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Suppose that I provide support for a much older relative. I worry that in the unlikely case if I die before the relative, the relative will not be provided for. Is there a life insurance that pays only if I die before the relative? Since I am much younger and healthier than the relative, such a product should be much cheaper than the term life insurance. Does it exist?

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    "much cheaper than the term life insurance" - isn't term insurance what you're looking for?
    – littleadv
    Commented Jan 9, 2023 at 21:16
  • @littleadv No, as I explain in my reply to DJClayworth's answer below.
    – Boris Bukh
    Commented Jan 9, 2023 at 21:43

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I don't think the product you're seeking exists. However, there may be a way to simulate it. As keshlam points out in another answer, you are basically looking for a policy that would payout enough to purchase an annuity for your relative. Note that the price of that annuity should decrease every year, so even if you could purchase an open-ended term, you would ideally want one that decreases the payout every year to coincide with the cost of the annuity. The fact that you may need to purchase a term policy that is too long, just in case, can be somewhat balanced out by the fact that you need less money to cover the annuity the farther out you go in time. This leads to "laddering".

Last year I was looking for a similar policy (for a different reason) that would taper down the payout each year, but after talking to a couple of insurance brokers it doesn't seem to exist (at least the two brokers hadn't heard of it in the US). I ended up doing a mini version of it myself by laddering two term policies together. In theory you could ladder as many policies together as you wish. For example, if the cost of the annuity today is $600K for a 75 year old, it might only be $400K for an 82 year old and $200K for a 90 year old. So you could purchase 3 policies of $200K each, one for each of 5, 10, and 15 years. This would obviously be less expensive than a single $600K policy for 15 years.

Tip: You can save even more by adding term riders to another term policy instead of purchasing multiple separate policies, as explained here.

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    This is actually very useful --- both for information about your experience with brokers and the fact that the shorter-term policy can be made into a rider to the longer-term policy (when laddering).
    – Boris Bukh
    Commented Jan 13, 2023 at 13:53
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A Term Life Insurance. is exactly that. It pays out a benefit in the event of your death in a specific period of time - i.e. a "term".

Term Life policies are cancellable at any time, so when your relative dies you can cancel it without penalty. This is exactly what you are looking for. You buy one for a period of time, cancel it if the relative dies and renew it if they are still alive at the end of the term.

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    But you can cancel them. So when your relative dies you stop paying. Term Life is intended for exactly these kinds of situations. Commented Jan 9, 2023 at 21:22
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    If you buy Term Insurance for 1 year, the premium isn't one tenth of the premiums for ten years. It's the same premiums - you just pay them for one tenth as long. Likewise if you buy a ten year term, and your relative dies after one year, you end up having paid only one tenth of the premium you would if they had lived ten years. Commented Jan 9, 2023 at 21:24
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    The difference between premiums for a 10, 20 and 30 year policy are likely to be small, and are related to administrative overhead and the changing likelihood of you dying. They are not going to be large differences. If you could find somehow a policy that automatically terminated when your relative died the premium also wouldn't be that different from the term premiums, because the likelihood of you dying is about the same. Commented Jan 9, 2023 at 21:36
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    @BorisBukh how exactly do you expect the insurer to price the risk of your relative dying when insuring you?
    – littleadv
    Commented Jan 9, 2023 at 21:54
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    @BorisBukh these are usually for couples, and then both are insured. But you should probably ask around some insurance agents
    – littleadv
    Commented Jan 9, 2023 at 22:06
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It sounds like what you are trying to do amounts to carrying enough insurance on yourself, with the relative as beneficiary, to permit the relative to buy an annuity which will cover the rest of their life. Ideally you'd want to adjust the insurance payout each year to reflect inflation on one hand and the shortening expected lifespan on the other.

That should be something you can calculate. If you need help doing so, an insurance agent should be able to provide that help; these are both insurance products. I haven't heard of an off-the-shelf service which combines them. But I'm not an insurance agent so that's hardly a surprise.

Of course you might want to leave the decision of whether to actually purchase the annuity up to the beneficiary. Annuities are reassuring since they guarantee a payout, but they do take a processing fee out of the money and most don't adjust for inflation (or at least, not without an even bigger fee to cover that risk). If the recipient already has someone managing their investments, they might do better putting the money there. You need to decide whether you want to take that decision on their behalf or not.

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    I think the collective response to my question constitutes an answer: "This product does not seem to exist. Try talking to an insurance agent." [ And yes, I can compute those things myself. Asking someone else do it, or the cost of getting custom product from an insurance company might end up more expensive than just buying too much term insurance. ]
    – Boris Bukh
    Commented Jan 10, 2023 at 14:39

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