What happens if I outlive my life insurance?

Ralph
00:00:00

Have you ever worried about outliving your life insurance? Hey, it's a concern that keeps many people up at night, wondering if their loved ones will be protected when they're gone. But what if I told you there are ways to ensure your family's financial security, even if that policy expires? I'm actually going through this right now as my 20-year term policy is getting ready to expire. So stay tuned today as I answered the question "What happens if I outlive my life insurance?"

Narrator
00:00:26

Welcome to the Ask Ralph podcast, where listening to an experienced financial professional with over 30 years of experience can help you make sense of confusing questions, current headlines and industry trends about taxes, small business, financial decision making, investment strategies, and even the art of proper budgeting. Ask Ralph makes the complex simple by sharing his real world knowledge from a Christian perspective with all things financial.

Now, here's your host, Ralph Estep Jr.

Ralph
00:00:55

Thank you for joining me today on the Ask Ralph show. I am so thrilled that you've chosen to give me a little bit of your time. Now, looking back at yesterday, we discussed how to use faith to rebuild your daily motivation. If you missed it, I'm going to encourage you to check it out.

Let's move right into our listener question today. And this one comes to us from Mitch. And Mitch wrote this. He said, "Dear Ralph, I'm Mitch, a 55-year-old small business owner. 20 years ago, when my kids were young, I took out a 25-year term life insurance policy to protect my family. At the time, it seemed like the right decision, and the premiums were affordable. Now with only 5 years left on my policy, I'm starting to worry. What happens if I outlive my life insurance? I'm in good health and longevity runs in my family. My mother lived to be 92. While I'm grateful for that possibility, I can't help but feel anxious about my insurance situation. My business is doing well, but it's not something my kids can easily take over. I still want to ensure my family is protected financially after I'm gone, whether that's in 5 years or even 35 years. I'm also concerned about all the premiums I've paid over the years. If I outlive my policy, was it all for nothing? The thought of starting over with a new policy at my age is daunting. I'm sure the premiums will be much higher now. Ralph, I need your guidance. How can I protect my family if I outlive my current policy? Are there options to extend or convert my existing policy? Should I be looking at other financial instruments to provide for my family in the long term? I feel like I'm at a crossroads, and I want to make the right decision that aligns both my financial needs and my faith. Your advice would be greatly appreciated. Thank you for your help."

And that was signed by Mitch. Mitch, I hear your concerns. Dude, I'm going through this right now myself about 20 years ago, actually about 7. I was thinking I got three more years left on my 20-year policy. So I'm going right through this right now. My wife and I are looking at different options. And so many people face the same concern. So today's show is all about helping you navigate that.

Before we jump into the show, let's talk about the Bible. And I always like to tie up a Bible verse into this so I'm looking for in times of uncertainty, Mitch, cause that's really what you're talking about. This is an uncertain time. I want to help you find comfort. I was looking in the Bible and I found this with this verse in the book of Jeremiah. It comes from chapter 29:11, and it says this. "For I know the plans I have for you," declares the Lord, "plans to prosper you and not to harm you, plans to give you hope and a future." And see to me, Mitch, that was really reassuring. Because I thought about, and I said, you know, in the end God has plans for us.

He's got plans for you, Mitch. He's got plans for me. He's got plans for other people listening. And I think our goal today is how can we align those plans and put those things in reality. Now, I'm going to make an assumption today that you have term life insurance. If you don't have term life insurance, if you've got a whole life policy or some kind of universal life, much of what I'm going to talk about today is not going to impact you, but I did a show a couple of weeks ago on about why you should have life insurance, and I'll put a link to that in the show notes.

And this idea of that Mitch has about what happens if I outlive my insurance, is a common situation. In fact, I remember a client I had named John. Now, John was 62 years old, and John had bought a 30-year policy. And it had just expired. Now, John was always healthy. He figured Ralph, I never expected I'd outlive my policy. And he felt like, he said, Ralph, he said to me, one day he said, Ralph, I feel like I've wasted money paying for this for 30 years. And now it was gone. It was done. And John said to me, he said, Ralph, I still want to protect my wife and kids. We sat down and we had a conversation. We had a consultation. And what we did was we looked over John's complete financial picture. We talked about coverage limits if he wanted to get a new policy. And the truth is, John's needs had changed. And I'm going to talk a lot about that today. But he still wanted to leave something. He wanted to take care of his wife. And see, I'm concerned about the same thing. And this is especially an issue with stay at home spouses. You know, one of the things my wife did, she dedicated her life to raising our kids and she takes care of me.

And she's a stay-at-home spouse. She doesn't have that career to fall back on. And John was in a similar circumstance with his wife. So when he was looking at this, he wanted to make sure that he was going to keep his financial house in order so if something happened to him, he'll protect his wife. So we sat down. John and I, we talked about what his options were. And we talked about, you know, could we convert that term policy to a permanent policy? We talked about some of the policies actually, you have the ability to switch to a whole life or universal life. And the best part of that is even without a medical exam, now, in my particular case, I'm going to share a little bit with you. When I got my term policy and like I said, I've got about 3 years left on it, my health was a lot better. I'm not in bad health now, but now I've got diabetes. I've got high blood pressure. And I'm looking to renew that, that term policy. And unfortunately, most of what I'm seeing is going to cost me more, because guess what?

I'm older. I'm 52 now. By the time this thing expires, I'm going to be close to 55. And the premiums are just a lot higher now. So that's one of the things you got to factor into this. Look at your health decline. And the truth is I'm looking at this myself with a new term policy. Guess what? I think right now I pay about; I want to don't hold me to this about $250 a month. And as I get older now, if I want to renew that or set up a new term policy, I'm probably going to be paying twice as much for the same level of policy. Now another thing we talked about when John and I met, there are some combination policies or these things called life and long-term care insurance, and they have a death benefit, and they also give you money for long-term care. So when John and I met, we sat down, and we looked at all the different options. He decided to convert a portion of his policy to a permanent policy and his particular policy had the ability to do that. And then he added a smaller term policy to that, and that gave him the coverage he needed at an affordable price. So let's talk about how do you make that decision or what are the steps to prepare for a change in life insurance because I think that's what we're really all talking about. The first thing you've got to absolutely do. You've got to review your current policy. You got to know these things. You got to know when is this thing going to expire? What are the terms? What is the term of that, is it a 20-year policy?

Is it a 25? Is it a 30? When does it expire? You also need to understand the conversion options. Is there that ability to convert that to a whole life or a universal life where to break it into pieces. I think you got to know for sure is your dates. Like I'm looking at this myself. I know I've got this November date 2027, that I've got to make a decision, either I decide to move away from life insurance, or do I go and get a new term policy? Do I look at a conversion? All those types of things. So I'm actually working with my broker right now trying to figure that out because you don't want to wait till the last minute. The second thing you've got to do is you got to assess your needs because things change. When I first got my policy, my kids were really young.

I think they were five and maybe seven years old. Well, obviously now my kids are 23 and 27. You got to ask yourself a question. How much do I actually need? And I was reading an article, and they gave some great ideas about how to assess this. And here's the way I'm going to address this. The answer to the question is, do I still need life insurance?

Here are some things you want to think about. Do you have dependents that are relying on you? You know, maybe you've got children that are still in the home. Maybe you've got grandchildren that you're taking care of. Maybe like you have in my situation where my wife is not working outside the home. You got to look at your debts.

That's why I said you got to look at your overall financial picture. If you've got a big mortgage remaining, or if you've got some debts involving, maybe you got a beach house, or maybe you got some other things going on. Another big one and actually had a conference call with a client the other day about this and that's business obligations.

Take a look at maybe you're in a business with another partner and you want to set something up so that if one partner passes away, maybe there's a life insurance policy that buys out that other partner. So that's a big component to this. Maybe you're also a person with significant wealth and that's where, and I'm not going to talk about on today's show, but that's where having life insurance can be used as a great estate planning tool if you've got significant wealth. And one of the big ones, I hadn't even thought about this. You got to really consider, maybe you've got a special needs dependent, you know, maybe you've got a child that's not going to move from the home just to the situation they're in.

They're going to be with you. And that's a beautiful thing, but you've got to plan for that because you may have to make sure you've got something in place that's going to take over that care if you're not able to do it. Now the other side of this coin is maybe you decided I don't need life insurance anymore.

So you're going to come up that with an assessment that says no. One of the key things you've got to look at here is look at the financial independence of your dependents. I know that's a bit of a play on words, but what I'm really saying here is if you've got adult children, and they're really doing well for themselves. You're not worried about are they going to be able to pay their bills? Are they going to be able to live their lives? Mine are 23 and 27 and for the most part, they're financially independent. Now could they do more? Absolutely. But it wouldn't be a complete disaster for them financially if I was to pass away and they didn't have that life insurance.

Another thing. We alluded to this a moment ago. If you've paid off all your debts, you know, if you've got a mortgage, if you don't have a mortgage, if you don't have a mortgage on your home. Maybe you don't have any debt at all. That may be a very good reason to why you don't want to have a life insurance or don't really need a life insurance policy. Another big one is retirement savings.

If you've got substantial retirement savings that maybe your spouse could tap into, your kids could tap into, maybe you're leaving them as beneficiaries, then that whole idea of that life insurance is really not necessary. And the last one, not to be least, is the one I talked about with my own wife. Look at your spouse's financial stability. For example, maybe you've got that spouse who's working, and she's got that life, or he or she got that life insurance policy through their work.

Or they've got that life insurance policy on their own, or they've got their own assets. They've got their own retirement accounts. So these are all the questions that you've got to ask yourself when you're looking at do I still need that life insurance, you know, assess your needs because everybody's situation is different, and your situation truly does change over time. Well the third thing you got to look at, we've done, we did this with my client is you got to explore your options, you know, do you have that ability to convert your policy? Some policies you could convert to a whole life or universal life, or you can convert a portion of it, so you still have something out there for life insurance. Like we did with my client.

Maybe you want to take out a new policy. Maybe your needs have changed. You don't need that half a million-dollar policy or that million-dollar life insurance policy, but maybe you need a hundred thousand dollars for final expenses. And I'll talk about that in a few minutes. And then the final thing, like I talked about with my client, John, you look at combining that life insurance with long-term care insurance. I'm not an insurance broker. I'm not even going to talk about that on today's show, but that's something to ask, something to research.

If you're getting older, maybe you want to have that combined insurance where it's partially life insurance and partially long-term care insurance. Another thing you've got to do. You've got to start saving. Because as you get older, I'm learning this myself. My broker came back to me with some premiums for the exact same amount of insurance I have now,
it's probably going to cost me twice as much. Well, why is that? Because I'm 20 years older. I've got type two diabetes; I've got high blood pressure. Now all those things are treated with medication and I'm not going to keel over tomorrow, God willing, but the insurance companies are looking at the risk you pose.

It's really that simple. If you're a risk to them, if they're looking at your health and they're saying, wow, Ralph's got type two diabetes. You know that is something that could lead him to an early death. Well, obviously it's going to cost you more for insurance. And that's why when you're, when you're thinking about this, you know, start setting up that dedicated savings account. Have that money in savings so that if you can't renew your life insurance for some reason, maybe you've had cancer. Unfortunately. Maybe you had cancer and there's a certain amount of time that has to go between when you can have a diagnosis, even if you've completely been cleared of cancer. My wife just celebrated 19 years cancer-free, and God bless her. And she went and renewed her life insurance without a problem because it had been so long. But some people, maybe they had cancer a year ago or two years ago.

There's sometimes, there's waiting limits. Another thing you got to do is build that investment portfolio for your loved ones. If you're able to do that, then the need for life insurance really dissipates and which is going to lead me to number five and that's consider alternative protection methods. You know, maybe that's a trust. Maybe that's an annuity. Or some other financial instrument that can provide for your family after you're gone. You know, one of the things that was striking to me and prepare for today's show. And I didn't even think about this till just a few hours ago when I was looking at this. Right now, the average cost of a funeral in the United States is $7,848.

Think about that for a second. Husband and wife, your husband passes away today. Do you have a $7,848 setting right now, to pay for an average cost of a funeral? And unfortunately, a lot of people will say, no. I read something the other day. I don't remember what the source was. So don't quote me on this. But 49% of the population aged 55 to 65 had zero in retirement savings. So what do they do if a husband or a wife or a child passes away and the average cost of a funeral is $7,848 and that final expenses? Anywhere from 10 to $15,000. So one of the other things, the alternative protection methods you might want to consider is buying a burial policy. Maybe you buy a $10,000 term life policy that you know, there's no medical questions, might cost you a little bit more, but it covers that what happens if you know, if your wife or your husband is faced with you pass away, what do I do now?

How do I cover these costs? Let me tell you, we went through this with my mother-in-law. Now she’s suffering from dementia. She is still in the nursing facility, but about a year ago, my wife and her sister and I, we sat down at the funeral parlor and we planned everything out. And guess what? It's about $20,000 for everything they wanted to do.

Now, we bought what's called pre-need insurance. So there was an insurance policy bought. They prepaid for everything and that way if inflation happens and the prices go up they're covered. So that may be another alternative to that traditional life insurance policy. And remember Mitch, here's the thing I want you to remember. Outliving your life insurance policy doesn't mean you wasted your money.

Think about that. You know, a lot of people say that to me, they'll be like Ralph, you've been paying on that life insurance policy, that 20-year term policy every year. But here's the thing you got to remember. Those premiums while yes, the money is gone. That's true. But think about the peace of mind that they gave you during those crucial years. When my kids were really young, I had that life insurance policy that if something happened to me, I knew they weren't going to be on the street.

I know they weren't going to have hungry bellies. They were going to be able to pay their, my wife's going to be able take care of them. She was going to be able to feed them and clothe them and all those kinds of things. So yes. Is the money gone now? Did it not build up? You know, universal life value or cash surrender value.

It didn't, that's true, but it bought me peace of mind all during the process. So that's why I did that show a few weeks ago about life insurance. And again, I'll link to that in the show notes. So I just want to do a bit of a recap here. And I think I've stressed this. Outliving your life insurance doesn't have to be a financial disaster.

It just doesn't have to be. There are other options. You've got to sit down and plan carefully and find the strategy works for you. And you can ensure your loved ones are protected. And that depends, you know, it doesn't matter how long God blesses you to live on this earth. There are ways to structure this.

So don't feel like all hope is lost. Don't be fearful, like I mentioned, what am I going to do? There are options. Now, like I said, the options may be a little bit more expensive but look at your situation and I'll talk to you about how to set up a consultation to me in just a moment but look at your situation and decide what works best for you.

Now tomorrow, we're going to be discussing another fantastic topic. And this is one somebody sent this question. I wasn't sure about it. And the question I'm going to answer tomorrow is "What is meant by surveillance pricing, and does it cost us more?" That's a fantastic look at how modern technology and that's really what we're talking about that is impacting our wallets in ways we might not expect. So you don't want to miss it. Now you might be saying Ralph, I'm listening to you today and I'm feeling overwhelmed by the complexity of this life insurance stuff, and I never realized it was so complicated. I just figured I'd buy that policy and kind of set it and forget it. Or maybe you're worried about outliving your policy like Mitch. Well, here's the deal folks.

Don't face those challenges alone. I'm here to help you navigate these waters and find a solution that can align with both your financial needs and your faith, because that's really what it is. And I will help you if you're feeling overwhelmed by your financial situation, maybe simply want to ensure you're on the right track like Mitch, he's just making sure we're okay. I would love to help you. You can schedule an appointment with me by going to askralph.com. When you get there, you're going to see a banner ad at the top. It says, "Book a call with Ralph" and I will work with you. So here's what I'm going to do. I'm going to help you move from that feeling of fear, that feeling of maybe you're living paycheck to paycheck.

Maybe you feel like you're taking three steps forward only to get shove back four. A lot of us feel that way. I want to help you achieve financial freedom and help you break free of that financial bondage. The goal is to improve your personal finance, or maybe you're saying Ralph, my personal finances are good, but my business is a wreck.

I need somebody to come in and help me organize this. I need somebody to help me grow my business. That's what I do. I've been doing this since 1994. Seems like a forever. It's over 30 years at this point. So I can help you achieve all your financial goals and how do I do that? I'll work with you to create a personalized plan that's just for you. Not some cookie cutter approach or not something, you know, go watch a TikTok video, or go watch a YouTube video and do these three steps and you'll be on the, you know, the golden shazam and you'll be on the way to financial prosper.

It doesn't work that way. Everybody's situation is different. You need somebody in your corner to make it easy for you. To make it maybe I can narrow it down for you how to get from point A to point B. I talk about this all the time on my show what is your big, hairy goal for retirement or what are your big, hairy goals to just get through the next six months or the next year?

I can help you with all those. So I'm going to encourage you, schedule an appointment today. Like I said, go to askralph.com and click on that and listen. Don't wait till it's too late. Don't wait till you're feeling, you know, absolutely overwhelmed, you can't change anything. Take action now to help secure your family's future. And remember this, my passion is to help you achieve financial success.

That's why I do what I do. I turn on this camera. I talk into this microphone. I plan these daily episodes out because that's my mission field. I want to help you live out your dreams. I want to help you grow in your faith. And I know if we can work together, and I truly mean this. If we can work together, we can master your finances from a Christian perspective.

I want to tie those two worlds together. I'm going to tie that faith and finance together. So as I always end the show, I want to encourage you to stay financially savvy and may God bless you.

Narrator
00:20:00

Thank you for joining us on the Ask Ralph podcast. And with a simple click to subscribe, we'll invite you back to our next episode. And remember, financial issues don't have to be complicated, just ask Ralph. The information contained in this episode of Ask Ralph is based on data available as of the date of its release.

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