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Life Insurance...What do I need?
Old 08-31-2007, 03:41 PM   #1
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Life Insurance...What do I need?

So I am finally getting around to addressing life insurance after DW has hounded me for the last few years. I have been told by most of my family and friends that all I need is Term Life Insurance. However, I have just met with two insurance agents and they are really pushing for permanent insurance. Their argument is that the term plan is worthless after the 30 year term. But the permanent insurance has a cash value that can be accessed tax free after a certain term (15 years). And that for someone my age (30) this would be a better insurance vehicle because it would also act as a retirement account.

We currently have access to 403b and 457 plans through DW's employer and Roths for the both of us. We are not yet able to fully fund the 403b and 457 plans but can fully fund the Roths. If we decided to do permanent insurance I think we would have to reduce our contributions to either the 403b 457 or Roths to be able to afford it.

I am supposed to have another meeting with this agent to discuss the specifics, but they suggested today that I should reduce my tax deferred savings to allow for permanent insurance. I always thought that permanent insurance was supposed to be really expensive and the costs on their funds a lot higher than Vanguard or Fidelity. But am I missing something? Do people my age use permanent insurance along with their more traditional retirement plans for their retirement planning?

Any insight that any of you could provided would be much appreciated.

Thanks,

Ted
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Old 08-31-2007, 03:56 PM   #2
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Quote:
Do people my age use permanent insurance along with their more traditional retirement plans for their retirement planning?
Yes many do. However those that are smart, do not listen to the life insurance salesman and his banter and purchase term insurance to cover their needs and invest the balance in an investment that will help them in the long run, not help the insurance salesman in the short run.

The avarage commission on a cash value LI pilicy is aroud 85% of the first year premium and about 10% after that. You can do the math and then ask the agent to explain again exactly how this cash value policy will help you and not him. Also ask his how much commission he will receive. He will probably say that he has no idea how much he will make if you pour your hard-earned money into his wallet. BTW, he knows exactly how much he will make (from you) on any potential sale.
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Old 08-31-2007, 04:06 PM   #3
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Most people here will tell you to go with term life insurance, including myself. But it's best for you to convince yourself once and for all. I suggest you play along with your agents to get all the numbers, then sit down and work on a spreadsheet and draw you own conclusion. The understanding will help you now and will stay with you for a long time. You will find instances where you want to share it with the people you care for. One thing I know for sure is that those agents will be around forever, and someone you know will get sucked into their schemes.
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Old 08-31-2007, 04:32 PM   #4
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Originally Posted by TedMunson View Post
I am supposed to have another meeting with this agent to discuss the specifics, but they suggested today that I should reduce my tax deferred savings to allow for permanent insurance.
Yeah, I bet. Reduce your own savings so you can pay into a permanent life insurance from which you can eventually draw out a fraction of what you would have otherwise put into a savings account?

In theory, the best way to do this is to get cheap term life insurance, use the extra money that the permanent life would cost, and put that into a savings account. But, to be honest, if you don't think you would actually save that money, and you want guaranteed savings, then get the permanent life. It sure is a costly way to save, though.

I had permanent life at one time, then canceled it and got term. I eventually canceled the term, then just now renewed it and was lucky I was in good health. I'm using the term as a gap filler for ten years in case I kick the bucket and my wife needs a little extra help with expenses. After ten years we will both be wards of the state if we're lucky :-)
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Old 08-31-2007, 04:53 PM   #5
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mickeyd- I will ask the agent what his commission is on the term vs. life. I'll let you know what he says. I think that I read in another thread that "term life insurance is bought and whole life is sold." Sorry I can't remember who said that, but it definitely seems to be true thus far.

Sam- Thank you, this is good advice. And you are right, I need to run the numbers.

SoonToRetire- I don't think we are going to have any problem paying the insurance and then stashing the extra money away in retirement accounts. Mainly because it's all pretty much on autopilot now. It would be a hassle for me to change our current set-up to accommodate the life insurance.

What do you guys do when the term life insurance is up? For me I assume the term insurance would be up when I'm 60. Is it going to be tough to get insured when I'm 60?

Thanks,

Ted
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Old 08-31-2007, 05:00 PM   #6
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Originally Posted by TedMunson View Post
What do you guys do when the term life insurance is up? For me I assume the term insurance would be up when I'm 60. Is it going to be tough to get insured when I'm 60?

If you buy simple term life insurance, save enough so you can retire at 60, and have any kids you're going to have at a reasonable age, it is quite likely that you will not need life insurance at age 60. You will have enough assets that your death will not be a financial hardship to those around you. You will not have any need to buy life insurance.

I am 38 and no longer need life insurance. If I were to die today there would be enough money for my kids to be raised to adulthood with quite a bit left over. It's a nice feeling.

2Cor521
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Old 08-31-2007, 05:41 PM   #7
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Ted, forget about what the commission is you don't want anything but term. I purchased a Whole Life policy 19 years ago. The agent and I worked it out so I would only have to pay for 10 years. So at the end of the 10 years guess what, I still got the bill. The scam is they us a high interest rate to show you how rich you'll be if you live. Say the use 8% then the policy throws off 3% a year and you keep paying. Or should I say I keep paying. Your luck enough to read this thread first and save your money.

I called the company yesterday and my part this year is over 2K again and this is year 19. I have to pay the premium of 7K a year but the dividends are supposed to pay the premium for me but that rarely if ever happens.

I will cash my policy in as I retired this year and don't really need it any longer. But I will pay the 2K this year and cash it in next year in Jan when I will be in a diff. tax bracket.

Listen to the guys on this forum and buy term and nothing else.
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Old 08-31-2007, 05:42 PM   #8
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Oh yeah, stay on this forum and listen and you shouldn't need life ins. at 60
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Old 08-31-2007, 06:21 PM   #9
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TedMunson, think about why you're buying life insurance. You are probably trying to provide for your family in the case of your death. By the time you're 60, you will have financed retirement so your spouse will be taken care of, and the kids will be educated and on their own. You won't want or need life insurance then.

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Old 08-31-2007, 06:35 PM   #10
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That's exactly right.

When you're young you have lots of earning potential, and limited money. That's when you need life insurance.

When you're old, your earning potential is limited, and you have much more money. That's when you don't need life insurance.

Whole Life, Universal Life, Permanent Life, whatever they call it, is a total scam, and the agents are very skilled about convincing you it's not. Keep your investing and you life insurance separate.
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Old 08-31-2007, 06:36 PM   #11
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You will almost certainly not need more than term. If you did, one of your advisors would have told you whatto buy and from whom. What? You don't have advisors? GThen it is highly unlikely you need more than term.

I would suggest buying 20 year term with a conversion option. This means that the policy is term but you have the option of swapping it for a permanent policy without going through underwriting again. Get quotes from the following companies: TIAA-CREF, USAA, Ameritas Direct, and Protective Life. All will treat you fairly and be competitive.
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Old 08-31-2007, 08:32 PM   #12
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Another consideration:

How much insurance would you really need at this age to provide for your family? Probably a big number.

Could you even afford that much permanent insurance? Probably not. So why even consider it, it isn't the product you need.

JMO, but I would not get into a discussion with the salesperson about their commissions. They will most likely have a smooth answer for every question. As some others have said, just get the numbers, convince yourself outside of their influence.

You are smart to be asking these questions, smarter than most people your age (or older). Let us know if you come up with an answer other than 'term' - I'd like to hear it.

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Old 08-31-2007, 10:13 PM   #13
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Like the others have said, buy Term! And you can easily do that online, and not have to deal with any flim-flam man insurance agents or brokers, or have to pay their commissions!!! The money that Term Life will save you, can then be invested, and will then be available to pay you and/or your loved ones, instead of bank-rolling some low-life, self-seeking, scumbag, con-artist seemingly, well-meaning insurance agent.
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Old 09-02-2007, 03:27 AM   #14
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Also, you might do well to look at what the Social Security survivor benefits would be for your dependent children and surviving spouse/caretaker were you to leave them behind. These benefits can often be significant, and many people do not take them into account. Between our current nest egg and our SS benefits, we do not need life insurance, for example -- the SSI benefits alone are more than our average spending.
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Old 09-02-2007, 11:57 AM   #15
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Ted;

From one who wishes they had found this site years ago before buying permanent insurance. Get Term! Fund your retirement accounts to the max - they are designed for savings/retirement. Get term life as it is desgned to insure your survivors have sufficient resources to carry on without you - the other products are designed to fund the Insurance Salepersons savings/retirement funds.

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Old 09-02-2007, 01:16 PM   #16
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As others mentioned, piling on here -- take the difference between the premiums of term life and whole life and invest it all. Chances are you'll come out ahead this way.

If you invest well, save money wisely, and are debt-free by the age of 60 and have a nice nest egg, there's a pretty good chance you won't need life insurance at 60. The main reason you need life insurance is to provide an income stream to replace the earned income you are currently earning. If you plan to be retired at 60, you won't need to replace current earned income, but survivor benefits for Social Security and/or pensions (if any, but not likely at your age) might still be a concern.

Many term life policies can be renewed after the term expires, but it usually either requires higher premiums for the same amount of coverage or reduced coverage for the same premium.
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Old 09-02-2007, 06:22 PM   #17
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Someone a lot smarter than me told me a LONG time ago you need life insurance when you are young when your responsibilities outweigh you assets. As you get older your assets SHOULD outweigh your responsibilities and then you do not need it. SO, AS ALMOST EVERYONE HAS SAID, get TERM. Buy the stuff from a well rated company DIRECTLY as you surely do not need an Agent for that. While you are at it maybe you should cover the spouse with a policy too (if you lose her what extra expenses arise"). Bet you could get two TERM policies for what those agents want to sell you one WL policy for in monthly premiums. Additionally, you may want to check into any discount for paying the premiums once a year versus each month.
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Old 09-03-2007, 05:48 AM   #18
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Originally Posted by TedMunson View Post
So I am finally getting around to addressing life insurance after DW has hounded me for the last few years. I have been told by most of my family and friends that all I need is Term Life Insurance. However, I have just met with two insurance agents and they are really pushing for permanent insurance. Their argument is that the term plan is worthless after the 30 year term. But the permanent insurance has a cash value that can be accessed tax free after a certain term (15 years). And that for someone my age (30) this would be a better insurance vehicle because it would also act as a retirement account.

...
Thanks,

Ted
Ted keep in mind that insurance (IMHO) is best applied to sell away the risk of a financial loss. In this case the loss of earnings should you die. Calculating the needed amount can be complex. Take your time to do so. There are calculators to help you do this. Mainly so you do not forget something.
Life insurance can also be employed for estate planning purposes. In certain cases, it can make sense.


The amount you need should be carefully weighed. You will need to consider inflation. But if you are saving in a disciplined way, that issue may take care of itself. Some policies (or riders) should give you the option to increase coverage (you may or may not need that). It really depends on where you are in life (e.g., planning for more children).

I agree that Term insurance is the way to go. As Brew stated. Renewable and Convertible Term might make sense. It depend on what your future plans may be for the vehicle. Still, if you get a Convertible Term, you have the option in the future. If I were purchasing the insurance, I would consider it provided the cost differential was not bad.

I also agree that buying direct can make sense. You may save something. You have nothing to lose to compare quotes.

Go for a very high rated company that has a long track record. I would rather pay a few bucks extra than have the beneficiary run into problems when the event occurs.

Check the complaints filed against the company. This will give you some idea if they pay up promptly.
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Old 09-03-2007, 07:11 AM   #19
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Also, although the general rule is that you need 5-10x your current income for insurance, be mindful of your individual circumstances. Is your wife employed? Does she have marketable skills? Do you have children, how many, what ages, and do you want to provide for college or further education (some folks do, some don't) What kind of lifestyle do you currently lead and what do you expect for the future, etc.

btw - your wife should have life insurance too. Even if she isn't working, the work she does in the house and raising the children (if there are any) are things you will need to pay for if she dies.

Just to reiterate, because I am not sure if it was emphasized enough - you shouldn't worry about renewing your term insurance when you are 60 because you almost certainly will not need it by then. The purpose of life insurance is to take care of your dependents if you should die. That's it.
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