The primary reasons people purchase life insurance in their fifties are:

1.  Family Protection

2. Business Protection

3. Estate Planning

Let’s cover each of these below in terms of how much protection you need, and which type of policy suits you the best.

 

Term Life Insurance for Family Protection

Most of our clients over 50 years old who need coverage are purchasing it because they are still working, and need to protect their wife or children from financial ruin in the event of their demise.  If we take the example of a 51 year old man who makes $70,000 per year and has a $500,000 mortgage, here’s what I would recommend.

This man will probably work another 15 to 20 years before retiring.  That’s over 1 Million dollars his wife would miss out on if he were to die unexpectedly.  In his case, I don’t normally add in the balance of the mortgage, but recommend replacing his income for at least 15 years.  This way, his wife will be able to continue paying the mortgage and other bills if he dies.

If we assume a 3% inflation, and 6% earnings on the funds, our handy life insurance calculator shows he needs approximately $865,000 to provide an annual income to his wife of $70,000 for 15 years.  So in his case, we would probably look at quotes in the $750,000 to $1 Million range.

Business Life Insurance Over  50 years Old

Another popular reason men purchase life insurance in their fifties is for business insurance needs.  The most common business insurance policies are sold for:

• Key Man Insurance – If you own a business with a key executive, board member, or salesperson who your business just could not survive without, your business should consider taking out a policy on that individual.
• Buy-Sell Agreement – Many partnership agreements mandate life insurance be taken out on each partner for a quick and easy buyout in the case of one of the partner’s passing.
• Non Qualified Deferred Compensation – Many owners set up cash value policies for themselves (executive bonus plans) and for their employees, since they are so simple to administer and to comply with ERISA.  Plus the plans can discriminate between which employees will receive the benefits.

You won’t use the life insurance calculator to determine the amount of coverage needed in the above situations.  For partnerships, the amount is typically already pre-determined in the buy-sell agreement.  In the case of key man insurance, the value of the employee or executive may be measurable, in which case 5-10X annual production is appropriate.  But in the case of a founder, director, key board member, etc., their value may be more intangible, and will depend if your company has planned for an unexpected death, has a succession plan in place, etc.

For company deferred comp plans, the level of death benefit is usually irrelevant.  Instead, a policy is usually chosen for its cash accumulation features and outlook.

If you own a business and have any of the needs above, call us at 866-662-6903

 

Estate Planning

When I refer to estate planning, I’m speaking specifically of advanced planning you may do with your attorney to provide for liquidity upon death, as well as putting a life insurance policy in place in preparation for estate taxes.We don’t typically deal with this level of planning for individuals who are in their 30′s or 40′s, as under current estate tax law, and estate is not taxable at the federal level until it is valued at over $5 million dollars, and you can imagine that very few individuals in their 30′s and 40′s have

accumulated that sort of money.  But we do get quite a lot of estate planning type cases from people over 50 years old, many of whom have done well in business or real estate.

Let’s take an example of a wealthy, 55 year old single man, who will enjoy a estate tax exclusion amount of $5 million dollars upon his death, per C. Tucker Cheadle, a renowned California trust attorney, and how life insurance can help him.  If we assume he has a net worth of $6 Million dollars, the excess $1 million above the estate exclusion amount would be taxed at a federal rate of 35%, according to Cheadle, if this man were to die.  That sort of estate would generate a $350,000 tax bill.

So our 55 year old gentleman has two choices now.  Will he allow his estate to be reduced by $350,000 upon his death?  That’s his first choice.  Or alternatively, if he is a healthy nonsmoker, he could purchase a guaranteed universal life insurance policy with a $350,000 death benefit for as little as $3,708 per year, which would generate an tax free, cash benefit of $350,000 upon his death.  (Please note most people use some sort of permanent policy for estate planning needs, rather than term life insurance).

With proper planning, even the $350,000 death benefit would be separate from his estate, effectively solving his estate tax problem.  Even if our 55 year old lives to age 85, he will have only paid $111,240 in premiums (thereby reducing his estate value by the same amount), and paying his estate tax bill for pennies on the dollar.

 

Questions for Men Age 50 and Older

Please feel free to contact us with your questions at 866-662-6903.