Life insurance?

[minnie-mouse]

Does anyone know a lot about life insurance and can help give suggestions to someone wanting to purchase life insurance? I wouls just like to know what I am talking about before I contact an agent? Anyone able to explain in "dummie" terms?

[Ian]

I do ... I worked in the life insurance industry for 8 years for one of the largest insurance companies in the world (I won't mention it by name, but you may have allowed them to "Rock" your world at some point ;) ).

What do you need to know?

[offwego]

are you looking for a glossary? I could look one up, but honestly if it's a good agent they will be happy to answer your questions..and if they aren't they didn't earn your business. good questions are far more important then having answers already.

[Ian]

... if it's a good agent they will be happy to answer your questions..and if they aren't they didn't earn your business.Yeah, but if you don't know what you don't know how can you be sure you're getting good information from your agent?

Most insurance agents are fair and honest, but there's a decent percentage out there that will tell you anything to get your money.

Here's kind of the basics of life insurance ...

The two primary types of insurance are term and whole life. There are other types (variable life, universal life, etc.), but honestly they should pretty much be avoided.

Term life is exactly what it sounds like ... you pay your premium for a specified "term" (i.e. 10 years, 20 years, etc.) and for your premium the insurance company agrees to pay out some amount of benefit should you die during the term. If you don't die during the term, then generally you get nothing in return for your premium dollars (think auto insurance). Depending on the policy and how long the term was, you may get some modest amount of dividends returned to you, but that would be it.

Whole life is a little more complicated. In addition to providing insurance coverage, whole life policies earn substantially more dividends than a term policy and also build "cash value", which means that eventually your policy will have a surrender value above and beyond whatever dividends it has earned. It also covers you for your "whole life" (hence the name) and doesn't expire unless you stop paying premiums. Even then, it may be possible for the cash value and/or dividends to extend the premiums for you. The catch, of course, is that it's probably 4 to 5 times more expensive than term life. Many times it will be presented to prospective clients as having some sort of investment feature (or may even be presented emphasizing the cash value element over the insurance element). If that happens, run don't walk away from that agent. There is basically no worse "investment" than whole life insurance.

Which isn't to say it doesn't have plusses ... it does ... but it's rarely the right choice for most people. In general, you're better off getting a term policy and just investing the balance of the money in a mutual fund or something. However, buying a small whole life policy ... something to cover your death expenses when you pass ... and supplementing it with term life insurance over the length of your employment years is not a bad approach.

Anyway, the other thing to be aware of is your rating. Your rating will dictate how much insurance you can get, how much you'll pay for it, etc. Ratings are determined by many factors, but generally they're made up of an overall assessment of your general health. Many companies will add ratings for additional risk factors like smoking, hazardous work duty, risky hobbies, etc. But what you need to know is, if you have health issues like high blood pressure, heart disease, diabetes, etc. you're going to pay more for your insurance. That's especially true if you've smoked in the last five years. Smokers can pay up to 35% more than non-smokers.

You should also be aware of your needs in terms of coverage. That can vary a lot. Why do you want life insurance? Income replacement? Funeral expenses? Those questions tell a lot about your needs. If you're the primary wage earner in your household, in general, you want about 10 times annual salary in coverage. Adjust down from there based on what percentage of the household income your wages provide.

[princessgirls]

Ian has guided you well.

Don't fool around, get Life Insurance, pay the premiums and hope that your loved ones never have to depend on it.

Julie:mickey:

P.S. After 9/11 we got a policy for me, although I wasn't working at the time, we had a baby and one on the way, and after what just happened to so many families around us, I said to my husband you would need to hire someone to care for our children if something were to happen to me. Enough said.

[Kenny1113]

There is basically no worse "investment" than whole life insurance.
.

Funny that you say that. When we were looking at life ins, I kept telling my DH that whole life just didn't make sense to me as an investment. We got term. After talking to my father who had a friend that used to be in ins sales agreed. I realized I made the right choice. I may not know much about investing, but I know when something doesn't look right. Thank you for reconfirmimg my doubts. I do however like the idea of having a little of both ( we were not given that option).

[Ian]

Well since I never turn down an opportunity to talk, let me give you a bit more on the blended solution.

Personally, I think the best approach for most people is to buy a relatively low face amount whole life policy (say between $10,000 and $50,000 depending on your role in the household, age, etc.) and then get what's known as a declining term rider.

What that is is an add-on to your whole life policy that provides and additional death benefit amount that declines over time. Basically what it does is reduce the face amount of the term coverage (not the whole life coverage amount ... that's fixed) year-by-year to reflect the fact that your needs for income replacement should (theoretically, anyway) decline year-by-year as you build your savings and retirement nest-egg.

A declining term ride is CHEAP ... even when compared next to a term policy. Because they whole life policy absorbs most of the administrative costs, they tack on the term for nickles and dimes. It's a great way to get the exact coverage you need for the best price.

By the way I should mention that I am NOT, nor have I ever been, a licensed insurance agent. All of the preceeding has been nothing but my moderately informed opinion. It should not be construed as legal or financial advice in any way, shape or form.

[merlinmagic4]

The only advice I have is to get it NOW while you can. My husband was turned down because he was listed as a potential kidney donor for my son in his physician's files (he actually did eventually donate). This was a man in better than perfect health, too. Now I just hold my breath anytime he has to drive in bad weather! Don't wait!

[SteveL]

One good source about life insurance is Harry Gross. He can easily be found by doing a search.
One of his main recommendations is to be sure that the policy you're buying is also available in New York State due to their strict insurance guidelines.

[offwego]

Also if your not sure about a small or blended whole life policy plan or finances dictate otherwise and you select a short term (say 10 and your only 28) do ask about making it convertable or a rider that covers being reinsurable for an additional term without a new medical..these are also very very inexpensive and can become important if some health issue comes up in the meantime over the course of the 10 years.

[garymacd]

I'm probably going to step on some toes here, but what the heck? Why should today be any different? I, also, am not an insurance agent and have no intention of becoming one.

I know you are probably looking for life insurance; but if you are looking for life insurance or disability insurance for a car purchase, generally avoid the plans sold by the car dealers - especially if there is no medical required prior to acceptance. From what I have seen on news exposé shows, in most cases, they will find some reason to avoid paying out. Sometimes by saying the insured had a pre-existing medical condition that was not disclosed prior to taking out the policy. Sounds a little backward to me. But they have your money and have no intention of paying out.

Not only that, but if you buy insurance on a $40,000 car, you will pay for $40,000 of insurance for the entire term of the loan even if the car loan is now down to $5,000. And you don't get the extra $35,000!

Remember that you must disclose everything they ask about or you policy could be null and void when you try to claim.

About ten years ago, we switched from whole life to term insurance, got better (higher) coverage and had money left over at the end of the month for investments or trips to WDW.

Read the policy carefully before you sign your name. Ask for clarification. If the answers seem a little vague or convoluted, ask again. If the answer doesn't get any better or the agent only seems to be telling you what you want to hear - walk away.

[Ian]

One of his main recommendations is to be sure that the policy you're buying is also available in New York State due to their strict insurance guidelines.Very good advice. New York definitely has the strictest insurance regulations in the country.

When I worked at "That Rock Place" I can tell you we all blanched when we heard the NY State Insurance Commisioner was auditing us.


Also if your not sure about a small or blended whole life policy plan or finances dictate otherwise and you select a short term (say 10 and your only 28) do ask about making it convertable or a rider that covers being reinsurable for an additional term without a new medical..these are also very very inexpensive and can become important if some health issue comes up in the meantime over the course of the 10 years.Good advice. Most insurance companies will automatically include a conversion provision for you that offers the option of a guaranteed conversion to whole life insurance at some point during the life of the policy.

You know another great option for insurance that people frequently overlook is any supplemental group life insurance that might be offered at your place of employment.

At my last place, I signed up for a half million dollars worth of supplemental group life and it only cost me like $2.50 a paycheck!

[minnie-mouse]

Thank you so much everyone, especially Ian. My situation is this: My DH is the primary breadwinner (making over 6 figures) and I work PT. Taking care of the kids is more my role and within the next few years we would like for me to be a full time stay at home Mom. We are both in mid 30s and non smokers, no major health issues, etc. What we would like is to have is coverage so that if something happens to me, he can pay off some debt, have child care financing, funeral expenses, etc. For him, obviously, we would want income coverage, help with debt, funeral expenses, etc. We prefer not to pay a high premium. What do premiums typically run? What coverage do you think is best for us?

Thanks again for all your suggestions. While I am still a bit confused with all the terminology, you have certainly explained it well.

[moodringer10]

i know some people have a couple of life insurance policies.. so its good to have at least one..and in this economy people are making the mistake of terminating their policies

[Goofy4TheWorld]

If you want cheap, you need a term policy. That term would be anywhere from 15 to 30 years for you. The policy on your life would likely be for less coverage (since your income is substantially less than his) while the policy on his life would probably be (in my opinion) for at least $1 million, given that his income is over 6 figures.

My wife and I each have $500,000 in coverage on each other, and mine cost $375 annually, while hers costs $300 annually. That is for a 30 year term policy, started in 2007, when we were both 26 years old, and classified as one notch down from "perfect" health. Men will always cost more than women for the exact same coverage, because, on average, our wives drive us to the grave first:thedolls:

Perhaps that will give you an idea on what to expect in terms of costs. Keep in mind that the cost of any term policy would be locked in (for the most part) for the length of the policy, so my coverage will still cost me only $380 & $300 28 years from now. These same policies as a whole life policy would have cost me something like $1,200 for EACH policy, so choosing term coverage was a no brainier for me.

[Ian]

If I was in your situation, I would definitely go for 10 times my annual salary. Assuming I make $100k a year, that would equate to $1 million in coverage. I would probably go with what say a $25k whole life policy with a $1 million term rider. Maybe a declining rider to reflect shrinking debt (i.e. mortgage) and increasing savings.

As far as how much it would cost, that's tough to say. It depends on so many things. A very, very rough guess is that it would cost in the neigborhood of $100 to $150 a month, but that's nothing more than a guesstimate.

For you, I'm honestly not sure life insurance is really necessary. It doesn't sound like your husband would suffer financially to any real degree should you pass and that's really what life insurance is intended for.

If anything, I'd be inclined to maybe grab a very small (i.e. $10 - $50k) whole life policy that will just be there in case anything ever happens to you. Then your husband can afford funeral expenses, child care, etc.

That might run you like $40 a month or so.

Again, I would check into your group life insurance options at work. That really is the most economical way to go.

And again ... I need to really, really emphasize the fact that, while I worked in the life insurance industry for awhile, I've never been a licensed insurance agent and all of what I've said here is nothing more than my personal opinion.

My intent was to give you an idea of what's out there, what options you might want to discuss with your agent, etc. None of this should be in any way interpreted as recommendations, legal, or financial advice.

[offwego]

Ian, I think you've provided excellent information..and also want to borrow your disclaimer (as a Canadian what I do have doesn't cross the border)

The one question re term coverage for you that I'd want to have you consider is does your husband need to travel for his job and are their family members who could pitch in for the day care concerns that would create? If not an amount to purchase a few years worth of this service could be invaluable and at your age not expensive on a 10 or 15 year term basis, until he wouldn't need it.

The reason I mention this is my brother is a good wage earner but that's dependant on his ability to travel extensively which would be impossible without full time help as family could do evening but not day time too or vice versa on a monthly basis which is what he'd need.

It's an issue that's often overlooked but if you don't live near your family and your husband wouldn't be able to relocate to them it's a consideration that you should discuss.

[minnie-mouse]

Thank you everyone, I am really gratefully for all the advice! We are meeting with our insurance rep and now understand a lot more than we did before, so I think we are prepared now. Againm I can't thank you enough for helping me understand all this, you guys rae great!

[Dixie Springs]

Another vote for term instead of whole. As a financial advisor once told me: Life insurance is for when you die, savings are for when you are alive. Don't mix (as whole-life does).

A cynical coworker of mine defines life insurance as "nice honeymoon for the wife" :D

[A Big Kid]

It is simple.

Get term life and term life only. 10X the breadwinners salary is plenty.

Never let anyone talk you into getting LI for your children.

Go forth and conquer!

[Kenny1113]

[quote=A Big Kid;1830945]Never let anyone talk you into getting LI for your children.
[quote]

Why?

A friend of mine lost their child and ended up paying close to $14,000 in expenses. I can't imagine going through something like that and also wondering how to pay that off as well.