Shopping for life insurance can be complicated, to say the least. It’s easy to make mistakes. Here are some of the most common mistakes to avoid:
1. Not doing comparison shopping.
As with other personal financial decisions, you’ll want to conduct your research to ensure you’re making the best option. Don’t accept the first lowball offer you receive. Perhaps you can get more coverage for a lesser premium, but maybe not.
You compare mortgages, vehicle and house insurance, and even school loans, so apply the same logic to life insurance. Different providers give varying levels of coverage. There are many life insurance companies to pick from, making it easier to find one that suits your needs.
Only compare what’s available once you’ve determined exactly what you want and how much you’re willing to pay. To accurately assess your offers, make an apples-to-apples comparison.
For example, if you’re looking for $250,000 in term life insurance from one provider, be sure you’re shopping for the same type of policy from another. Otherwise, it will rapidly become perplexing.
2. Purchasing it later in life.
It makes sense to save money and postpone purchases until you have more money. That is not true of life insurance. The longer you wait, the older you will be, and the more expensive your insurance will be. These expenses will be reflected in the premiums requested by your life insurance company. Each year you get older, the more expensive a new policy becomes, so starting as soon as feasible is best.
Even if you can’t afford the coverage you desire at a younger age, having something in place is preferable to having nothing, especially when you know that waiting is not an option.
It’s best to consult with a provider if you have specific questions regarding coverage, what you qualify for, and how much you can anticipate spending. They can answer your questions and assist you in determining the most cost-effective policy for you.
3. Using an individual life insurance policy to supplement or replace a survivor annuity, such as a CSRS or FERS annuity.
This is referred to as “pension maximizing.” When a federal employee retires, they will be entitled to a lifetime pension in the form of a CSRS annuity (CSRS and CSRS Offset employees) or a FERS annuity (FERS employees). They have the option of designating one beneficiary to receive a survivor annuity in the form of a CSRS or FERS annuity. Typically, this beneficiary is the retiree’s spouse. To do so, the retiring employee must reduce their gross annuity. This reduction can be up to 10% of the retiring employee’s initial gross CSRS or FERS payout. Even if the CSRS or FERS annuity receives cost-of-living adjustments (COLAs), the reduction stays the same. When the retiree dies, the surviving spouse is entitled to up to 50% of the dead retiree’s gross annuity for the rest of the surviving spouse’s life.
The principle behind pension maximization is that instead of giving a survivor annuity, a retiring employee chooses to provide a “life only” annuity, payable only while the retiree is alive. This reduces the expense of providing a surviving annuity benefit, allowing the retiree’s CSRS or FERS lifetime annuity to be maximized. To safeguard the spouse, the retiree buys a life insurance policy for themself and names the spouse as the sole beneficiary. When the life insurance proceeds are paid out, they produce a survivor benefit and potentially greater income for the retiree’s surviving spouse.
Several factors must happen for the “pension maximization” method to work, including:
- The retiring worker must be insurable.
- Adequate life insurance coverage must be applied for and approved. In particular, sufficient life insurance proceeds must be provided when the retiree dies to cover the income needs of the surviving spouse.
- Purchasing term insurance (effective for a limited number of years) is dangerous because it is unknown when the retired employee will die. Instead, an application for a permanent or cash-value life insurance policy will be required.
Finally, CSRS or FERS annuitants who are eligible and maintain their Federal Employees Health Benefits (FEHB) in retirement must receive a CSRS or FERS survivor annuity to ensure that their spouse maintains FEHB program health benefits in retirement in the event the annuitant predeceases the spouse. Failure to provide a surviving spouse with a CSRS or FERS survivor annuity results in permanent loss of FEHB program health coverage. As a result, married federal employees are discouraged from opting for the “pension maximizing” method when they leave federal service.
Contact Information:
Email: [email protected]
Phone: 8139269909
Bio:
For over 30-years Joe Carreno of The Retirement Advantage has been a Federal Employee Retirement System specialist (FERS) as well as a Florida Retirement System specialist (FRS) independent advocate. An affiliate of PSRE (Public Sector Retirement Educators), a Federal Contractor & Registered Vendor to the Federal Government, also an affiliate of TSP Withdrawal Consultants. We will help you understand your FERS & FRS Benefits, TSP & Florida D.R.O.P. withdrawal options in detail while recognizing & maximizing all concurrent alternatives available.Our primary goal is to guide you into retirement with no regrets; safe, predictable, stable, for life. We look forward to visiting with you.
Disclosure:
Not affiliated with the U.S. Federal Government, the State of Florida, or any government agency. The firm is not engaged in the practice of law or accounting. Always consult an attorney or tax professional regarding your specific legal or tax situation. Although we make great efforts to ensure the accuracy of the information contained herein we cannot guarantee all information is correct. Any comments regarding guarantees, safe and secure investments & guaranteed income streams or similar refer only to fixed insurance and annuity products. Fixed insurance and annuity product guarantees are subject to the claimsâ€paying ability of the issuing company. Annuities are long-term products of the insurance industry designed for retirement income. They contain some limitations, including possible withdrawal charges and a market value adjustment that could affect contract values. Annuities are not FDIC insured.
