Life Insurance - necessary or necessary evil?

[brewer12345]

Originally Posted by thefed

How is the return of premium offer a bad deal? My options are as follows: about $10/month and I get nothing back. $28/month and I get it all back.* I COULD invest that $18/month, but see no way to come out AHEAD of getting the full 28 back.

I have a son who is under 1 yr old, and a fiance who is a minimal wage earner (nanny). My mortgage is the main concern, she could support the two of them just fine with no mortgage.

Can you plz elaborate?

Unfortunately, things are not as simple as you present them. What would you get back if you surrendered the policy today? Probably nothing. Return of premium (ROP) policies typically come with lots of strings attached, the main one being that you usually get little or nothing back if you lapse the policy before the last few years of the policy. Guess what percentage of these policies lapse before the last few years? Hint: most of them. It is unlikely you will still have the policy when the "return" period comes up.

Another question: did you calculate what the internal rate of return is on the extra premium dollars you are putting up? I bet it is in the single digits. Your choices are this: pay $10 a month and invest the rest and get whatever the invested $18 a month is worth in X years, or pay $28 a month and get back whatever the policy says you get back when you eventually lapse. In the ROP case, you are "investing" the extra $18 a month, just as you are in the first case. You should at least know what "return" you might hope for in the case of the ROP policy.

It sounds to me like you do need some life insurance, and likely more than the amount of your mortgage. Do you hope that your son might go to college some day? That's only one example of what you might want additional coverage for. If i were in your shoes, I would go price a 20 year level term policy for at least $250k ($500k would be better if you can afford it). Get quotes from TIAA-CREF, USAA, and Ameritas Direct. All three companies are financially sound and have a long record of treating policyholders well. I would be surprised if you couldn't get a 20 year level term policy for $500k for $28 a month.

[JPatrick]

Originally Posted by thefed

I have a son who is under 1 yr old, and a fiance who is a minimal wage earner (nanny). My mortgage is the main concern, she could support the two of them just fine with no mortgage.

Can you plz elaborate?

she could support the two of them just fine with no mortgage.
On a "minmal wage"??* I'd really question that.* What about health insurance, college, and about a hundred more etc's.
Brewer has it nailed, you need bunches of cheap term from a good company.
Check your employer for a possible good deal also.* You ought to do this yesterday.

[thefed]

Originally Posted by brewer12345

Unfortunately, things are not as simple as you present them. What would you get back if you surrendered the policy today? Probably nothing. Return of premium (ROP) policies typically come with lots of strings attached, the main one being that you usually get little or nothing back if you lapse the policy before the last few years of the policy. Guess what percentage of these policies lapse before the last few years? Hint: most of them. It is unlikely you will still have the policy when the "return" period comes up.

Another question: did you calculate what the internal rate of return is on the extra premium dollars you are putting up? I bet it is in the single digits. Your choices are this: pay $10 a month and invest the rest and get whatever the invested $18 a month is worth in X years, or pay $28 a month and get back whatever the policy says you get back when you eventually lapse. In the ROP case, you are "investing" the extra $18 a month, just as you are in the first case. You should at least know what "return" you might hope for in the case of the ROP policy.

It sounds to me like you do need some life insurance, and likely more than the amount of your mortgage. Do you hope that your son might go to college some day? That's only one example of what you might want additional coverage for. If i were in your shoes, I would go price a 20 year level term policy for at least $250k ($500k would be better if you can afford it). Get quotes from TIAA-CREF, USAA, and Ameritas Direct. All three companies are financially sound and have a long record of treating policyholders well. I would be surprised if you couldn't get a 20 year level term policy for $500k for $28 a month.

And why, may i ask, is it unlikely that I won't have the policy in 15 yrs? How does it 'lapse'? non-payment...what else? I read on the company website that there are no refunds if within first 6 years, only after that can you cancel and get a pro-rated amt back. (Fidelity and Guaranty)

Secondly, no I did not calculate what I would earn by investing the 18/month....but I will. I'm unsure of what you mean by knowing the return for the ROP policy. It's exactly what I put into it...no interest or anything. 28x 180months=$5040.

Brewer, you are right! I never expected these results, but here it goes! I'll get $5040 back in 15 yrs provided no lapse, with the ROP policy. If I get a straight term policy @ 10/month, and invest 18/month, @ 4%/yr, I'd end up with $4500!!! Only 500 difference, and obviously much more liquid .

Good deal! I wonder if it's too late to cancel that app! I'm calling the guy in a few minutes.


Thanks! Jason

[brewer12345]

Originally Posted by thefed

And why, may i ask, is it unlikely that I won't have the policy in 15 yrs? How does it 'lapse'? non-payment...what else?* I read on the company website that there are no refunds if within first 6 years, only after that can you cancel and get a pro-rated amt back. (Fidelity and Guaranty)

Secondly, no I did not calculate what I would earn by investing the 18/month....but I will.* I'm unsure of what you mean by knowing the return for the ROP policy. It's exactly what I put into it...no interest or anything. 28x 180months=$5040.

Brewer, you are right! I never expected these results, but here it goes! I'll get $5040 back in 15 yrs provided no lapse, with the ROP policy.* If I get a straight term policy @ 10/month, and invest 18/month, @ 4%/yr, I'd end up with $4500!!! Only 500 difference, and obviously much more liquid .

Good deal! I wonder if it's too late to cancel that app! I'm calling the guy in a few minutes.


Thanks! Jason

The only way to lapse is if you choose to do so, assuming you were not fraudulent in your application.

Ugh, Fidelity & Guaranty! Also known as F&G (Effin' G), this is IMO a sleazy company that sells overpriced crap to unsophisticated buyers. They are also run very aggressively, so their risk of default (bad for the policyholder) is much, much higher than any of the three companies I mentioned. Please do yourself a favor and stay away from this company.

I used to analyze the credit quality of life insurance companies for a living. I have a policy with TIAA-CREF. My colleagues mostly patronized them, USAA, and Northwestern Mutual (good company, but very expensive).

[justin]

thefed,

Why not pay $28 a month for a half million in coverage? Screw the premium return. $125k doesn't cover a whole lot, but a half million will actually make a big difference in your family's life should you pass away. I checked an online quote - $24/month for $500000 for a 22 y.o. male in good health. 20 year term guaranteed rate. That will help out your family a lot more than the return of $5000 or so in premiums in 15 years. That's what I would do if I were in your shoes.

[thefed]

Thanks for the replies...I'm considering my options.

Question: Say a guy was at a party, and he smoked some weed. Then he had a life insurance para-med out a couple days later for blood and urine. Would he get rejected?


Just curious. My friend is in this predicament, but he hasn't heard back from the ins. company yet. I say they do test for it and he won't be accepted. He thinks he'll be fine.

[brewer12345]

Originally Posted by thefed

Thanks for the replies...I'm considering my options.

Question: Say a guy was at a party, and he smoked some weed. Then he had a life insurance para-med out a couple days later for blood and urine. Would he get rejected?


Just curious. My friend is in this predicament, but he hasn't heard back from the ins. company yet. I say they do test for it and he won't be accepted. He thinks he'll be fine.

A very large battery of tests is typically done, including several drug tests. I know they test for nicotine, alcohol, coaine and opiates. Not sure if they would test for weed specifically, but they might. Anyone's guess as to whether it actually gets picked up. I would guess that testing positive would be grounds for rejection.

[cute fuzzy bunny]

You can pretty much make a big bet that they test for it and he'll get rejected...

[thefed]

good, because we have $20 on it!

[saluki9]

Originally Posted by Cute n' Fuzzy Bunny

You can pretty much make a big bet that they test for it and he'll get rejected...

One of my college roomates is an actuary for an insurance company. I just called him and he said that most companies will consider you as a smoking risk, not outright rejection.

Anything harder is a certain rejection

[Nords]

Originally Posted by saluki9

I just called him and he said that most companies will consider you as a smoking risk, not outright rejection.

Maybe he's just a risk around brownies.

Or, as was claimed once to me, it was in the BBQ sauce.

[thefed]

lol. a brownie risk, leading to obesity and then heart failure. wow,never thought of that....

[samclem]

Rich,
Thanks for the link the the consumer law article. It is definitely a jungle out there in the LTC insurance world. Martha mentioned that the federal LTC insurance program might be a better buy than most other policies, that's probably true. It also lacks many of the "gotchas" mentioned in the consumer law link, it's a good policy in that respect at least.
I'm not a big fan of insurance: I plan to dump my life insurance as soon as my daughter's college bills are paid and I've got bare-bones coverage on our (none-too-new) cars. Still, I'm thinking about buying LTC coverage just to cover the situation with which you opened this thread.

[poboy]

One of my favorite quotes regarding life insurance was made by Jerry Glanville, former coach of Houston Oilers and Atlanta Falcons.* He said he did not have any life insurance, cause when he died, he wanted his wife and kids to say how much they missed him -really missed him, and* he knew they would mean it.

[Nords]

Originally Posted by samclem

Martha mentioned that the federal LTC insurance program might be a better buy than most other policies, that's probably true.* It also lacks many of the "gotchas" mentioned in the consumer law link, it's a good policy in that respect at least.*

I don't know how LTC policies are priced, but when the federal LTC program came out I told my father that he was eligible.

He said that John Hancock had a better deal. That might have been an isolated incident but Hancock bears comparison with the federal program.

[samclem]

Nords,
John Hancock and Metropolitan Life are the two compnaies who underwrite the federal program. Could their "open to the public" plan be differnet/better than the one offered through OPM? I guess it is possible.
When I found out the in-laws of active duty folks were eligible for the federal LTC insurance, I let my father in law know about it. It was a little awkward for me to suggest he look at this insurance, hard to sound like it wasn't just a matter of me being concerned about eventually having to help pay for his care. That never even crossed my mind!

samclem

[Nords]

Originally Posted by samclem

John Hancock and Metropolitan Life are the two compnaies who underwrite the federal program.* Could their "open to the public" plan be differnet/better than the one offered through OPM?* I guess it is possible.

I was surprised too. I never chased down the details; I felt the offer was enough and my father knows far more about LTC than I do. Dad's extremely healthy (BP in double digits, heart rate in the low 50s) but at the time we had all just gone through 14 years of my grandfather (his father) in a full-care facility.

Originally Posted by samclem

It was a little awkward for me to suggest he look at this insurance, hard to sound like it wasn't just a matter of me being concerned about eventually having to help pay for his care. That never even crossed my mind!

My dad did two years of Army conscription in the '50s, so I packaged it as the last chance he'd ever have for a real military benefit.

[Outtahere]

So Nords does that mean since my husband is and Army vet that he can get this LTC insurance? I'm a little confused by this.