CD or life insurance policy?

Question

My grandma is turning 80 next week and has really been trying to get her affairs in order just in case. Her insurance agent is trying to get her to switch her $5000.00 CD over to a life insurance policy. I'm not sure what the reasonong is for this. We are meeting with him today and I wanted to get some input before then.

Would this be a good idea for her to do? (she does not anticipate needing this money) What would be the risks of doing so?

TIA

Answer 1

Yes, it is cheaper for a 79 year old rather than an 80 year old BUT I'll bet this is a whole life policy which is "supposed" to be an "investment".  The real investment is the salesman's (agent's) time so that he can get a big commission.    The ANNUAL premium on a 20 year term life insurance policy for a 79 year old female is about $4,300 per year. So the agent gets about $700 just to sell the policy and your Grandma gets to make another $4,300 payment next year, and the next, and the next, etc.

  While she does not anticipate needing the money, the fact remains that she MAY need it in the case of an emergency.  And if she is "trying to get her affairs in order", I have a few questions:

Will her estate be over $100,000?  It sounds like a lot but with the value of real estate and personal items, it is surprising how quickly it adds up.

If the answer is yes then she would probably be better served using that money to have an attorney and a tax advisor draw up a revocable or living trust.  With a trust, her family will avoid probate (which, in California, costs $33,000 to start for a small estate and goes up from there).  That way her estate will pass to the people she chooses without the cost or delay of probate.   When my uncle passed, his estate was settled in less than a month, with only a $750.00 attorney fee (to handle deed changes, etc.) and no probate.

  A good trust attorney, as part of her estate plan, will also draw up powers of attorney for health care and finances so that, if she becomes incapitated, her wishes are known BEFOREHAND and no one will have to guess what Grandma would have wanted.

Answer 2

My main concern here is that this agent is trying to convince you to buy something that you don't understand.  The fact that it will be more expensive next week does not tell me why your grandmother actually needs more life insurance.  It just tells me why she needs to buy it now if she actually needs it.  On the surface it looks like he is just trying to milk a little extra commission from your grandma.  

Your 79 year old grandmother with $5,000 to her name probably does not need to invest in life insurance with her $5,000.  It will probably eat up her $5,000 rather than increase it.  

If she just wants to earn a little more interest without much risk than a typical CD then she might find a fixed deferred annuity with really low fees.  Most banks and insurance agents sell these.

Answer 3

Bad idea for a 80-year old to buy life insurance.  It'll be some expensive low-payout policy with a fat commission for the sales agent.  Stay away from him.  Get financial advice from a non-commission based financial advisor, NOT an insurance agent.

Answer 4

it depends on the insurance policy. At her age the premium will be high.  she will not receive the full amount of the insurance ie: she has a face value policy of 20000. she will only receive the amount she has put in + a little interest.

If its an annuity that is a different story.  that is like a CD but worse.  the insurance company will offer higher interest rate to get you in but then later decrease it.  i personally stay away from insurance.  i don't like betting on my death.

Answer 5

Stay away from Life Insurance at your grandmas age, he will use terms like tax free transfer at death etc... they are just scare tactics to get you to buy life insurance which has huge commissions. Does your Grandma have her assets in a living trust? You may want to talk to an attorney if she is concerned about tax free transfer upon death.

A living trust is a Great tool for the transfer of assets like home, car, cash etc.. while avoiding probate.

A CD is probably her safest route at her age it gives her a better return then a regular savings account and most offer NO fees if the CD hasn't reached maturity date upon death.

Do check with your bank though.

Usually Life Insurance premiums are based on your age 6 months from now, not today. And if he is speaking the truth, the premiums are probably only a few dollars less at either age.

If I were you I would end the meeting saying that Grandma needs to speak with several other Life insurance agents before making this decision.