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Mailbag Monday: Life Insurance at Age 68

iStock_000016108788SmallI am 68 and I need life insurance. Should I purchase whole life or term insurance? I have a granddaughter, two great children and I would like to leave a financial gift for them.

— Amy

Amy, that is such a nice thought.  I’m sure that your children and grandchildren will be so grateful — especially when college tuition time rolls around.  If you’re a regular reader of this blog, you know that for most purposes, I recommend term life — it’s less expensive and therefore the best way for most people to get as much as they need.  However, as the name suggests, it terminates, which means the death benefit may no longer be in place when you die. Term life policies get pricier as you age (whole life policies do as well), but the hope is that by the time you get into your retirement years, you’ll have saved enough so that you no longer need it.

I also believe that in most cases, you buy life insurance when you need life insurance, which means when there are dependents who would struggle without your income or financial support.  Some people also buy a smallish policy to cover their final expenses — because their passing will create a financial burden for others. By these definitions, you don’t really need life insurance — and I don’t think you particularly want it, either.

In order to leave this gift for your grandkids and great grandkids, I would think about how you believe they will use the money.  If it’s for college, I’d make a contribution (or stream of contributions) to a 529 college savings account for their benefits.  There’s a big benefit as far as expenses are concerned.  With a 529, particularly if you select a low-cost plan, like those that invest primarily in index funds (you can compare plans at savingforcollege.com) almost all of the money will be working for those kids.  With a whole life policy, particularly in the first few years you hold it, a huge share of the money typically goes to commissions. If the money is not for college but  for some other use, look into a Uniformed Gift to Minors Account (just understand, they’ll be able to use the money for whatever they want when they become adults).

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