (~$280K) and my wife has been getting increasingly stressed about her current job and would love to quit/retire, making her/us more dependent on my salary. And she and I don't quite see eye-to-eye on the purpose of life insurance, and how long someone needs to continue having it. If she were to die before I did, I'd continue to pay our mortgage while looking to sell the house and downsize ASAP, whereas if I died before her, her current mindset (which I've been trying to change) would likely be to pay off the mortgage with the life insurance proceeds.

In addition to inquiring about the cost comparison "5 years out", I'll probably give serious consideration to having her cancel her life insurance policies within the next year or two, so we'd at least save some money there. I may also look into getting some quotes from other companies for policies for me, but I suspect I may not be able to save much now, as I'm not in the greatest shape and I now (compared to when I first got this policy) have incidents of cancer and cancer-related deaths on my side of the family.

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simplesimon
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Re: Ages 48-54: Should we bother converting Term-to-75 to Level Term 20 policies?

Post by simplesimon » Thu May 21, 2020 10:50 am

What would be the benefit of sticking with NW if you were to make this change? It sounds like she'd still go through medical underwriting?

What options are available to you elsewhere? Check term4sale.com and look at different terms.

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Re: Ages 48-54: Should we bother converting Term-to-75 to Level Term 20 policies?

Post by Jack FFR1846 » Thu May 21, 2020 10:53 am

I would think that except for the "except for the mortgage" part of your statement, you'd have no need for life insurance at all at this point. So you'd save 100% of the premium by simply cancelling.
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Re: Ages 48-54: Should we bother converting Term-to-75 to Level Term 20 policies?

Post by Ben Mathew » Thu May 21, 2020 11:25 am

Depending on how much you have saved up, you might not need the insurance and could let it lapse. You and your wife could do a "what if I die" scenarios and work out how the other would manage financially. If you decide you do still need insurance, then go to term4sale.com and see what level term policies for 5, 10, or 15 years will cost. 20 years takes the younger spouse to age 68 is probably too long.

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Re: Ages 48-54: Should we bother converting Term-to-75 to Level Term 20 policies?

Post by GeoMetry » Thu May 21, 2020 12:49 pm

Life insurance should be purchased for a known purpose. If the purpose is to pay off the house if you die then a mortgage life insurance policy is designed for that specifically. It may not require a medical exam. Because the balance is going down and inflation a mortgage insurance policy is the efficient correct tool for that job. If you need to replace an income stream look for the correct tool for that. It could be life insurance. I could be disability insurance if you don't die but can't work. The amount of life insurance should be enough to purchase an SPIA (single premium immediate annuity) that pays the amount needed for the required period of time. Your surviving spouse with the help of a good financial adviser can decide after your death if she should buy the annuity or just spend the money.

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Re: Ages 48-54: Should we bother converting Term-to-75 to Level Term 20 policies?

Post by BruDude » Thu May 21, 2020 1:59 pm

NWM isn't really competitive for term life insurance. As someone else said, start checking rates at term4sale.com and you will probably find that to be the case. There is really no reason to stick with NWM if purchasing a new policy unless you feel some sense of loyalty to your agent if they are a friend.

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Re: Ages 48-54: Should we bother converting Term-to-75 to Level Term 20 policies?

Post by Stinky » Thu May 21, 2020 7:07 pm

It sounds to me like you have two questions to answer.

The first is how much life insurance you need. If you decide to get insurance to cover your mortgage, you might want to buy $250-$300k for a level term period of 10-15 years. You can figure out what amount and term work for you.

The second is where to buy the insurance. I agree with BruDude to check out places beyond NW Mutual. I suggest Zander.com or term4sale.com. You should be able to get a much lower rate than quoted by NWM.
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GeoMetry
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Re: Ages 48-54: Should we bother converting Term-to-75 to Level Term 20 policies?

Post by GeoMetry » Thu May 21, 2020 8:23 pm

Match the insurance to the need. If your wife is worried about the loss of your income, the first question is how much longer are you going to work if you don't die? Lets say 10 years for this example. If you make $100K a year you might think you need a million dollars of life insurance, but life insurance payouts are not taxed so right off the bat you only need $800K. In addition that amount will go down each year by $80K so you would want to buy Decreasing Term Insurance. Decreasing Term Insurance is much less expensive because as you get older and at greater risk of death the payout goes down so there is less risk to the insurance company. And lastly your surviving spouse can buy an annuity with the life insurance proceeds so she will have some mortality credits as well which will reduce the cost even further. Level Term Insurance is the wrong tool for the risks you identified.

As I said in my earlier post Mortgage Live insurance is the tool you need if you want to pay off the house in the event you die before it is paid off.

One last point, if all your income is replaced your surviving spouse should have enough income to continue making the mortgage payments and conversely if the mortgage is paid off the portion of your income used to pay the mortgage does not need to be replaced.

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Re: Ages 48-54: Should we bother converting Term-to-75 to Level Term 20 policies?

Post by BruDude » Thu May 21, 2020 8:45 pm

GeoMetry wrote:
Thu May 21, 2020 8:23 pm
Match the insurance to the need. If your wife is worried about the loss of your income, the first question is how much longer are you going to work if you don't die? Lets say 10 years for this example. If you make $100K a year you might think you need a million dollars of life insurance, but life insurance payouts are not taxed so right off the bat you only need $800K. In addition that amount will go down each year by $80K so you would want to buy Decreasing Term Insurance. Decreasing Term Insurance is much less expensive because as you get older and at greater risk of death the payout goes down so there is less risk to the insurance company. And lastly your surviving spouse can buy an annuity with the life insurance proceeds so she will have some mortality credits as well which will reduce the cost even further. Level Term Insurance is the wrong tool for the risks you identified.

As I said in my earlier post Mortgage Live insurance is the tool you need if you want to pay off the house in the event you die before it is paid off.

One last point, if all your income is replaced your surviving spouse should have enough income to continue making the mortgage payments and conversely if the mortgage is paid off the portion of your income used to pay the mortgage does not need to be replaced.
Decreasing term insurance doesn't really exist anymore, and it's usually not less expensive than the best regular term rates. "Mortgage life insurance" is just regular life insurance with a different name, and can be a level benefit or decreasing. There are so few companies that sell decreasing term that the rates just aren't competitive.

Why would someone want to pay a level premium for a decreasing benefit and have zero flexibility? If you want to reduce the death benefit, just pick a company that lets you reduce it every year as many times as you want, like Prudential. That way you have control over it instead of being forced into it.

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