'Death insurance' should fit specific family needs

Dear Bruce: My husband and I, ages 54 and 51, have been paying on a universal life insurance policy for 20 years. If the interest rates stayed at 10 percent we would have a million dollars in the account by retirement age. Today, the cash value for our two different accounts is about $4,000. We feel we should get the money out and buy term insurance for 15 more years. What are your thoughts? We are both in good health and working full time. We have talked to two different agents, each telling us we should buy at least $150,000. I feel we do not need that hefty amount of coverage as our children are grown and out of the house. Our house is nearly paid for. My thought is that we should put more money in our retirement account rather than paying this extra money for life insurance. – K.R., Evansdale, Iowa

Dear K.R.: I’m not a fan of insurance being used as an investment vehicle and that’s what a universal policy is – part investment and part insurance. If interest rates had compounded at 10 percent to 12 percent, it’s very possible there would be a ton of money in the account. At today’s very small returns, in most cases, the investment portion has suffered. The question that I think has to be dealt with here is what is the reason for you to carry any life insurance – properly called “death insurance.” If you feel that either of you will require this money to fund your retirement should the other one not be there, then by all means I would consider term insurance for one or both of you. Unless there is a reason for insurance, why buy it? Many younger people buy it because they want the house paid for, the kids educated, etc. In your case these needs have already been met. Until you can determine why life insurance is required at all, why buy more?

Dear Bruce: My husband is a government employee who uses a credit card when he travels. The government will not give cash advances anymore. A trip that may cost hundreds to thousands of dollars is charged to the card, which we must then pay out of our personal funds so that it doesn’t hurt our credit rating. It takes sometimes eight weeks or more to get a reimbursement. Is this really fair? I don’t think that the media has reported this side of the story. Many people don’t have the funds to pay off the trip. – Reader, via e-mail

Dear Reader: First of all, there is no reason for debt to build up for more than a couple of months since they do reimburse you. The problem is that many people take the reimbursed funds and spend them elsewhere. That is an unfortunate habit. There are many companies that require employees to put their expenses on a credit card and then reimburse them. Oftentimes, the reimbursement takes place after either the charges kick in or would kick in unless the employer advances the money. I wish there was another way, but that is the fact of business, and it appears in government life as well.

Dear Bruce: We read your comment about carrying $1 million in liability coverage, especially with young drivers. Our insurance company and representatives said that the highest offered in California is 250/500/100 (numbers are in the thousands; the first is the capped pay out to one person / the second for total bodily injury for all people in the accident / the third for property damage), something called an “umbrella coverage” is required for $1 million or more. They also said that for the first three years of having a license, young drivers can have reduced-liability limits of 15/30/10. If they are in an accident, which goes over that end and we are sued our coverage then the umbrella kicks in above these limits. Is one of these methods what you meant by “carry $1 million?” It seems that, with California real estate prices and equity being high, people would want more than the coverage the insurance company quoted. – M.W., via e-mail

Dear M.W.: I apologize if I didn’t make it clear that the way to get the $1 million or more liability coverage is through an umbrella policy, which dovetails or meshes with your regular automobile insurance. For example, if you had $250,000 and $500,000 coverage, which means $250,000 per person, $500,000 in the aggregate for any one accident, then your umbrella would kick in at those same amounts. I cannot comment on the peculiarity of the children’s limits in California, since that is local to your state, but the overall coverage that any responsible person should have is at least an extra $1 million. It probably seems like a lot of money, but in today’s world it’s amazing how fast claims can build up.

Dear Bruce: My car was struck while legally parked in the street. The police tracked down the driver – a 20 year old who was arrested for a DWI and leaving the scene. His insurance company told me that my car was totaled.

They haven’t gotten back to me yet with their offer. I believe that I should get the cash value plus tax. The Blue Book value for my car is $2,700. I expect that they are going to try to get off as cheaply as possible. What are my rights and what should I do to be sure that I get a fair price? – R.B. Binghamton, N.Y.

Dear R.B.: Very likely the other guy’s insurance will pay, since there is clear evidence that he caused the damage. Your figures indicate that you have a relatively older automobile. There is a distinct possibility that the car is drivable, and not actually totaled as they told you, but given today’s costs, the damage – while cosmetic – will be more costly than if the car had been totaled. Perhaps you’d rather get the value in cash, but there may be a deal here where you could accept less money, for example, $2,000, and you still get to keep the car. The insurance company doesn’t want a junker and it may be that you could repair it yourself for relatively few bucks. You would have your transportation and some cash in hand.

Dear Bruce: I have been contributing to a variable universal life insurance policy based on my financial adviser’s recommendation. Recently, one of my best friends told me that these are rip-offs. However, my adviser strongly recommends them as a great way to invest money and get the life insurance coverage. I make monthly payments toward the premium and toward money invested through this program. – Reader, Moline, Ill.

Dear Reader: You refer to your “financial adviser,” but I’m wondering if their appropriate title would be “insurance salesman.” It’s my contention that variable life and other instruments are not the best way to invest one’s money. If you need life (death insurance), then term insurance is the only way to go in my view. There are some commissions involved here, and I am tempted to question the individual’s total objectivity. It may well be that they believe what they are telling you. It would not be my choice.

Dear Bruce: I’m 80 years old and am inquiring about several FDIC accounts that my wife and I have in different banks. An insurance agent wants us to invest in insurance accounts that will – guaranteed in a contract – double the interest payments we are receiving from the banks. We are not sure which way to go. We want to protect our principal. – F.V., via e-mail

Dear F.V.: The salesman you’re talking to is likely trying to persuade you to go into an annuity. Annuities return a little higher percentage rate, but oftentimes the salesman (not financial advisor) tends to exaggerate the amount of the return. I’ve never been a fan of annuities, which are nothing more than contracts between you and a company. There is a risk that the company could go broke (as has happened recently with one of the major insurance companies). This is not to say that insurance companies are financially weak, but if you go into an annuity, check the viability of the company in Standard & Poor’s and Best Guide. It is an unhappy fact that interest rates are now very, very low. Even long-term federal bonds, which are 100 percent safe, are paying historically low returns. Now is a great time to be a borrower and a poor time for savers.

Dear Bruce: During my former marriage, I obtained a whole-life insurance policy for my son and myself. At the time, the insurance agent was my ex-husband’s friend, and I thought we were doing the right thing. I’ve been paying $279 and $350, respectively, for the last 15 years. I was led to believe that I am now stuck at this point in time. My son is old enough to pay for his own coverage. Should I continue with this type of policy or take a different avenue? The face value is $25,000 for each policy. - Reader, Nashua, N.H.

Dear Reader: I’m not a fan of whole-life insurance. But now that you’ve paid in for 15 years, I would not drop it. As your son matures he will pick up obligations and the whole life policy can provide some benefits, particularly since it’s been in force for so long. You have to ask yourself why are you carrying this insurance? It may be that your need for life insurance has passed. If that’s the case you should determine what the cash value is. The best buy for life insurance is term insurance when the purpose of the insurance is to provide money after your death. I don’t view life insurance as an investment option.

Dear Bruce: I would like to find out when is the best time to start taking money from my 401(k)? I will be 65 years old in July and as of now have about $390,000 in my 401(k) and about $60,000 in EE Bonds and CDs. I know I must start withdrawing funds at 70 1/2 years of age. Would I be better off taking money now even though I do not need it? Do I have to have all my funds out at a certain age? Is there a chart out there that estimates the length of time a person is expected to live? I am now retired and drawing my Social Security in the amount of $1,415 per month. Thank you for your help. – N.S., Henderson, Nev.

Dear N.S.: You are facing a circumstance that will be discovered by millions of folks your age and a little older. Whether it is wise to start withdrawing your money prior to the mandatory 70-1/2 years of age is largely a matter of tax consequence. There is no way that you can apply a general rule to your circumstance. You must seek a competent tax accountant who is completely familiar with the nuances of your circumstance – how much you are earning, sources, etc. Until all of these things are considered, an intelligent decision is impossible to make.