Dear Quentin,
My husband and I are healthy 76-year-olds. We have only been married for 7 years after being divorced and single for many years. Both of us are retired, and we’re each receiving Social Security benefits. Neither one of us had life insurance when we got married.
About a year ago my husband enrolled in a $25,000 life-insurance plan for which we’ve consistently been paying $215 per month. It is in my husband’s name, and I’m the beneficiary. If he passes, I would receive $25,000. Should we have another life insurance policy in my name, in case I should pass first?
We don’t have savings or investments, except for my $10,000 money-market fund and his $10,000 money-market fund. What do you think would be smarter: keep the life policy and continue adding to our money markets or drop the policy, and put that $215 monthly fee into a 5% high-yield savings account?
We purchased a townhome when we got married in 2016, which is now worth $280,000. We have a mortgage balance of $80,000.
What do you recommend?
Elderly Couple
“What are your goals for this insurance policy? How much do you plan on spending on your respective funeral expenses?”
MarketWatch illustration
Dear Couple,
Your husband has already spent $3,000-plus on this life-insurance policy, which is a lot of money given the relatively modest return. The older you are when you take out a life-insurance policy, the higher the premiums will be. To put this in context, the cost of a $35,000 whole-life insurance policy — larger than what your husband can expect — would be $125 for a 50-year-old male, $174 for a 60-year-old male and $263 for a 70-year-old male.
It’s still a lot of money to spend every month when you could get a 5% annual percentage yield on a certificate of deposit or high-yield savings account. CDs attract people who are looking for a safe haven for their cash for a certain period of time; money-market funds provide more access to your cash, but may have lower rates than CDs. Rates are currently competitive, however. They typically track the federal-funds rate, which is in the 5.25% to 5.5% range.
Patricia Tobin, a certified elder law attorney based in San Rafael, Calif., and fellow of the National Academy of Elder Law Attorneys, said many seniors receive a slew of unsolicited offers for what she describes as “low-value” insurance policies in the mail, but many older Americans do indeed take them out for events like funeral and burial expenses, she said. But Tobin warns: “They can be horrendously expensive for what you get.”
What are your goals for this insurance policy? How much do you plan on spending on your respective funeral expenses? You will need to weigh up that answer, taking your current mortgage, property tax, emergency fund, Social Security benefits, and other income and expenditure into account. The average Social Security benefit for someone your age is $1,886 (or $2,116 for a male and $1,656 for a female), according to the Social Security Administration.
The cost of the average funeral currently hovers at $7,848. Nearly 30% of people told a recent Chase Mutual survey that a rise in prices has caused them to change their funeral, burial or insurance plans. There has long been a debate about funeral prices, transparency and sticker shock for grieving family members. So it makes sense to think about all of these issues ahead of time, and take the time to plan ahead.
You could also explore the option of a revocable or irrevocable funeral trust, payable-on-death accounts, and the aforementioned savings accounts. One upside for a funeral trust: the funeral and burial expense is agreed at the time of setting up the trust, which can help you save money assuming that these expenses tend to rise along with inflation. One downside: A revocable trust could affect your Medicaid eligibility.
“If you set up an irrevocable funeral trust, then you transfer control of your assets to the trust account for management by a trustee,” according to Bankrate.com. “You cannot revoke the contract or reclaim your benefits. With an irrevocable trust, the assets are locked until your beneficiaries receive the benefits upon your death. Conversely, if you set up a revocable funeral trust, you retain control of your assets and can typically make changes to your contract terms.”
I hope this helps. I wish you good health, and a continued long and happy marriage.
Readers write to me with all sorts of dilemmas.
By emailing your questions, you agree to have them published anonymously on MarketWatch. By submitting your story to Dow Jones & Co., the publisher of MarketWatch, you understand and agree that we may use your story, or versions of it, in all media and platforms, including via third parties.
The Moneyist regrets he cannot reply to questions individually.
More from Quentin Fottrell: