Life Insurance Thread
What do you guys do about life insurance? What's your philosophy on the matter? I have a bunch of loans and I'm having a kid, so I want to get life insurance because leaving my wife with all this shit is scary and I'll probably never do better on a physical than now. My objective isn't to make my family rich or whatever if I die, but to pay off all my assets. Which will still make them pretty well-off. If they can't take it from there, then fuck 'em. Looking to discuss all things life insurance. If anyone has resources to recommend to become workably knowledgeable in this field, please do, because I'm pretty lost.
-Term vs. Whole Life vs. Universal Life vs. Index Life vs. Return on Premium?
-Is it possible to increase coverage as debts increase with age?
-Any fun strategies blending different types of policies?
-Using policygenius vs. a broker?
-Has anyone figured out the whole "be your own bank with life insurance" a la Nelson Nash thing? I've read two books on it now and am still confused.
-I'm looking at a 20-year $3M term policy for $85/month. That's long enough for my kid to become an adult and by then, I'll hopefully be financially stable enough with enough equity all over and income streams that whatever debt I have won't matter much. My real concern is honestly like the next 3-5 years. This is a very risky period. Highly-leveraged, young dumb and retarded, young companies, young wife, young kid. Very scary. At the rate I'm going, if I kick the bucket in even 10 years, everyone will be fine. Right now, if I disappeared, it's bankruptcy for my wife and my mom if they're not quick on their feet.
Price seems to really jump at the 30-year mark. Guessing because mortgages? And it triples from 40 to whole. 20 seems like a good value and makes sense.
Looking forward to a productively morbid conversation, friendos.
Unless you have a ton of money and have exhausted all other tax deferred options; term is all you'll need. Don't let the salesman tell you that life insurance can be an investment. Life insurance is a risk management contract. Those products other than term make advisors rich and cost a lot in management fees.
Someone can probably speak to the 'ton of money' part of my insight regarding advantageous tax shelters.
Truth- unless you are able to pay for it through something like a defined benefit plan (using pre-tax $ to pay for it and payout is post tax). Small business owners (like myself) have a lot more flexibility to save/invest and protect our family through stuff like the i401k (not just the standard $18k/yr salary deferral like most 401ks, but can tack on an additional $30k+/yr with profit sharing, so closer to $55k/yr tax-deferred).
I have 3 kids under 4 years old and a massive mortgage (bay area is expensive), so I have some term ($1m) and a ($2m) whole life policy that I pay the premiums with pre-tax through the DB plan. My wife would be fine since she is a doc and does well, but having that insurance makes me feel better about any financial stress she would have to face if I croaked. Kids are expensive.
Patrick, with the whole life policy, is the plan to always keep the policy paid up to ensure the death benefit, or is the idea that if you have a nice long time you would draw from the cash value later in life (essentially using the policy as a tax-deferred plan)?
You just need a small duration term policy. Whole life has tax benefits early but mortality costs eventually erode value. The reason the policy jumps at 30 years is simply actuarial. Your likelihood of dying takes off around that time in your life.
I looked at the mortality tables the other day, and if you make it past 25 or so you have a good chance to make it to 65.
Delete.
Whole life from certain mutual companies can be beneficial. It depends on the dividends the company provides to the owners. I recommend looking into a NYL or Northwestern policy.
Also DO NOT get a 20 yr term. Waste of money only do 10 yrs. 20 yr terms are the money makers for the insurance agent.
Can you explain the 10 vs. 20 thing please? Are you saying there's a better way to acquire 20 years of coverage? Buy 10-year policies twice?
Not speaking for CompliConsultant but 20 year is going to reflect the insurer's risk that your health deteriorates, you get hit by a bus, or one of any number of other things happens that will increase the likelihood that they're going to cut a 7 figure check to your heirs. It also locks you in to pay premiums for 20 years.
10 years will pass quickly. So yes, depending on how well you take care of yourself, you might buy a 10 yr policy now and assess another 10 year policy when that one expires. Unless you've let yourself go between now and then it won't be that much more expensive.
No kids, I don't need life insurance lmao
didn't need to make that post either
Are you sure? What if you die?
I'm pretty certain that being dead is a situation that money can't help with.
Agree that if it's through a mutual co a whole life policy can make sense. It's basically a fixed income investment with both tax advantages and a death benefit. Just don't buy too much, and take on no more premium than you could comfortably pay if your household income was cut in half. (B/c if your spouse works today and you have kids there's a good chance it will be).
Regardless of whether you buy term or whole, view it against the totality of your other assets. If you're family's going to be well taken care of with what's already in your PA (and realistically that's $3m+ and some home equity), you don't need tons of insurance.
Wife and I are both 30. She's pregnant and we have a combined income of $225-250K in the Midwest. Just purchased 20 year $500K term policy per person. Both healthy and don't smoke. We're well positioned financially with no debt outside of the mortgage and could still get by on either of our incomes, so the policy, god forbid we ever need it, would provide for the following: 1. Pay off the house - $150K remaining on mortgage - $300K house 2. Provide for fully funded 529s (Two or Three kids) 3. Provide a nice cushion for raising children and additional savings.
We considered the $750 and $1M policies but didn't see the additional benefit being worth the price as we're fairly frugal and our careers will continue to improve. Both of our employers provide $250K policies, but if we ever changed jobs we could lose that coverage or it would change so we didn't include those policies when making the decision. In addition, we didn't want the policies to be investments, only for worst case scenario insurance policies.
With a kid on the way I'd buy a lot more than $500k per person, esp b/c term is pretty cheap when you're young and healthy.
If something happens to you do you want your wife just "getting by?" She might not want to work for a few years with a child and no husband, and if she does / has to, the childcare expenses will likely be substantial. What about her retirement? And would the 529 cover $200k+ in 2019 dollars that it will likely take to put your kid through college?
I agree. I might be a psycho but I went from completely uninsured in my 20's to - after having a kid - taking a hard tack toward financial conservatism - tons of life insurance, most expensive PPO health insurance option, living trusts, supercharging savings, etc.
I want to add the usual caveats that you should always talk to a financial planner in these situations because personal finance is hard, but otherwise I'll give it a go:
I worked in life insurance pricing before business school, and life insurance is just like any other financial product: you can ask for all sorts of bells and whistles (UL, IUL, ROP, Whole Life), but you're going to end up paying for these features. If a company guarantees you 4% on your UL or floors your S&P returns on your VUL or IUL at 0, you better believe that you're eating tons of fees. Generally speaking, you're not going to be able to beat the insurance company by buying cute combinations of policies; there's just too much profit baked in.
For the vast majority of people, you should buy term and invest the difference. Term is the simplest product with some of the most competitive pricing because it's just simple insurance without any sort of surrender value or market guarantees. In terms of time frame, I think it's smart to think about having enough coverage to help your children make it through college, but that's a personal decision. With respect to policy sizing, I would spreadsheet out the kinds of expenses that your family would have, and don't be too conservative. Again, this is a personal decision, but I wouldn't want my family to have to change their lifestyles (where they live, go to school, etc.) in the event that I died, so I would try to size my policy to replace my income (most people kind of get weirded out at the idea of buying a fairly large policy, which is silly).
I said that term is good for most people, but there are certain situations in which other products might make sense. In particular, life insurance is heavily tax advantaged and certain high net worth individuals might find it beneficial to buy a permanent life insurance product simply for tax planning purposes. Lastly, there are some people who have some kind of psychological aversion to term products ('I paid $100 in premium last year, and didn't file a claim, so I lost money!'). I think this is ridiculous, but if you're one of these people, then, by all means spend your money on expensive UL or VUL products.
Happy to answer any specific questions
Good insight, thanks for that.
Curious, how would I better educate myself on whether whole life would be tax advantaged in my situation? Would you trust a life insurance salesman to do the math, would it be a CPA, or just sweat equity from myself and self-teaching?
motley spelled it out above, but unless you're maxing out your 401k, HSA (if you have one), 529 (if you have one), IRA, and other tax deferred/exempt products; Whole/UL/VUL life insurance is not worth it. It's more or less the last holy grail for kicking the tax can upon exhausting all other measures. Buy term and invest the difference.
I would not trust a life insurance salesman for any sort of guidance. Either educate yourself or find a CPA or RIA fiduciary skilled at such measures.
do not trust a life insurance salesman. it's like asking a bartender if you should buy a drink. they have one set of products to offer, so they have zero incentive to offer anything else.
my experience is that the vast majority of life insurance's tax benefits happen at death. if you are a w2 employee without a complicated net worth (tied up in properties, partnerships, carried interest), the tax benefits will be moot during life. you can get tax deferred growth if you're a buy and hold investor, and whatever taxes you pay on dividends along the way will be peanuts compared to underperforming life insurance subaccounts and their high annual fees, and the other benefit is in tax deferred access to the cash value, to which I would suggest just having a HELOC or a line of credit attached to your investments in addition to an emergency fund.
as far as tax benefits at death, depending on the state you can avoid paying estate taxes if you have an attorney worth his/her salt, but the lifetime exclusion is so high that most on this forum won't come close.
TLDR - buy term to match up with liabilities, stack your cash in other investments. and, if you ever have questions, feel free to ask me.
Thanks for the great response, very insightful especially given the lack of relevant info on this forum.
Two questions if you don't mind: - I suppose the main purpose of term insurance is to protect against the potential loss of income in the event of death. But it doesn't really cover the potential loss of income in the event of, say, permanent disability resulting from accidents. Is there something similar to term insurance that protects against this as well? (I am the only source of income in my family and hence quite anxious about this) - Any good personal finance planning spreadsheet templates that you've come across (the need to buy a house at age x, assuming income y and family expenditure z, with scenario toggles etc)?
In the meantime, am trying to find a proper financial advisor who's not trying to sell me exotic policies while claiming she has some sort of inside information and why it will guarantee to yield at 15%+ annually ... ridiculous sales pitch like this happened to me more times than I can count.
Disability insurance does just that and it's not crazy expensive as office people have a lower chance of being disabled to the point where they can't work.
Consider a flat / hourly fee financial advisor, and get it in writing that they generate no revenue from any financial products you buy, at their direction or otherwise. This is really the only model that gets you truly objective advice. Every 6 or 12 months they do a full review of your finances, advise you on rebalancing, tax minimization, insurance, etc, and you write them a check that's based on the complexity of your needs not the value of your assets.
As someone mentioned, DI is definitely a good choice here, but you may actually also be interested in a long term care policy. Disability insurance is going to cover the very specific event of becoming disabled. If you become sick, and need to live at home with someone taking care of you, then you might have an event that would be covered by the LTC and not by the DI policy. I didn't actually work on DI, but if I recall correctly that's more of a salary replacement insurance, while LTC would cover the costs of healthcare (costs that your family would have to pay without your salary). The guidelines for purchasing these types of insurance policies are the same as what I suggested above: the simpler the better. People may try to sell you on permanent policies, but these will typically be more expensive.
As for a spreadsheet, I'm not sure if I'm aware of a good one sadly.
Insurance can be as complicated as you want it to be. From reading your post, I think protection at this point is your main priority for your kids and wife. Permanent life insurance is great, but can be costly. A potential solution would be buying a 10 year term policy in order to cover your current liabilities and to ensure your insurability for the next 10 years, and add a convertibility rider. Whole Life convertibility would give you the flexibility to convert if at any point you think Whole Life insurance would be right for you for roughly 10 years without undergoing an additional medical exam at that point in time. There are other features you can add to give yourself more flexibility as well.
*Full disclosure, I work for a company that caters to HNW and UHNW clientele using leverage to optimize insurance portfolios while maintaining the clients cost of capital (insurance can get outrageously expensive for HNW and UHNW families/clients). We focus primarily on Whole Life insurance due to the contractual guarantees and stability. We work with private banks and wealth managers to add levels of risk and potential arbitrage through the financing component (ie. different currencies, fixed vs variable rate, etc). Not for everyone, but for the right client it is a game changer.
Solid thread GoldenCinderblock, thanks for getting it started.
Full disclosure - Life Insurance "salesman" AND owner (for 30 yrs). First - about the salesman crap. Get over that. That's like saying your MD is an access to capital salesman or the HF manager is an investment salesman. Everything that truly matters in business is sold to someone. Without the selling, no one has a job!
Ok back to insurance. Most people don't know about the vast benefits of life insurance and I won't go into all of that now, but suffice it to say, the best type of coverage to own is the type that's in force when you die. Plain and simple. The only way to guarantee that is to have permanent coverage. What flavor (whole life, UL, IUL, VUL, VL, etc) is less important. Your wife or the bank or your business partners or your kids or your whatever won't care what it's called. They just want a check. So term doesn't cut it IF you want coverage in force when you die, regardless of your age.
However, term is great for leveraging large amounts of coverage for low premium for a set duration. There are reasons for this strategy. Protect your income when you're young. Pay off liabilities. Collateralize a business loan. Fund a succession plan for the business owner, etc. Something like 97% of all term policies expire prior to the insured, meaning no coverage. However, there was coverage during a set period that may have been important.
Ask yourself what you want your coverage to do. What is it for? There's a difference between want and need. You talk about not needing to make your kids rich, but do you want them to have something? If so, the best way to guarantee that is with permanent life insurance.
You're young and just starting out. What you'll find is as you go through life's journey, the need may go away but the wants will increase. I'm 54. Other than to pay for college tuition in the event of my death, I don't need life insurance. However, at my age coverage is more of an asset class. I view it as a retirement fund (not the cash value - which is great BTW- the death benefit). Like anything other financial instrument, life insurance is part of my portfolio. When I die, my wife or my kids will get $X. If I live a long life, we'll have $Y. My wife will likely outlive me by a good chunk. Better longevity, healthier, and women do. So, if I want to make sure she has enough to live on to say a90+, I can either adjust my investments to take on unnecessary risk to grow the nest egg or I can insure it. I chose the latter. So My investments are about lasting for both of us and then I die and she gets a new nest egg ON A GUARANTEED TAX FREE BASIS. Nothing else can do that.
For you, your immediate issue is having coverage to protect your young family. I would get a minimum of 10-12 times your income. I would consider a blend of term and perm. Keep costs relatively low AND build a policy for the future. It'll be here faster than you know.
I can get in to all kinds of cash value, personal bank scenarios but really not worth my time on this forum. Suffice to say they work, provide tremendous tax leverage - way more efficient (LONG TERM) than non qualified fund investment - but certainly not for everyone as it takes a certain discipline. I've been doing that for 20 yrs and have substantial tax free cash value to supplement my retirement. It's not a get rich quick deal but it does build a tax free snowball becomes a powerful distribution engine.
The thing about buy term and invest the rest---nice thought but nobody does. That's not to say people don't invest but they don't typically systematically invest the rest over a long period of time. And when that term expires, which it most likely will, yo either have nothing or it becomes ridiculously expensive to renew, provided you're still healthy enough to get the coverage.
I would blend. You can always convert the term to perm later but get something permanent started.
Not a sales "pitch", just reality. WIsh I had another 2-4 M of perm. Then I wouldn't care about having enough to leave for anyone.
I apologize, I spent the better part of a decade in a non-sales planning role, and got My CFP, and there is quite a bit wrong with this post, which I will attempt to reply to respectfully. I have since left and moved into overseeing a large portion of quant finance at a large asset manager, and I have my Charter.
But is the Analyst a potential acquisition target, or a potential qualified investor? This conflict is virtually never the case, and if it is there are virtually always firewalls put in place. This is not the case here.
If I'm single with no kids and my parents are fine, a $20M policy that I've been paying into for 5 years isn't going to benefit me if I get run over by a bus, especially if it ends up going to my asshole sister and her snot-nosed kids. In that case my forgone consumption is a net negative. The right amount of insurance is the amount that satisfies the insured's goals, and frequently in retirement that is $0, if they have been able to put the amount into other tax advantaged vehicles instead, as the missed income is zero.. Foregone income is zero, and unless something like requiring paying a caregiver is required, additional expenses are unlikely. Why do you think term is so cheap relative to the others? Roughly 98% of term policies never pay out. Nobody's ever gotten out of this life alive, so whole life is assumed to pay out or have the insured default. Many of the others are designed to 'blow up' with unaffordable balloon payments when the investment account hits zero. Your kids can also inherit your unspent 401k balance. That will likely be lower if you forgo contributions to pay for life insurance.Nothing in this life is free. Remember, you are paying additional fees on this benefit. If you live to 90 on a policy issued at 30, the life insurance company has won, because you've been paying premiums this entire time, while they billed you in the expectation that you would have died years ago.
Nothing like people giving you recommendations without knowing critical details about your specifics. This is about as bad as getting medical advice from strangers on the the internet. Debatable, and as an investment as opposed to insurance, they are almost always worse than qualified accounts like an IRA or 401k. You say discipline is required for options other than term in the previous paragraph, and now you say that people don't have the discipline to "buy term and invest the rest." These two statements seem logically discordant. As to the second part of this, when the term expires you should be ahead of the game through investing the rest, and not need to renew.This guy has so much risk from regulation BI. EDIT: Typos, because nobody likes typos.
Don't forget to lump in social security survivor benefits, especially if you have kids. Assuming you've been working consistently since you were young and have been paying the max in ss tax, your children can get up to 75% of what your retirement payout would've been, until they turn 19. Although the entire family will be limited to receiving about 150-180% of what your projected retirement benefit will be, your family could theoretically receive $5K per month if you're near retirement, or $3K-4K if you've worked (or will work) for the next 10-20 years and paid the max in social security tax.
Good to invest in insurance if needed
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