Just going over some old texts in my leisure time having rushed through the CFA program the last few years. One thing that I just read in the Reilly & Brown book prompted this question: ‘No serious investment plan should be started until a potential investor has adequate income to cover living expenses and has a safety net should the unexpected occur.’ ‘Life insurance should be a component of any financial plan.’ Now, I have never had life insurance and have long believed this is only for those with dependents. I have the cash reserve. I dont have life insurance. I wonder where the board sits wrt this.
I have it, but I have several dependents. As level III teaches, it is nothing more than a replacement of human capital in the event of premature death. Those with dependents who rely on thieir income stream should have it (as well as disability insurance for the same reason).
Thats what I would had thought, and it certainly applies for term life insurance: However, I dont have dependents, but I would expect to over time (in the next 1-2 years). So the question is about preemptively buying it and therefore having a larger payout later. Speculative I know… Also, universal and variable plans provide both a death benefit and a savings plan. Again it is about the opportunity to accrue a larger payouts. These could well be noob questions. I certainly find talk about insurance about as sexy as Gordon Brown in y-fronts.
I’ve worked in insurance. Never buy life unless its term. The other stuff is intentionally complicated, so as to more easily give you the shaft. If you don’t have dependents, and you would leave your parents enough cash to bury you and settle your debt, you probably don’t need life, but might want disability. Its pretty cheap and if you get hit by a car and laid up, it will keep you from being evicted. Variable annuities can have their place in sound retirement planning, but only for a VERY small slice of people. If other tax deferred accounts have been maxed out or aren’t available, VA can make sense. You should never buy a VA from an agent. Use Fidelity or Vanguard.
Thanks for the advice dlpicket. You are basically saying the same as mwvt9 right - only buy term if you have dependents?
I have some b/c of dependents. I am worth far more dead than alive!
dlpicket Wrote: ------------------------------------------------------- > I’ve worked in insurance. Never buy life unless > its term. The other stuff is intentionally > complicated, so as to more easily give you the > shaft. > > If you don’t have dependents, and you would leave > your parents enough cash to bury you and settle > your debt, you probably don’t need life, but might > want disability. Its pretty cheap and if you get > hit by a car and laid up, it will keep you from > being evicted. > > Variable annuities can have their place in sound > retirement planning, but only for a VERY small > slice of people. If other tax deferred accounts > have been maxed out or aren’t available, VA can > make sense. You should never buy a VA from an > agent. Use Fidelity or Vanguard. ULs aren’t complicated. There’s an account value where the monthly cost of insurance is deducted. Projecting COIs can be accomplished fairly accurately by reverse engineering an in-force illustration provided by whichever carrier you go with. Anyone on these boards should be able to handle it no problem. Never pay the illustrated premiums. Only pay the minimum cost of insurance and leave a small buffer in the account, in case you need to miss a payment, or if the COIs go up for some reason. The account value rate of return is usually around 4.0-4.5% on a guaranteed basis and 5-5.5 on a non guaranteed basis. That said, terms are the way to go if you’re in your twenties / thirties, but you might want to make sure that the product has a UL convertible rider or term extension rider if you get a long term.
eire1130 Wrote: ------------------------------------------------------- > ULs aren’t complicated. There’s an account value > where the monthly cost of insurance is deducted. > Projecting COIs can be accomplished fairly > accurately by reverse engineering an in-force > illustration provided by whichever carrier you go > with. Anyone on these boards should be able to > handle it no problem. Never pay the illustrated > premiums. Only pay the minimum cost of insurance > and leave a small buffer in the account, in case > you need to miss a payment, or if the COIs go up > for some reason. The account value rate of return > is usually around 4.0-4.5% on a guaranteed basis > and 5-5.5 on a non guaranteed basis. > > That said, terms are the way to go if you’re in > your twenties / thirties, but you might want to > make sure that the product has a UL convertible > rider or term extension rider if you get a long > term. This is another one of those products that can be a good savings tool if you aren’t a cold calculating financial machine on payday. Its kinda like a mortgage: a good way to FORCE people to increase their personal net worth. Some folks just have to hide money from themselves in a lot of different places. If that’s you, I could be convinced of a UL. Its just not me, so therein lies my bias against them.
> I am worth far more dead than alive! Probably not, assuming your human capital has reasonable value. >You are basically saying the same as mwvt9 right - only buy term if you have dependents? That’s close. Taking a step back: the golden rule of insurance is to self-insure for all but catastrophic losses. If you have dependents who would suffer greatly were you to die, then life insurance makes sense. (If they’re independently wealthy, no need to insure.) > ULs aren’t complicated. If this is a life insurance policy other than term, I’d step carefully. Almost any independent advisor on the topic will tell you to avoid non-term policies. > So the question is about preemptively buying it and therefore having a larger payout later. Speculative I know… Pointless. Buying lotto tickets is probably a better use of surplus cash.
JustPass Wrote: ------------------------------------------------------- > I have some b/c of dependents. I am worth far > more dead than alive! That’s exactly my situation.
My wife and I both have life insurance
Muddahudda Wrote: ------------------------------------------------------- > Thanks for the advice dlpicket. You are basically > saying the same as mwvt9 right - only buy term if > you have dependents? Unless you have aspirations that will go unfilled without you here. For example, if you plann to gift money to a charity or whatever through your future earnings you could insure it too. I would agree that term is usually the right way to go. There are some situation where “other than term” makes sense, but it is usually in more exotic estate planning issues.
no dependents, but its cheap as hell for me and it would pay off my gf’s school debt and help her get started after i ended. but i agree that disability insurance is much more important so i’m loaded up with that. i may be worth more injured than healthy. the last thing i want to be is a vegetable who can’t eat lobster.
I echo mwvt9’s last point. Variable life insurance may make sense for some people for estate planning purposes and as tax efficient vehicle. If you have some moneys above and beyond covering for comfortable living, unforseen circumstances, funding Roth IRA, 401k, etc and want to have another tax efficient vehicle in your overall investment portfolio, then you should consider having a variable life policy and making sure that you would set it up as non-MEC (non-modified endowment contract). This way the money inside your policy will grow tax free, you’ll be able to tap it for tax free loans, and also it will serve as an insurance policy to provide your beneficiaries with death benefit.
I think in States, most employers offer a minimum life insurance without charge ~ $50K.
That should cover funeral costs.
Disclaimer: I worked for Northwestern Mutual for a few years when I was between real (ie salaried) jobs. I gave up my insurance licenses. volkovv has some of the better comments above, I’ll add a few points to think about. Term Insurance When your term insurance expires what happens? All those cheap rate quotes you see in ads are typically for 10 year insurance policies. I would rarely recommend one of those because you will likely still need insurance at the end of yr 10. At the end of that time period if you have to buy a new policy it will likely be more expensive. And what if health issues cropped up? High BP, cholestherol, and other misc issues. can have effects ranging from higher premiums to being uninsurable. Another point on insurability. If you have some bad family health history it might make sense to buy insurance even without spouse/dependants (either along-dated term policy or permanent insurance) to “lock-in” your insurability. Permanent Insurance I’m more familiar with whole life than universal, they are structured slightly differently. I have a whole life policy (bought in 1992) and a varibale one (bough around 1998) that I bought from NML before I went to work for them. The whole life is probably my best riks-adjusted performing asset based on cash value now vs money paid in, particularly since the risk is on NML’s performance and the are rated AAA. My variable is getting killed with the market. If you have all of the other tools that volkovv metioned I can see adding permanent insurance (whole life) as the fixed income component, but I would not recommend a variable life policy. In the end everyone’s case is different. A friend of mine has a developmentally disabled brother who will probably need support for the rest of his life. My friend has regular term policies for his family, and also a term policy for his brother set up in atrust. Big mistake (he won’t listen to me) becuase if he outlives and can’t renew that policy it puts the burden of supporting his brother potentially on his kids. Whole life here would have taken care of that. So can you tell I’m real busy at work?
Requirement for life insurance is based on need. A needs analysis would be performed as part of an overall financial plan. Current needs are most important and future needs can be looked at as well. Its all about risk assumption…if you die your human capital goes to zero and therefore who ever is left that relied on your human capital may need capital one to replace that. Could be normal dependant situation such as spouse or child could be aging parents could be a corporation that relies on your expertience. You can look at the need and the time requriement. Permanent insurance such as term to 100 or whole life or universal with a guaranteed COI(availiable in Canada only I beleive) would be for permanent insurance needs like the disabled brother example. Term is suitable for temporary insurance needs like loans/debt repayment or if you have small children. If you have enough capital built up to cover those needs then you may look to insurance as a tool for estate planning but this is not a need…and not for everyone.
what is everyones suggestion on a good choice for life insurance?
There is no one size fits all. Insurance is a tool and you have to figure out your need. Then work back.