On Jul 28, 8:16 am, Bernie Cosell <ber...@fantasyfarm.com> wrote:
> I've noticed recently a lot of ads on TV pitching life insurance to old
> folks
As a general rule of thumb, life insurance of any kind makes the most sense for young, or middle-aged, breadwinners, whose families (and/or whose companies', where "key-employee" coverage is available) would be far worse off without their services if they were to die suddenly. Life insurance is generally a bad investment for older foax whose kids are grown, absent some special circumstance that makes it worthwhile in a particular case. Some families take out a "dependent child" life insurance rider on their own policy for their babies in a relatively small amount, often just enough to pay for meds and funeral expenses in case of the unthinkable, and then the kids can convert this into regular life coverage when they come of age.
Some forms of life insurance, such as credit life (the kind you pay for every month with your credit card bill, and which pays off your balance if you die) are a particularly bad investment, for at least 2 reasons: (1) you can get the same amount of coverage cheaper, or more coverage for the same outlay, with a plain ol' regular policy you get from your insurance agent instead; and (2) these policies are literally worthless if you're the kind of person who pays off your credit bills each month and don't carry a running balance, and practically worthless if you _do_ have a huge balance, since only you, not your heirs, owe that money, and thus it makes no sense for anyone but the credit card issuing company to urge you to take out life insurance WITH THE CREDIT ISSUER AS YOUR BENEFICIARY instead of a plain ol' policy giving the death benefit to your surviving relatives. But, since it does sweeten the creditors' pot in more ways than one, they certainly try to push it out the door.
I don't know about the specific policies Bernie refers to in the TV ads -- I guess I don't watch the right infomercials -- but for either or both of those reasons, it's probably not something truly worthwhile for the family of an elder person. The elder, and his or her family, would get better advice by going to sit down with their own trusted insurance agent for a review of their financial situation, and their actual insurance needs, as part of their overall financial and estate planning. Pitches for buying something like this on the basis of a TV ad are obviously directed to poorer but family-oriented old foax who are the most vulnerable to images of the destitution to which they would leave their family if they died without covering their own funerals, and leaves the same bad taste in my mouth as do TV preachers who urge old ladies to give their last pennies to support the preachers' Armani suit and BMW habits.
> Many count on this protection to help pay for final expenses, unpaid
> medical bills, outstanding loans and credit card payments.
But they shouldn't have to. Those unpaid debts, if any, are passed on to the decedent's estate, but NOT directly to the other family members. The debts have to be paid first, from the estate, before any additional money of the estate gets distributed to family, but a life insurance policy that names the intended individuals as its beneficiaries rather than the estate DOES NOT become part of the probate assets and IS NOT legally available for the creditors to claim against to pay the decedent's debts. Moreover, most states prioritize the debts owed by the estate and funeral expenses are typically the highest priority, meaning they get paid first, even if nothing is then left over to pay anything else. Decedent would be far better off, if he truly is destitute or insolvent and wants to be able to leave something behind for the family, to simply take out a plain ol' regular life insurance policy naming his loved ones as his direct beneficiaries.
> I assume that's to encourage folk to get much larger policies than they
> might need
Old foax generally don't need life insurance policies at all, except for a whole life or universal life policy that they may have taken out decades ago and which can be used as a retirement annuity, not just for the death benefit. When my last kid finished high school, I cancelled my term life policies (the ones with no cash value, that provided nothing _but_ a death benefit) and would recommend most older foax do the same.
> just to cover funeral expenses, but it got me wondering: why
> would you need insurance to cover debts?
You wouldn't.
> Surely the heirs don't have to
> cover the decedent's debts and other financial obligations?
They don't.
> [of course,
> that does make for another scenario: person near death maxes out their
> credit cards, gives all of it away as gifts, then sticks the estate with
> the CC bill].
That conceivably could happen, but really, how do you know when you're going to die? What if you live on in miserable poverty for another decade or so after maxing out your cards and being unable to pay? Not the sort of thing I think anyone would plan on purpose, even if the depressing thought of the consequences AFTER doing something that stupid might drive someone to suicide.
> I guess I don't know quite what happens with a negative-net-value estate.
> Obviously there's nothing to distribute to the heirs, but where do the
> debts and obligations go?
They disappear, if there is no money in the estate to pay them. The creditors get left holding the bag. Which is one of the reasons the creditors are spending gobs of TV advertising money to get people to take out credit life policies that truly benefit no one but the creditor.
Just my opinion, foax, but I have to call 'em the way I see 'em.
--
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Mike Jacobs
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