What are you folks doing for life insurance? (1 Viewer)

[Drew Bethel]

We have an 8 month old daughter and plan to have another next year. I'm 38 and my wife's 30 and I'm insured for $500k through my employer since I make more...actually my wife is a full time graduate student for at least another year.

The problem is premiums don't hold when you switch jobs. Are you guys doing life insurance via your company or externally.

Also, aer you doing term life(10, 20, 30 year)? Your rationale?

 

[Ron-P]

Both my wife and I have whole-life plans. Mine is through Northwestern Mutual and hers I cannot remember right now. We do not do any of the term-life plans.

 

[SethH]

Term life makes a lot more sense IF you invest the difference between whole and term.

 

[DaveF]

I'm single, early 30's, and have no life insurance.

 

[Malcolm R]

What DaveF said.

Plus I'll be dead, so why would I need all that cash?

 

[mark alan]

I just bought a bunch of insurance. I did a 90/10 split of term (20 yr) and whole life. The whole life is a decent investment, as long as you keep it for 10+ years, and I wanted another investment vehicle.

I got 20 year, because my kids will be gone in 20, and I won't have any reason to have as much insurance as I currently have.

I went with Northwestern Mutual also.

I would recommend that you get some insurance for your wife, even if she doesn't work. If something happens to her, you will be paying for a lot of things that she currently does. I got 40% of my level for my wife. Term insurance for a chick is really cheap.

 

[JonZ]

I just got a Metlife policy for 120K. Its only like $18 a month.

The main reason I got it is I commute on a road with crazy traffic and daily accidents, so you never know.

 

[Bob Graz]

I supplement my employers policy with a term policy. You are correct, having just a policy with your employer does pose a risk should you change or lose that job.

 

[Leila Dougan]

Neither my husband nor I have life insurance, but that's mainly because we both work and could support ourselves just fine should the other one pass away. But, since I have a baby on the way, getting life insurance is much more important now. We'll need to look into getting some very soon.

Can anybody recommend any websites that do a fairly good job of explaining the different types of insurance? I have a vague understanding of the differences between term and whole, but I'd like to understand it better.

 

[LanieParker]

Term life insurance doesn't make any sense, unless that is really all you can afford. Your best bet is to go with a universal life policy.

Term insurance stops after 10,15 or 20 years. SO if you don't die in the time frame of your policy you get nothing and all that money is gone. It's cheaper, but not always the best option.

With universal life, you build cash value and can take out money (after a certain point) without penalty. It doesn't stop after so many years like term but is more expensive.

 

[Al.Anderson]

Term life is "pure" insurance - you pay so much each period for a set number of years. Should you die in that time you get the policy amount. When it expires, no money changes hands. But this necessarily bad; as you paid a small price for a service.

Whole life mixes in a savings account. Some of what you pay goes to increase the "cash value" of your policy. You can borrow against your cash value; and the policy usually never expires. There are as many variations on this basic idea.

The kicker is that whole life is generally 4-6 times as expensive. That's why Seth said that term can be a better option if you are disciplined enough to invest the difference in the premium amount of the two policies.

I mixed it. I have 1/4 of what I need from my employer (term-like); 1/2 as a term policy; and another 1/4 as whole life. The reason for the term is that when the kids are old enough to be through college; there will be less reason for the insurance. The house will be paid and the whole life will pay for funeral expenses and such.

 

[Chris]

There are, however, new term life policies which MetLife and Fidelity Investments offer which are full investments with rollover capabilities on a 15/30 year term.. it's kind of a new thing, but it's not a bad deal if it's your supplementary option.

I carry $750,000 in life insurance. I figure, with two kids and a house, I'd want them covered. Try to avoid "willing" it to someone to overcome the giant tax bite, and just put it ina living trust or something similar. Talk to a good estate planner.

 

[SethH]

Every finance professor, financial planner, and CPA I've ever talked to disagree with this statement and argue for term life insurance. Every insurance agent I've ever talked to argues against term life insurance. To me, that says term is the way to go. I guess a mixture is OK if you're looking to diversify or just aren't sure which is best. The problem with the savings account part of whole life is that you could earn significantly more money in other types of investments. Those savings accounts make about as much as a savings account or money market at a bank.

 

[MarcVH]

The conventional wisdom is that term life is the most cost-effective way to get life insurance, and if you also want savings or investments to do those separately. There are probably situations where this wisdom doesn't apply (for example, if you are using life insurance as an estate planning tool instead of simply to provide for your dependents if you die) but those situations are rare.

In general, if you don't have red flags for underwriting (e.g. health problems, family history of dying young, professional skydiver...) you can probably do better shopping for term life insurance on your own without an employer, getting a 10-year or 20-year level premium.

Remember, once you're older and your children are grown, you'll have less need for life insurance anyway, since your future lifetime earnings are smaller. For the same reason, retired people normally don't need any life insurance at all.

Buying whole life insurance is a great way to provide a financially comfortable retirement -- for the guy who sells you the policy.

 

[Eric Samonte]

Term life for both of me and my wife at 1 mil a piece. U can always invests or use ur money in more "lucrative" income generating avenues...which is often better than letting it sit in a whole life insurance.

 

[Chu Gai]

Consider a term policy for 1 to 2 million. In the event you die, that will generate approximately 50-100K per year which should be sufficient to care for your children and meet their needs as well as your wife's. Then when they get to college age, they can draw on the principal and likely allow them to attend any school that they want.

 

[Todd Hochard]

Exactly. Whole-life policies as "investments" have to be one of the bigger scams going. They show you a "typical" return, breeze right by the much, much lower guaranteed return as stated in the policy. 10 years down the road, you find you've been earning 0.2% above the guaranteed rate, which is typically around 3%.

I suggest that each of you with whole life policies contact the company, and find out what the ACTUAL cash value of the policy is today, versus what you were "assured" it would be by the "typical" schedule provided to you by the agent.

If you want insurance, buy insurance- term insurance. If you want investments, buy investments- stocks, mutual funds, real estate, etc.

EDIT- to answer the question, I carry a 20yr term policy. By that time, my kids will be in college, and my investment portfolio will be much larger, so there won't be any point in insurance after that.

Todd

 

[Bill Cowmeadow]

Life insurance in simple terms is replacement income you or a partner rely on. If you buy a policy of any kind that is aimed at making someone wealthy as a result of your demise, you are wasting your hard earned money.

 

[Drew Bethel]

Some great points here - this is exactly what I needed to know. I will look into a 20 year term life and also get my wife signed up. Then I can cut back on the employer insurance through my employer as the term will be fixed.

I was told that accuquote.com is a good place to shop for rates.

 

[SethH]

Someone may have already said this, but a good rule of thumb for the amount is 10x your salary. This is because your survivor could likely invest in something that would return about 10% annually (roughly equalling your salary). Like I said, this is just a rule of thumb. Go with what you can afford, but I wouldn't do less than 3 or 4x your salary.