The Real Deal on AARP Life Insurance – Rates & Secrets Exposed

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The American Association of Retired Persons (AARP) is an advocacy group for senior.AARP’s Wikepedia page says it was formed by Leonard Davis & Dr. Ethel Percy Andrus back in 1958. They serve those aged 50+ and their spouses.

One of the ways they raise funds is by selling insurance. They do this by accepting bids from insurance companies to sell their life insurance products to AARP members. AARP makes more money from this activity than they do from member dues.

Today New York Life is the top bidder in the category of life insurance, and all AARP life insurance products are really New York Life products. We will continue to refer to these as AARP life insurance, but New York life insurance is equally correct.

The first AARP life insurance partner was Colonial Penn. This relationship ended when a scandal erupted following a “60 Minute’s” expose by Andy Rooney showing AARP to be nothing but a front for the insurance company.

Prudential Life became the new AARP life insurance underwriter, then New York Life. We can be pretty sure that when some other life insurance company outbids New York Life, there will be yet another AARP life insurance partner.

AARP life insurance products are typically of the typereferred to as“burial insurance.” These policies are intended to pay burial expenses and final debts,but aren’t meant to be a means for survivors to live.

Burial insurance policiesare typically marketed to seniors with no wealth to leave, but who don’t want to burden their loved ones with their funeral costs.

AARP offers three life insurance plans:  Level Benefit Term Life Insurance, Permanent Life Insurance and Easy Acceptance Life Insurance. All are underwritten by New York Life.

We’ll describe and review each in detail. But first, let’s learn more about the current underwriter for all AARP life insurance products, New York Life.

About New York Life

New York Life was founded in 1845 and now operates in all 50 states and some foreign countries. Their current partnership with AARP accounts for only a part of their business. They partner with other groups, as well as selling their insurance outright.

Besides life insurance they also offer business insurance, mutual funds, annuities, long-term care coverage and group coverage.

New York Life is a mutual insurance company. This means no stock is issued, and they have no shareholders. Instead, certain classes of policyholders have ownership and may receive dividends.

New York Life has sterling financial ratings:

  • AM Best          A++
  • Fitch                AAA
  • Moody’s          AA+
  • S&P                 AA+

You can’t get much better than that!! This is a stable company with solid assets and great cash flow. You have no cause to worry about the financial stability of New York Life.

AARP Life Insurance Products Reviewed

AARP Level Benefit Term Life Insurance

The most important thing to know about any term life insurance is that it isn’t permanent. It may end before death, and the insured will have paid years of premiums for no benefit whatsoever.

AARP pushes this plan much more than their other two through direct mail, television and online advertising. If you are responding to an ad, they are selling you Level Benefit Tem Life Insurance.

Features:

  • Coverage amounts between $10,000 and $100,000
  • Coverage termination at 80th birthday
  • Competitive initial rates
  • Rates go up every 5 years (first period may be shorter)
  • No medical exam, but medical questions asked and prescriptions evaluated
  • No waiting period
  • Issued in all 50 states
  • Eligibility: age 50-74 and an AARP member (or a spouse age 45-74)

AARP Level Benefit Term Life Insurance has little to recommend it, and a lot to steer you away. Start with the fact that all term life is “terminating” life. In AARP’s case, the termination time is age 80.

That is pretty young. Do you think you’ll live longer than that? Ifthere’s a chance, this coverage is a gamble at best. If you live a long life, you lose. But a simple search will reveal other term policies with longer terms.

If you die before age 80 and have paid premiums, your beneficiaries will receive the coverage amount. But if you’re still living on your 80th birthday, you get nothing — no benefits, no return of premiums, no interest and no ability to buy another policy because you’re now over the application age.

You’ve paid premiums for months or years or decades for nothing. If you die now, your loved ones pay for your funeral, burial expenses and any final debts you may have. You might be able to find a whole life policy, but at age 80 this will be prohibitively expensive for most.

People buy term insurance because it’s cheap. When compared to the much better whole life policies, initial premium amounts seem low. If you’re in a position where you can’t afford AARP’s whole life, know that you can find cheaper whole life policies out there.

But term premiums go up, and they go up every time you hit a new 5-year age range. When looked at in total, it’s not hard to find whole life policies with cheaper premiums.

Never compare a term stated premium to a whole life premium. First, there are no guaranteed level premiums to most term policies and not to AARP’s. The first month alone isn’t a good test. TOTAL premiums paid for the life is fairer, and there, AARP Level Benefit Term Life fails.

The life insurance industry widely uses the term “guaranteed level”with regard to premiums. A guaranteed level premium never rises for the life of the policy. You notice that AARP has hijacked that term in naming this product.

But in this case, it’s not the premiums that stay level, but the benefits. As you pay a higher and higher monthly premium, your coverage never varies. If you bought $10,000 of coverage, that’s what you have until termination no matter how much you’re paying.

That’s nice, but not in the least unusual. You’d have to do an exhaustive search to find a term policy that didn’t have “level benefits.”

AARP Level Benefit Term Life premiums rise every time you hit a new 5-year age range. An example from their website has a policy issued at age 50 start out at $14, the rise to $18, $24, $31 and $42, which takes us to the 70-74 age group.

They mention another age group of 75-79 but it’s unclear if there’s a new price level, or they continue to pay $42 per month. If the former, never buy something you don’t know the cost of. If the latter, it’s still way too expensive. You can find better insurance with a better price tag.

To qualify for AARP Level Benefit Term Life, you need to be an AARP member, answer some questions about your medical history, pass their prescription evaluation, and pass the MIB check.

They’ll have a lot of information about your health from your prescription history which may trigger a decline from AARP if it suggests any of the illnesses or conditions listed in the questions below.

Other insurance companies will accept prescriptions that AARP will not. These questions will result in a declined application if any are answered yes:

  1. Have you had treatment or diagnosis of heart trouble, cancer, diabetes, liver or kidney disease, AIDS or AIDS -related complex, stroke, lung disease or immune system disorder in the last two years?
  2. In that same period have you ever been in a nursing home, extended care, hospital sanitarium or special treatment center?
  3. Have you been to the doctor or received any medical treatment or tests in the last three months?

This list is pretty restrictive compared to other life insurance companies. For example, diabetes will cause you to be declined from an AARP policy, but well-controlled diabetes is acceptable to most others.

Some conditions AARP won’t accept because you’d have to answer yes to one of the above are asthma, emphysema, COPD, Parkinson’s, systemic lupus, seizures, rheumatoid arthritis, and liver or kidney disease. Whew! It sounds like they’relooking for seniors who will never die!

Coverage is limited to $100,000. Other companies offer the same insurance for up to $250,000, so if you want more coverage, you need to look elsewhere.

AARP Level Benefit Term Life Insurance: Not Recommended

In most cases, any term insurance is not recommended. People buy it for two reasons:  1) They think they can’t afford whole life and 2) they buy this temporary insurance to cover mortgages and income replacement should death occur during productive years.

Neither of these reasons makes sense for AARP Level Benefit Term Life Insurance, because you can find better policies at lower costs, and you can even find term policies with level premiums.

AARP’s coverage limits may not be enough to meet the demands of a mortgage and income replacement, so make sure you study the numbers before using it for this purpose.

AARP Permanent Life Insurance

This is what AARP calls their whole life policy. This is not something they advertise; you have to ask for it. You can apply for it on their website, but if you’re responding to a television or direct mail ad, you’ll be buying the term policy described above.

By definition whole life plans never end like term policies and their premiums are guaranteed level. They never rise throughout the policy’s life. With this policy, you are covered Day 1 for both natural and accidental death. Your beneficiaries will receive the coverage amount tax-free.

Features:

  • Coverage amounts between $5000 and $50,000
  • Permanent coverage never ends as long as premiums are paid
  • Rates guaranteed to never raise
  • No medical exam, but medical questions asked and prescriptions evaluated
  • No waiting period
  • Issued in all 50 states
  • Eligibility:  age 50-80 and an AARP member (or a spouse age 45-80)

To be eligible for AARP Permanent Life, you’ll answer the same questions and have your prescriptions evaluated in the same manner and with the same results as with the term product above.

Again, these are overly restrictive by industry practice. Many go through the application process to find they do not qualify for coverage where they would have with other companies.

AARP’s Permanent Life monthly premiums are higher than others. Here is a comparison for a 65-year-old male looking for $10,000 of whole life:

  • AARP $61.00
  • Lafayette Life $52.22
  • Foresters Financial $54.81
  • TransAmerica $57.19
  • Columbian Mutual $57.94
  • Prosperity Life $58.10

Remember, this is each month. We can see a difference of as much as $135 per year. This could be significant to an elderly person on a fixed income.

Or you could take that savings and apply it to the purchase of $1000-2000 more in coverage. You’d find similar results, albeit lower rates, for women.

A non-smoker and a smoker will pay the same premiums, everything else equal, with an AARP Permanent Life policy. This is unusual in the industry and could be a selling point.

AARP Permanent Life: Not Recommended

This is the best of the AARP life policies. It’s straightforward with level premiums for life, it doesn’t expire, and it pays the benefits expected. Smokers may find this to be a decent financial option.

On the downside, most people can find the same coverage for less cost with other companies, and that’s good, because too many people are declined from AARP coverage.

Those declined and those whose term policies expire before death may be offered and AARP Easy Acceptance Life Insurance policy, because that’s the only one they are eligible for. Do NOT accept this without full understanding of what you’re purchasing.

For these reasons we don’t recommend the AARP Permanent Life Insurance and instead recommend some simple shopping around. You find better prices and eligibility requirements.

AARP Easy Acceptance Life Insurance

This is the product AARP will offer you if you don’t qualify for their Term or Permanent life products. Other companies may have products called “guaranteed acceptance” or “guaranteed life,” and this is similar but not as good.

In these competitor products not only is there no medical exam, but there aren’t any medical questions or evaluations of any kind. Everyone qualifies. All you have to do is apply.

AARP’s product has one medical question about imminent mortality, and your rates may be higher because of it but it won’t disqualify you from coverage.

AARP Easy Acceptance Life is whole life insurance with all the features of whole life: level premiums, permanent coverage and level benefits. The difference is the waiting period.

Features:

  • Coverage amounts between $2500 and$25,000
  • 2-year waiting period
  • Permanent coverage never ends as long as premiums are paid
  • Rates guaranteed to never raise
  • No medical exam, one medical question
  • Issued in all 50 states except NJ and WA
  • Eligibility:  age 50-80 and an AARP member (or a spouse age 45-80)

Since anyone is accepted without much in the way of medical history, AARP has to assume most applicants are unhealthy and adjust other variables to make this product profitable.

The biggest way they do this is the 2-year waiting period, a common practice with guaranteed acceptance policies across the industry.

 If the insured dies of natural causes in the first two years the policy is in effect, his beneficiaries do not get the full coverage amount. Instead, they get 125% return of premiums.

The extra 25% could be a partial benefit payout, but interest on those premiums should be subtracted first for an objective calculation of benefit. If death occurred due to accident, the policy will pay out the full coverage amount, even in the first two years.

AARP Easy Acceptance Life: Not Recommended

We can’t recommend this policy, because their rates are much higher than the competition. If declined for their other products, look elsewhere. Not all will decline you.

If you aged out of the term product, this will be very, very expensive at your age, and you still have that 2-year waiting period. You can find cheaper whole life without the waiting period elsewhere.

Final Thoughts

Because the AARP is a senior advocate group and often lobby for senior rights, seniors assume that AARP Life Insurance has passed some sort of stringent test to make sure it was among the best possible options for AARP members and their families.

This was never true. Instead, whoever pays AARP the most gets the business. This doesn’t inspire confidence in their products. In fact, the Consumer Affairs website has a lot of complaints about AARP Life Insurance Products.

No matter what type of life insurance you seek, these AARP policies are neither the best nor the cheapest. To find a good policy that will meet your final expense needs and your current budget, shopping around will reveal much better plans than AARP’s.

An independent insurance broker can help. He has access to multiple companies and can find the right policy for your particular situation.

About Al Kushner
Al Kushner
He is a recognized financial educator, best-selling author, speaker, underwriting specialist and the founder & CEO of Superior Mutual, an independent insurance agency. He has helped families and individuals preserve, protect, and pass on a legacy since 1986. His mission is helping hard working seniors keep more of what they have worked a lifetime to save.
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