I have been a member of AAA of Missouri for about 28 years, I think. I am surprised that it has not been even longer because I am one of those people who needs a lot of help related to automobile mechanics. At times, they have hinted that I am an abuser of the emergency services, especially having locked my keys in the car so often. Since we drive quite a bit of cross country and buy used vehicles, I may have this coverage until I die.
So it was no surprise when I received my annual offer of guaranteed issue whole life insurance from AAA last week. (Karen gets upset with me because I am curious and look at every piece of junk mail that hits the mailbox.) This time I decided to take a second look at the rates and consider whether this could be a fair deal in some instances.
I am still blessed to be incredibly healthy, but what if you just got the word from your doctor that the just-discovered cancer may likely cause your death a lot earlier than you thought? Many people do not have much life insurance after retirement because they bought term insurance and invested the difference (or did not) and lost their group term life at retirement. Since only sick people convert their company benefit, the premiums are naturally quite expensive.
Let’s look at the AAA offer. At age 65, I could buy a $20,000 death benefit at $132 per month. If I die in a covered travel accident (not very likely), the benefit doubles. The key is that I could have just received that probable death sentence due to cancer or a host of other diseases and I still qualify to buy the coverage.
What is the catch? All insurance operates on statistical probabilities and this is no different. You are covered from issue, but the death benefit is limited but grows if you live longer. For the AAA policy, if you die within the first two years of coverage, your family will get all of your premiums paid plus 30% of that total amount. If you live two years and one more day, your beneficiaries will receive the entire $20,000.
Consider the numbers. $132 per month equals $1,584 or $3,168 for those two years. If you only survive for nine months, your family will receive the $1,188 you paid plus 30%, or $1,544.40. Even the extra $356.40 is much more than the 3-4 percent you are earning on your savings currently.
What if you beat the odds and live another ten years? You will have paid $15,840 total to give your family another $20,000. That is still a pretty good savings plan if you have not saved enough. Since the product is a form of whole life insurance, the premiums are guaranteed level at the $132 per month as well.
I have no financial interest in AAA, but I assume many folks are not aware of this opportunity to give their spouse or someone else an incremental financial benefit. This would especially be true if you have any debts, even a credit card balance. Other companies offer this kind of insurance also so check with your insurance agent or spend some time online to compare products.
(Past performance is no guarantee of future results. The advice is general in nature and not intended for specific situations)