A couple of my kids are at that stage of life where they are thinking about life-insurance.
Visits to insurance brokers resulted in quotes...which sounded high to me.
I asked if those were term, whole or universal policies and they did not know. I asked if their financial advisor was "fee-only" and they said she was not.
My perception of insurance is that you should first check to see if your employer offers life insurance. Next, figure out the "envelop" of your needs. If you have a young child, for instance, then you will not need as much pay-out as they approach adulthood and much-less after they become adults.
If more kids show up, then you can buy additional policies to fine-tune the payout to your changing circumstances.
Term life is a pure insurance play and is almost always the least expensive option and offer a tremendous amount of flexibility. Why buy a tent when all you really need is a baseball cap?
I can see one policy that pays enough to bury you ($10k-to-$20k payout)
I can see a 20-year policy each time you add a kid to the family ($200k payout). I would structure the policy so the premiums "adjust" every five years. Young families never have enough money and having the premiums "level" for the entire period is stupid.
I could also see a single policy for five years at the start of a 15-year-mortgage to pay-off the house/farm (principle of mortgage payout) and then a second policy for years five-through-ten.
I know that I have many very-sharp people reading this blog and probably have people who sold insurance. Any comments?
Tell them to self-insure. Buy some gold with that payment/premium money. The entire will be better off. Life insurance is a scam, from the get-go.
ReplyDeleteI've had an AFLACK family policy for cancer for about 14 years. My wife convinced me due to her father's death of cancer. Cancer is often a long drawn out war, and the costs dealing with it add up over time.
ReplyDeleteMy son just aged out (26 years) and getting a policy for him alone would cost about half of what I pay for our family plan. The reduction of cost for family plan - about $15 a YEAR for the three of us. My daughter will age out in about another four years, so I figure a similar situation as my son..
So we have some reconsiderations to do. My wife and I are in our low 60's and Medicare (I think) covers a percentage of cancer costs. How much - no idea yet, I'm still in very early stages of figuring this out.
I had term insurance for 20 years but after receiving a modest inheritance from my family, decided it wasn't worth the considerable extra costs it would require now. It is about a wash between the both.
Good discussion - great topic.
At their young age, term is ok, but for very little more they can likely get Whole Life premium paid for very little more.
ReplyDeleteTerm is good for the mortgage and other things, but the bulk should be whole life.
Shop around. Oddly, my State Farm folks had the best pricing.
caveat; I was in the insurance business over 40 years ago. My recollection is the spread on a whole life policy vs annual renewable term for a 30 yr old was 8 or 10 to 1, ie 100k ART $100 vs $1000 for whole life. My thoughts would be similar to young joe. 1. see what your employer offers in insurance and and income continuation if disabled, also look at social security availability. 2. take a good look at what it will cost whoever is going to raise your kids if you pass then double it. 3. the cash value of whole life policies accrues so slowly that if you can afford to invest the difference between a term and whole life policy you will likely do better buying term and investing. Your need for multiple hundreds of thousands of coverage is greatest when your kids are young and can least afford insurance.
DeleteAnonymousOctober 16, 2024 at 8:08 AM
ReplyDeleteTell them to self-insure. Buy some gold with that payment/premium money. The entire will be better off. Life insurance is a scam, from the get-go.
IF you have the discipline to save and set aside for the future AND Enough TIME to save up enough to "Self-Insure" THEN Life Insurance is a waste of time.
DO YOU HAVE FIRE INSURANCE on your Home or are you a renter?
Is that a SCAM? You may never have a fire....
Cancer insurance is tricky as they are often written so narrowly that your cancer isn't covered.
However, cancer and indeed MAJOR MEDICAL Bills are the #1 way to going into bankruptcy. Sad but true.
Putting assets into a trust properly set up can protect your home from being taken for medical bills. Sad we even have to talk about that.
Blanket statements are often "Short on coverage".
I decided to get a term policy earlier this year; my employer provided insurance is low and the multiples I can pay for start rising fast once one is in their forties.
ReplyDeleteI chose a policy that fixed a payment for term giving slightly more coverage than the multiples of my employer policy at a slightly lower price.
I also chose a company with a reputation for making payouts easy. Lots of companies will fight making payouts or try to bargain down the payout.
I chose a plan that lasts until my kids are out of college; our investments can handle after that (assuming, of course, that things haven't completely fallen apart).
Jonathan
Not long after my daughter was born I got a 20 year term policy for enough to pay off our existing mortgage and put her thru college, but I also started maxing out my 401k contribution at work. I now have a small policy paid by my employer but enough in retirement plans to cover my survivor's living expenses for a long time.
ReplyDeleteERJ - We have a policy through our credit union which offers a reasonable benefit for a pretty low cost (about $500 a year). In the event of needing it, it would pay for funeral costs and at least allow a period of time to work out finances. I have often had it through my employers as well (2X salary seems to be the standard), with the option to purchase additional coverage.
ReplyDeleteI do not think, on the whole, a policy is a bad idea, especially when children are young and spousal differentials in income exist (or even not- it is expensive these days).
Whether you buy into his principles or not, Dave Ramsey has what I think is a reasonable approach to, and recommendations for, life insurance needs.
ReplyDeletehttps://www.ramseysolutions.com/insurance/zander-term-life?campaign_id=1458300604&adgroup_id=62200972288&gad_source=1&gclid=Cj0KCQjwyL24BhCtARIsALo0fSBq5GV7-rqnPYFk1vDla65Beru3sRA7Av7hnQiYM8prgv15bk75WlwaAjexEALw_wcB
My son died at 29 in a car accident without any life insurance. I kick myself for not asking him about it. I could have easily paid the premium for term insurance to make sure my grandchildren were protected.
ReplyDeleteI only had term life insurance or employer-provided life insurance after I was married and then more after we started having kids. At one point, I probably had three or four different term policies. I could get some term group policies through my various professional organizations (e.g. American Chemical Society, American Institute of Chemical Engineers).
ReplyDeleteNow that my kids are all grown up and working, I'm letting the policies die as the term expires. The cost keeps going up after I got to be 65 or so, and I'm better off banking or investing the premium to give them a bigger inheritance. Even though life insurance payout has preferential estate tax treatment.
Whole life policies always seemed to be trying to mix investing with insurance, which made it more complicated to evaluate.
You are right on the bulk of a parent's responsibility for family. 20 years work. Cash value life insurance can yield a lower net cost over term if your fund it properly. Interest earned early pays increased life premiums as you age without being taxed. Cash value is the only economical way to stay insured past 55. You need it if you owe money say if you have real estate. Commercial loans get called when you die. Spouse needs quick cash. Employer provided coverage is great as an extra but should not be depended upon for core needs. You are usually sick before you die. You lose your job and benefits when you cannot work. Roger
ReplyDeleteSo many variables. If one or more of your kids are going to take over the family business, you need cash for the tax man pronto or they will have to hold a fire-sale. Insurance, particularly whole that you have been using for banking purposes, is perfect.
ReplyDeleteIn some cases, a paid-in-full "policy" lets you leave money tax-free to your kids.
You can hate the insurance lobby all you like, but they did manage to get some legislation through that redounds to your benefit.