Life insurance questions

[robr]

So, my wife keeps bugging me to look into life insurance. We keep getting junk mail with policies like $300K for $30/month and it's probably a good idea, however I don't have a clue about it. Any recommendations on what to look for when shopping for life insurance, and what to look out for to avoid scamming companies? What's the deal with "term" life insurance? Thanks for any pointers.

 

[RSO 34]

Term Life is less expensive than Whole Life because you are paying only for the life insurance rather than an investment portion associated with whole life. Many agents will recommend whole life as an investment vehicle that builds cash value you can borrow against but generally the returns are much lower than what you could get using other types of true investments. Term life premiums will increase significantly as you get older because you are at a higher risk of dying during the term as you age whereas whole life generally will have consistent premiums but they will be much higher when you are younger. I have, and would recommend to you at your age, term policies because I can get much more coverage for less of a premium at my age at a time when you would need to replace your income in case of death, something that becomes less of a priority as you near retirement.

 

[nsx2tall]

Use an agent. As long as you stick to the product you want, namely term life, you should have a decent experience. Of all the insurance products out there, term life is really the easiest and least expense. 99.9% (or something like that) are never cashed in because the chance you'll die within the term is very low. With that said, it can give you peace of mind that your wife and kids will be protected in the event of your death. Also consider long and short term disability insurance. Though fairly expensive, I've had a few employees use it and it protects your earning power when your are unable to work because of a disability. In the end all insurance is a gamble. You are betting a couple of hundred a year that you will die and the insurance company is giving you about 2000-1 odds. It is not a fair bet since your odds of dying are a lot lower than that (depending on your age).

Look for preferred policies, which are a lot cheaper-- "preferred" implying that you are in excellent health and a lower risk. Choose any term you like 10, 20 year etc. as there is no requirement to actually pay for the entire term. The term is only the period for which the fixed premium payment is valid. Choose an A rated insurance company, the agent should be able to provide the rating. It is a measure of financial health.

STICK TO THE PRODUCT YOU WANT. Don't let anyone convince you that you want permanent insurance (whole life) rather than term. Even though you'll probably never use the term insurance, it is the cheapest way to protect your family when you are young. Whole life is too expensive when you are young and too useless when you are old (my opinion even though I have a whole life policy too).

[edit]

I find appropriate advice in the post below: convertable term is slightly more expensive but gives you options should a health event occur that would make you an insurance risk. However, I disagree with a few other statements made about insurance on principle but there is no appropriate way to discuss it, so I won't-- apologies. I am not a CFP.

In the end, insurance is similar to buying a used car. If you take the time to look and understand before you buy, you limit your chances of getting cheated (or paying too much for a product you don't really need). Fortunately the differences between an NSX and pickup are obvious and I ended up with an NSX. Not so easy with insurance...

\/-----\/

 

[eddiensx]

I am a Certified Financial Planner. The advice you are getting is sort of like anwereing the question," what is better, an NSX or pickup truck?" The answer depends on what you want your insurance to do for you.

There are current needs, college, mortgage, income replacement. Then there are long term needs, estate planning etc...

Anyone reading this needs to remember what I am about to say, If your finances are kind of tight, purchase term. Purchase a term insurance that allows you to "convert" in the future, to any permenent plan that they offer, in the same underwriting class. purchase one that stays level for a minimum 20 years, preferrably 30.The reason for this is that people overestimate the amount of time they will be insurable. I was diagnosed as type II diabetic at age 31. I am never going to get a super cheap insurance plan. But I was able to convert to a permenant life insurance plan, without a physical, as if I wasn't diabetic.

When you know you are insurable, people typically don't want life insurance. When people find out they are not insurable, insurance of any type, becomes the best looking thing in the world.

You buy homeowners, car, renters and other types of insurance, hoping you will never use them. The one event that is guaranteed to happen, death, and now people want to purchase the "cheapest" one, failing to understand the gravity of their situation.

I was a real estate appraiser whan my father died. He died without life insurance. It has ruined my mothers life. She raised 5 kids and had no real marketable skills. My dad worked for the railroad, and died at 61. My mother was 49, and not eligible to get his pension because she wasn't 55. :frown:

My dads best friend died from the same kind of cancer a couple of months later, he had life insurance , his wife wasn't destitute like my mother. Unfortunately, my mother wouldn't allow us to give her money, because she knew they could have planned better, but they chose not to.

Don't put your wife in the same position.

Talk to a person that is a Certified Financial Planner. Not a "Financial Advisor," or "Financial Consultant", these are titles for people that don't have the schooling or the knowledge that a CFP/Certified Financial Planner has. We had to pass a 10 hour test, dealing with all sorts of insurance, investment, tax planning, business planning and estate planning.

Please remember this: Only 2% of term insurance ever pays a death claim, permenant life insurance has a payment rate in the 70% range. With permemant insurance you can stucture it so you can quit paying on it, and still have a policy, for the rest of your life. You can also use the funds for supplemental income needs, and over time the "cost" of a permenant plan is way lower, even the "price" of a term policy is less.

Sorry this is so long, but more people need to know the facts.

 

[SilverStone05]

^------. What he said.

Whole life or "permanent" insurance really gets a bad rap in the press. True, it is not for everyone, but it does have its place.

Same with annuities. Some people hate 'em, some people love em'. Either way, they have their place within financial planning.

It really ticks me off when I see Suze Orman on TV fielding phone calls, knowing very little about someone's financial situation and bad mouthing or making blanket statements about whole life policies.

It also ticks me off when I'm looking over someone's Universal Life policy and see that its about to explode because an unscrupulous insurance agent sold the policy using an outlandish interest rate in the illustration.

Whatever you choose to do, the most important is to use an insurance agent you can trust. Get a referral from a friend. Make sure they educate you fully on the different types of insurance. Term, whole life and Universal Life.

I will say this, though. Stay away from VUL's or Variable Universal Life policies. The fees within these policies are usually pretty bad, almost as bad as the investment options within them and they are so complicated most people don't understand what they really are.

 

[ericwgnsx]

Your wife is right. Especially, if you have kids, you have a moral obligation to them to have life insurance.

 

[robr]

I am a Certified Financial Planner. The advice you are getting is sort of like anwereing the question," what is better, an NSX or pickup truck?" The answer depends on what you want your insurance to do for you.

There are current needs, college, mortgage, income replacement. Then there are long term needs, estate planning etc...

Anyone reading this needs to remember what I am about to say, If your finances are kind of tight, purchase term. Purchase a term insurance that allows you to "convert" in the future, to any permenent plan that they offer, in the same underwriting class. purchase one that stays level for a minimum 20 years, preferrably 30.The reason for this is that people overestimate the amount of time they will be insurable. I was diagnosed as type II diabetic at age 31. I am never going to get a super cheap insurance plan. But I was able to convert to a permenant life insurance plan, without a physical, as if I wasn't diabetic.

When you know you are insurable, people typically don't want life insurance. When people find out they are not insurable, insurance of any type, becomes the best looking thing in the world.

You buy homeowners, car, renters and other types of insurance, hoping you will never use them. The one event that is guaranteed to happen, death, and now people want to purchase the "cheapest" one, failing to understand the gravity of their situation.

I was a real estate appraiser whan my father died. He died without life insurance. It has ruined my mothers life. She raised 5 kids and had no real marketable skills. My dad worked for the railroad, and died at 61. My mother was 49, and not eligible to get his pension because she wasn't 55. :frown:

My dads best friend died from the same kind of cancer a couple of months later, he had life insurance , his wife wasn't destitute like my mother. Unfortunately, my mother wouldn't allow us to give her money, because she knew they could have planned better, but they chose not to.

Don't put your wife in the same position.

Talk to a person that is a Certified Financial Planner. Not a "Financial Advisor," or "Financial Consultant", these are titles for people that don't have the schooling or the knowledge that a CFP/Certified Financial Planner has. We had to pass a 10 hour test, dealing with all sorts of insurance, investment, tax planning, business planning and estate planning.

Please remember this: Only 2% of term insurance ever pays a death claim, permenant life insurance has a payment rate in the 70% range. With permemant insurance you can stucture it so you can quit paying on it, and still have a policy, for the rest of your life. You can also use the funds for supplemental income needs, and over time the "cost" of a permenant plan is way lower, even the "price" of a term policy is less.

Sorry this is so long, but more people need to know the facts.

Thanks, this is definitely a lot to absorb. I didn't realize this was some sort of investment vehicle, I figured it was like any other insurance. Pay a monthly premium, if you don't use it, the $$ is gone. You're right, I am/was looking for 'cheap'. I'm almost 40, have two toddlers, a wife that doesn't work and doesn't have much in the way of skills, and we have jack for savings and don't own a home, so $100/mo is a lot of money to us. Things weren't always this way and hopefully they will turn around, but that's where we're at right now, but I'll talk to a CFP and see what my options are.

No idea how to go about finding a good CFP though, I just opened the yellow pages and pointed and called and left a message .

 

[DDankew]

You may want to see if your company has a group Term Insurance in place, it is generally cheaper than going to an agent or CFP/Bank.

 

[robr]

You may want to see if your company has a group Term Insurance in place, it is generally cheaper than going to an agent or CFP/Bank.

My company has squat. It's an 8 person startup which I finally managed to get to provide subsidized medical insurance as of May 1st after 18 months of bugging the investors.

 

[chumch]

I'll chime in.

Whole life insurance is almost never a good idea unless you make over 300k a year and use it as a tax shelter.

Don't buy life insurance as an investment, no matter how good the salesman makes it sound. It's insurance, that's it. Replacement of income.

Buy it from an A+ or A++ company.

Here's more info from consumer guru Clark Howard:
http://clarkhoward.com/shownotes/category/9/81/

 

[eddiensx]

Insurance isn't necessarilly a good investment, but investments aren't good insurance. You guys are making blanket statements, and are saying what you have been told, not through any true research of your own.:frown:

Based on what you are saying, you should purchase enough insurance to replace roughly 5-10 years of your income. If these funds were to be invested, in a conservative manner, your wife should be able to maintain hers and the childrens lifestyle.

For a certified financial planner go to www.CFP.com

For now, you need to have maximum protection for a lower price for now. Consider a company that will allow you to convert to a permenant plan if you become uninsurable during the term period. This only a suggestion.

Since there are certain laws regarding this, I can't really go in depth on this much more, except to say, talk to someone that represents more than 1 company, apply at multiple insurers so you know you are getting a really good rate. A quote really means nothing if you aren't able to qualify for it.

 

[DocL]

I have a few life insurance policies, and my best advice for you is to keep it simple. Based on your current financial situation, buy term life and a long term care policy for yourself and your wife.

The amount that I pay for all of my insurance policies is probably as much as some people make in a year.