BABY BOOMERS Is life insurance the key to survival?

Making a decision on insurance takes some research.
DALLAS MORNING NEWS
As the baby boomers age, retirement planning is evolving to include a new consideration -- life insurance for age 60 and beyond.
People are living longer and having to fund a longer retirement period, but their sources of funding -- Social Security, pensions and savings -- are all under pressure. Also, many boomers plan to work well into their retirement years and may need to find an alternate source of income for spouses and dependents if they die.
So planners, insurance agents and brokers are urging even middle-income, middle-aged consumers to consider life insurance -- and there are several types to choose from.
But consumers first must size up their situations to find out if they even need life insurance.
"It's more of a block-and-tackle analysis," says Mike Cohen, head of the life group at A.M. Best Co., an insurance rating company. "Are there people who rely on you for their financial well-being? If the answer is, 'Yes, your death would be a financial problem for them,' you should have life insurance."
But insurance agents get huge commissions for selling cash-value policies -- anywhere from 50 percent to 70 percent of your first year's premiums. If you drop these policies in the first 10 or 15 years, you can face daunting charges. And such policies typically don't build up much cash for the first three to five years.
Individually based
Experts say consumers should stay focused on their individual situations.
"It all depends on what you are trying to accomplish," says Lynn McIntire, vice president and financial planner at First Horizon Financial Center. "What is your debt obligation? Would your estate have a debt obligation that you couldn't cover?"
The life insurance universe is complicated.
Term life is the most basic type. Some consumers -- and most consumer advocates -- prefer term life, which doesn't include an investment component and is meant only for short-term coverage.
"Term insurance is the appropriate choice for the vast majority of people," says Glenn Daily, a fee-only insurance consultant in New York. "It's easier to understand. It's more affordable."
Cash-value policies
Cash-value policies, on the other hand, are permanent polices that stay with you until you die. These policies double up as savings vehicles because of the cash that accumulates tax-free. You can even tap the cash for a low-interest loan.
But many people don't understand permanent insurance. It can take experts and complicated computer programs to figure these policies out. Since the premium goes to provide insurance and cash accumulation, the flow of money is hard to follow.
"It's like buying a bag of apples and oranges," says Jim Hunt, a life insurance actuary and a consultant with the Consumer Federation of America. "But you don't know what each costs and how many of each are in the bag."
Industry representatives acknowledge that cash-value life insurance can be complicated and slow to build up value. However, they focus on the value that the policies offer.
"The way we approach it is from the death-benefits standpoint," says Tom Marzoni, president of Executive Benefit Strategies, an Arlington, Texas-based executive benefits broker. "You'll always be insured for as long as you live. It has no risk, it has guaranteed returns and you have immediate use of your cash when you need it."
The buyer must decide if these benefits and these costs will work out for his or her specific situation.
"This type of policy is more appropriate for people that can afford it and need coverage for the long haul," says Tom Dwyer, a certified financial planner and certified senior adviser at Financial Design Group.
'Irrevocable choice'
Here are some of the issues older consumers are running into regarding life insurance:
People typically drop their policies after they've paid off their debts and their children have finished college. But it doesn't always make sense to drop a cash-value policy that you've had for, say, 20 or 25 years.
While you get the cash value you've built up, you can face a tax liability, and the death benefit will no longer be in effect.
First, get the policy examined by an objective third party to determine its costs, its value and its appropriateness in your life.
"People fail to understand that they make an irrevocable choice" when they surrender their policies, says Hunt, the actuary. "To surrender is to lose a fortune."
If you don't want to keep paying the premiums, you could allow the cash value nestled in the policy to pay the premiums for the remainder of your life. Or you could convert it into an annuity. But there's a price tag for every option, and you should study it.
Should you exercise your option of converting a term policy into a cash-value policy, particularly when you can do it without a medical examination?
Experts say it all hinges on need. If you don't foresee a need for insurance going forward, finish the term and move on. Invest separately in a tax-deferred 401(k) or Individual Retirement Account.
"It's silly to take life insurance as an option until you have maximized your qualified retirement plans," says Anthony de Bruyn, president and chief executive of Capital Plan Inc., a Dallas-based firm that provides, monitors and administers life insurance. "Those are the first things you load up on. Life insurance is secondary to that."