Good Life Insurance?

[ShawnD1]

in before spidey07:
best life insurance is to carry a gun

I didn't read any of this thread but I will say this: DO NOT BUY "WHOLE" LIFE INSURANCE. It's a scam.
The good one is called "term" life insurance; you die and your family gets money. Whole life is some kind of elaborate scam that tries to combine term life insurance with mutual funds or something equally stupid.

edit
Ok I actually skimmed the thread. As someone stated before, whole life is a huge rip off scam because it's an investment with extremely high management fees. If you buy your own stocks, there is no management fee. If you buy an index fund, the management fee is fairly small. If you buy mutual funds, the fees are rip off compared to index funds. If you buy whole life, you get raped on fees and you'll never earn anything ever.

edit
Did anyone mention what your life insurance is actually for? Life insurance is if your life actually has some kind of value and people will be in big trouble if you die. If you're the bread winner in the family, you definitely need life insurance. If you're the stay at home parent, life insurance is still a good idea for covering the cost of something like day care after you're dead, but the policy doesn't need to be as good as if it were for a person with income. If nobody relies on you to provide a source of income or a source of cost savings, you do not need life insurance.

 

[Elbryn]

i didn't read the whole thread but to me the point of life insurance is to cover the income generators of the family to the point where the kids can get to college. the way i look at it is, that if they had the funds to get them to that point, they can take loans out and get on with life. income replacement if the worst case were to happen.

i looked at this two ways, the first if i went (primary income) my wife would need significant funds in order to first get back on her feet and get a job again (stay at home mom right now w/ 2 kids) and what it may cost in terms of daycare expenses.

the second, if my wife were to pass and i needed to pay for daycare expenses.

retirement planning typically indicates a 4% withdrawl rate to maintain principal. estimating child care at about 1k each for full time, we would need 2k/month x 12 months = 24k.

with that we settled on 1 mil for me. ~40k yearly income generation (part for daycare, part for income replacement) with the 1mil backstop as money withdrawlable for use over the 18 year span. additional 3x salary from my workplace if i go as well that is taxable.

500k for my wife. ~20k a year income replacement for daycare. with my career i can cover the rest.

it is better to pay for life insurance from already taxed money so the lump sum is not taxed.

term is generally cheaper than whole life. the 1.5 mil costs me 650 a year for the next 18 years. if i'm in good health in a few years, i'll retake the insurance tests and see if i still qualify for the highest rating(cheapest price) if so. i'll reupp with another million dollar policy and allow my old policy to lapse and thus extend my coverage.

whole can be good in certain circumstances, but in the case of sheer income replacement, i opt for the cheaper term with bigger payout. if i dont need it, i consider the money well spent. this is like disability insurance. you should have it, but it's great if you dont ever use it.

processwise, i used http://term4sale.com/ to get an idea on pricing. i use a local insurance agent for home/auto. once i had an idea, i gave him a visit, telling him what i wanted. he got me a quote from genworth which was not the cheapest but not all that far away. given the local guy who i've used before and the information i got online, i was comfortable with the decision.

it pays to be extra healthy the week or two before you take the insurance testing. it could mean 20-30 years of lower payments which with inflation adjustment, could be not so much 🙂

generally as you get older as well, you have more networth to recover from the loss of either parent so insurance needs tend to decrease over time as well.

take this all with a grain of salt. do your own research until you are comfortable. term is straight up in concept, whole life has many differnet possible riders that can be applied. be sure you know whats going and then make the choice..

if you're eager to get started on education savings, you could always open up a 529 for yourself now.. especially if you get state tax deductions.

 

[MrChad]

Agreed on buying term life insurance. If you are young and in good health it should not be expensive, and it's a must-have if you have a family. I used Select Quote to purchase insurance for my wife and I.

 

[dullard]

If you are young and in good health it should not be expensive, and it's a must-have if you have a family.

I personally disagree with it being a must have for those with a family. The wealthy don't need it. Did Warren Buffet need it for his kids? Heck no.

In reality, the true test is if your family can reasonably live off of either spouse's one income. If so, there is no need for life insurance. And you don't need to be that wealthy to do so. My wife and I are both engineers. We could easilly live off of one salary, thus there is no need for life insurance. The same is true for almost any family with two working professionals. The key is to live on one income, so don't make the common mistake of buying a house and cars that requires both incomes to afford.

 

[MrChad]

I personally disagree with it being a must have for those with a family. The wealthy don't need it. Did Warren Buffet need it for his kids? Heck no.

In reality, the true test is if your family can reasonably live off of one income. If so, there is no need for life insurance. And you don't need to be that wealthy to do so. My wife and I are both engineers. We could easilly live off of one salary, thus there is no need for life insurance. The same is true for almost any family with two working professionals. The key is to live on one income, so don't make the common mistake of buying a house and cars that requires both incomes to afford.

We have two kids and my wife stays at home. We live off of one income now already. If something happened to me we would lose our only source of income, and if something happened to my wife, I would have immediate daycare costs. As a result, I have term life insurance for the two of us for peace of mind.

 

[Fritzo]

Forresters and ING have good life insurance programs. I also noticed that most of them require direct withdrawls from your checking account for premiums now. That sucks.

 

[SphinxnihpS]

Where? I didn't see bad advice, except wasting money on an advisor. If you're like 95% of the rest of the population, the advisor should be able to give you the exact same printout as everyone else gets:

Life insurance is not an investment. Keep the two separate. For life insurance, term life insurance. Then, invest the difference in sound investments. Here's a big common sense tip: insurance salesmen make a bigger commission on whole life. Now, where does all that extra money come from to give them that larger commission, hmmmm?

When you're 30 years old and get hit by that bus, your family needs the money to replace your income - who is going to pay for your kids' education? Etc. When you get into your declining years, you can use your investments to help maintain a relaxing lifestyle. And, your net worth should be more than enough to cover your final expenses.

I'd love for Sphynx to find one investment counselor (not earning a commission) who would recommend whole life. Well, maybe there is one reason for whole life - like the Texashiker thread where he claims that he's incapable of having a credit card without it being a trap, some people simply cannot handle money. Whole life forces them to save toward their retirement. But again, investing separately is almost always better.

You knowledge of life insurance, it's purposes, it's costs, how it functions, where and what it is appropriate for, is close to zero making your advice negligent. Just because YOU can not forsee any situation for a certain product does not mean that product has no value. just because YOU think the investment portion of a permanent policy is a bad investment, does not make it so. There are in fact many situations where ONLY expensive permanent coverage is useful. Your clear lack of knowledge on the subject completely invalidates your "advice". Hopefully the OP does not listen to you at all.

As for the advisor, he's the guy that asks all sorts of questions about your particular situation and provides an honest plan, which could include recommending no insurance. There is no way of knowing the OP's exact situation without asking lots of questions. Sure an agent would do the same, but the agent can not be trusted for advice because he makes money selling stuff. A fee-only LI advisor is like an attorney for insurance matters, and better in the particular arena than any attorney or fee-only investment planner. Getting advice from the people selling you stuff is exactly how to get burned.

 

[dullard]

...

Sorry, but you are just way, way over thinking this issue. This isn't difficult material. It is 6th grade math. Running your life through a few scenarios and talking about the results isn't brain surgery or rocket science. And the products out there do not vary by that much that people cannot reasonably discuss them online.

 

[ShawnD1]

Just because YOU can not forsee any situation for a certain product does not mean that product has no value. just because YOU think the investment portion of a permanent policy is a bad investment, does not make it so.

Except in this case he's right. If you're comparing an index fund investment with a 0.5% management fee against a whole life insurance policy with a 2-3% management fee and you conclude that the whole life has a better growth potential, then I would like to know where you went to school and for how long.

 

[SphinxnihpS]

Any advice presented as a "one-size-fits-all" solution is bad advice. Everyone's insurance needs are different and OP didn't give nearly enough information for anyone here to present a viable solution.



Let's say for a second that I consider WL a viable investment product (which I have not said). Your analysis would be off base. For someone who needed guaranteed return like a bond or t-bill, WL currently can be acquired with 4x the ROR at a minimum. Depending on the product you only would need rates on other guaranteed investments to stay sub-4% for 24-36 months before you came out ahead. Again, everyone's situation is different and OP didn't give enough info for anyone to make a credible recommendation.

Aside from that OP also didn't indicate what his personal situation is. Maybe OP needs a guaranteed insurability rider for financial reasons. Well, lots of companies only offer GI as a rider on permanent policies, not term. Maybe OP has a lump sum of money to put into this; a 15-pay (or anything that avoids the MEC limits) may be his best choice. Again, not enough information.

Well-intentioned advice can still be bad advice if it's proferred without understanding.

This is coming from someone who has licenses to sell insurance products but has no incentive to recommend any type of product since I work as a regulator and have no company affiliations or financial ties to the sale of any insurance products.

Someone who knows something!

I replied to Pizza before I read your message because I was so mad at his flip "conventional wisdom" ad hominem response.

Good info there, and you made the point I was making in between the lines, the OP simply did not give us much to go on. It would be unfiduciary to advise him on the info presented, and I would have to charge for a worthwhile analysis, so I just referred him to 3 highly qualified and disempassioned advisors who can do that without screwing him over.

I could have just asked for his email address and sold him some shit myself, but I think that would be unethical considering the circumstances. However I find it more unethical to give earnest advice about important subects without having clue 1.

 

[SphinxnihpS]

Sorry, but you are just way, way over thinking this issue. This isn't difficult material. It is 6th grade math. Running your life through a few scenarios and talking about the results isn't brain surgery or rocket science. And the products out there do not vary by that much that people cannot reasonably discuss them online.

I disagree.

Essentially we are talking about money here, are we not? Automatically important. In fact, we are talking about a lot of money here.
We are talking about people here, are we not? Automatically complex. God knows what the OP's situation is. Assume away!
We are talking about life insurance here, are we not? Automatically fraught with hazard. Many carriers, many products, many options, and no one knows much about it.

I choose not to deal with such matter in such a lassez faire manner.

 

[dullard]

I disagree.

Essentially we are talking about money here, are we not? Automatically important. In fact, we are talking about a lot of money here.
We are talking about people here, are we not? Automatically complex. God knows what the OP's situation is. Assume away!
We are talking about life insurance here, are we not? Automatically fraught with hazard. Many carriers, many products, many options, and no one knows much about it.

I choose not to deal with such matter in such a lassez faire manner.

The difference between a good term life insurance and a bad one is a few bucks a month in the OPs situation. A few bucks a month is not an automatically important, automatically complex issue. Give him the worst price in common use and he'll probably never notice the difference in the monthly outlay compared to the best price. On that issue, you are wrong.

Now, if we want to talk whole life insurance, that is another story. But, it is virtually guaranteed that the OP shouldn't need whole life insurance just based on what he has posted so far. And then you need a psychologist more than you need a fee-based advisor. The psychologist might help answer the important question: "Will the OP actually fully fund the whole life insurance every single month for the 10-20 years minimum to even be close to not losing his shirt?" But, in this economy where 10-20 years of guaranteed salary is extremely unlikely (and thus properly funding the whole life insurance is also highly unlikely), the best answer is probably no. And in that case, term life insurance it is.

If he really need whole life insurance, he wouldn't be asking here. And (only) in that unlikely case, do you have the best advice.

 

[Jadow]

This ^. Considering there were only ~15 posts before this and they almost all had bad advice, very much what he said.

Where is all the bad advice?

 

[SphinxnihpS]

Except in this case he's right. If you're comparing an index fund investment with a 0.5% management fee against a whole life insurance policy with a 2-3% management fee and you conclude that the whole life has a better growth potential, then I would like to know where you went to school and for how long.

LI is not an investment. Most states do not even let life insurance intermediaries (agents etc.) use the terms investment and life insurance in the same sentence. The investment portion of a LI policy is there to keep the policy in force, drive the death benefit. If you think about buying LI as an investment rather than an indemnification, you have already missed the point.

Oh and while were here, just to give you ONE example of where permanent insurance is a good thing. My friend had a kid. When he was born she bought a $50,000 permanent policy on him with an additional purchase benefit rider. At age 9 he was diagnosed with juvenile diabetes. He is no longer insurable for life. He is 23 now. Because he already had the policy, it's his forever as long as he pays the premiums. The premiums are small because they were based on age 0. Because of the APB rider he is allowed to add $50,000 more coverage each year, up to 10 times. He now has, because of APBs and dividends, over $600,000 of life coverage. Had he waited until he needed LI, he would have been SOL.

 

[Engineer]

I just picked up a personal policy ($250,000) for the first time in my life. Went throught Quickquote and, at 41, was able to get it for $13.xx per month (paid annually). Was from ING Life Insurance.

 

[DrPizza]

LI is not an investment. Most states do not even let life insurance intermediaries (agents etc.) use the terms investment and life insurance in the same sentence. The investment portion of a LI policy is there to keep the policy in force, drive the death benefit. If you think about buying LI as an investment rather than an indemnification, you have already missed the point.

Oh and while were here, just to give you ONE example of where permanent insurance is a good thing. My friend had a kid. When he was born she bought a $50,000 permanent policy on him with an additional purchase benefit rider. At age 9 he was diagnosed with juvenile diabetes. He is no longer insurable for life. He is 23 now. Because he already had the policy, it's his forever as long as he pays the premiums. The premiums are small because they were based on age 0. Because of the APB rider he is allowed to add $50,000 more coverage each year, up to 10 times. He now has, because of APBs and dividends, over $600,000 of life coverage. Had he waited until he needed LI, he would have been SOL.

I'll make it clearer - for some people, a very small percentage of all people, and typically among the upper class, there are reasons for whole life. For the typical person though, there's no reason.

You provided anecdotal evidence where it worked out well for one person. Hey, I saw someone on tv who won lotto - that means lotto is a good investment?

FOR MOST PEOPLE, the right type of life insurance can be summed up in a single word: term.

(Their emphasis, not mine, but that's the key to what I'm saying. If the OP has a large estate, then whole would make sense. Gee, come to think of it, since everyone on ATOT is a multi-millionaire with a model as a wife, they all probably need whole life.)
http://www.smartmoney.com/personal-finance/insurance/term-or-whole-life-8011/