Life Insurance

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Life Insurance

Postby Fire0nice228 on Mon Mar 04, 2013 6:49 pm

So I'll be turning 26 shortly and getting married in September and I'm getting notices from my insurance company (vehicle) that I should get life insurance and the fiance thinks I should too. There is so many options and terms etc. that it is confusing!

Does anyone have any insight into this? I got a letter from State Farm that says I can get a 250k policy for 23.50 a month.. Select term - 20, provides term life protection to age 95 ( :?: :?: ). I'm sure price quote is for someone who is as healthy as Superman.. which isn't me. I quit smoking a few years ago and I'm not overweight or anything like that so its not like I'm one foot in the grave, but you know how it is. The thing that makes me concerned is the fine print..
premiums are level for 20 years. After 20 years premiums increase significantly and go up annually. This policy may be converted while in force to any whole life policy State Farm offers until the later of the Policy Anniversary when the insured is age 75 or the 5th Policy Anniversary


Currently I'm about to graduate college and don't have much debt besides student loan debt and I owe like 5000 on my car and maybe 1000 on various credit cards. People are telling me to get it before I get any older while I still have decent health and to lock in a price, but it seems like they can change my price in 20 years. I remember them trying to sell this to me a year or two ago and saying that my payments would go into an account and accrue interest and after a certain time I would have access to that money or they would start sending me a check when I'm much much older and that it would be a way to supplement my income when I'm retired. That sounds pretty good, but I dont really understand how it works. Would other companies have better rates etc. or is it all pretty much the same?

help
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Re: Life Insurance

Postby shafnutz05 on Mon Mar 04, 2013 6:52 pm

Image
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Re: Life Insurance

Postby roland on Mon Mar 04, 2013 7:38 pm

BING!! First shot right out of the box!
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Re: Life Insurance

Postby mac5155 on Mon Mar 04, 2013 7:52 pm

shafnutz05 wrote:Image


came here for this, was not disappoint.
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Re: Life Insurance

Postby bhaw on Mon Mar 04, 2013 11:19 pm

Fire0nice228 wrote:So I'll be turning 26 shortly and getting married in September and I'm getting notices from my insurance company (vehicle) that I should get life insurance and the fiance thinks I should too. There is so many options and terms etc. that it is confusing!

Does anyone have any insight into this? I got a letter from State Farm that says I can get a 250k policy for 23.50 a month.. Select term - 20, provides term life protection to age 95 ( :?: :?: ). I'm sure price quote is for someone who is as healthy as Superman.. which isn't me. I quit smoking a few years ago and I'm not overweight or anything like that so its not like I'm one foot in the grave, but you know how it is. The thing that makes me concerned is the fine print..
premiums are level for 20 years. After 20 years premiums increase significantly and go up annually. This policy may be converted while in force to any whole life policy State Farm offers until the later of the Policy Anniversary when the insured is age 75 or the 5th Policy Anniversary


Currently I'm about to graduate college and don't have much debt besides student loan debt and I owe like 5000 on my car and maybe 1000 on various credit cards. People are telling me to get it before I get any older while I still have decent health and to lock in a price, but it seems like they can change my price in 20 years. I remember them trying to sell this to me a year or two ago and saying that my payments would go into an account and accrue interest and after a certain time I would have access to that money or they would start sending me a check when I'm much much older and that it would be a way to supplement my income when I'm retired. That sounds pretty good, but I dont really understand how it works. Would other companies have better rates etc. or is it all pretty much the same?

help


There are a couple different kinds of life insurance, but the main ones are term life and whole life.

Term life is like your car insurance. It's cheaper, you pay into it, and if you don't die, you don't get the money you paid in out. My wife and I each have policies in case something happens to the other. Rates are based on your overall health, and they usually quote State Farm (who we have) on "Super Preferred" rates, which you have to qualify for. I don't think it's hard to get that unless you have cholesterol or BP issues.

Whole life sounds like the one you discussed 2 years ago. Significantly more expensive, but you get out some of what you paid in. The only issue being that it's based on current rates (which suck), and it takes a long time to mature.

My wife and I just went over all this again for us (I'm 30, she's 32). Based on the crappy interest rates, I determined I was better off keeping the term life instead of whole life and just putting more money into my 401(k).

There is a 3rd option, which I forget the name, but it's offered by State Farm. You get back everything you pay in when it matures... so if you do a 20 year term, and you didn't use it, you get it all back at the end of it, if you choose. This cost was higher than term but lower than whole. Again, my determination was that I was better off doing more into my 401k.

If you have a job, or if you are getting one soon, most employers offer life insurance you can take out pre tax from your pay check. It's very cheap, usually. I have 3x my salary for roughly $16/mo, and provides me just under $200k in life insurance to supplement my State Farm life insurance. Obvious issue is that if you leave your job, it doesn't go with you.
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Re: Life Insurance

Postby Fire0nice228 on Tue Mar 05, 2013 2:23 pm

Thanks brwi, I am graduating in May and getting a 'real job' so maybe I'll sit tight to see what type of packages I may receive with a job
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Re: Life Insurance

Postby bhaw on Tue Mar 05, 2013 3:49 pm

Fire0nice228 wrote:Thanks brwi,


:face:
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Re: Life Insurance

Postby PensFanInDC on Tue Mar 05, 2013 4:30 pm

hahaha
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Re: Life Insurance

Postby mac5155 on Tue Mar 05, 2013 4:46 pm

ha. classic mixup
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Re: Life Insurance

Postby Rylan on Tue Mar 05, 2013 4:48 pm

:lol:
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Re: Life Insurance

Postby KennyTheKangaroo on Tue Mar 05, 2013 5:10 pm

JOEL CLARK of select quote insurance can certainly help
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Re: Life Insurance

Postby bhaw on Tue Mar 05, 2013 5:31 pm

mac5155 wrote:ha. classic mixup


hasn't happened in forever.
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Re: Life Insurance

Postby Pitts on Tue Mar 05, 2013 5:38 pm

Fire0nice228 wrote:I got a letter from State Farm that says I can get a 250k policy for 23.50 a month.. Select term - 20, provides term life protection to age 95 ( :?: :?: ). I'm sure price quote is for someone who is as healthy as Superman.. which isn't me.

I've had a $500K policy for many years for $26.00 month. If you've quit smoking, you're good.
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Re: Life Insurance

Postby Shyster on Tue Mar 05, 2013 5:41 pm

Whole-life insurance is a lousy, lousy investment. Sure, you can get some money back, but the effective interest rates are garbage. Go with term policies, take the difference in price, and invest it; you’ll end up better off than with whole life. Even with your past history of smoking, it shouldn’t be too hard to get a policy, and at your age it shouldn’t cost very much. As you didn’t mention any children, I’d get a policy that’s basically enough to cover your debts so that you could leave your fiancé/spouse your current assets debt-free. As soon as children are on the scene, your coverage should be increased to at least around 10x your annual salary. For example, if you make $50k per year, it would be a good idea to have no less than a $500,000 policy.

Also, don’t forget other forms of insurance, particularly disability insurance. The chances of being seriously injured in an accident are actually higher than the chances of being killed outright, and disability can be extremely expensive. Say you end up a paraplegic; you might need modifications to your house, special transportation, nursing care, etc. Long-term disability insurance will provide money if that happens. Those policies also typically cover serious illnesses, like cancer or stroke. A lot of jobs include some sort of disability insurance, but it’s usually not very much and may only cover a short term.
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Re: Life Insurance

Postby mac5155 on Tue Mar 05, 2013 5:46 pm

bhaw wrote:
mac5155 wrote:ha. classic mixup


hasn't happened in forever.


to this day, froggy and freecandy are 1 person to me.
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Re: Life Insurance

Postby Froggy on Tue Mar 05, 2013 8:04 pm

mac5155 wrote:
bhaw wrote:
mac5155 wrote:ha. classic mixup


hasn't happened in forever.


to this day, froggy and freecandy are 1 person to me.


i still dont get it. because we both start with "F"?

i guess it makes sense. i'm always getting llipgh2 and Letang Is The Truth mixed up
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Re: Life Insurance

Postby newarenanow on Wed Mar 06, 2013 9:56 am

We never had life insurance until we built our home and had our kids. At that point we woke up and decided to protect our investments and make sure our kids/other had protetion in case something happened to one or both of us. Got wills done, and opened up a term life insurance policy. If one of us go, the other gets $500K. If both go, my kids get $1M.

It's something to think about. I've had 2 or 3 friends die long before their time, and 2 of them had children and a wife. Neither had life insurance and there is a big burden on the wife trying to take care of the kids and pay for everything with half the income. They had some insurance from work, but nothing significant.

I'd seriously consider it. Go term life insurance.
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Re: Life Insurance

Postby shmenguin on Wed Mar 06, 2013 10:17 am

my brother in law is an insurance agent. he set up our life policies right after we got married. while i'm very happy with my term plan, the dude convinced the 2010, naive version of shmenguin to also get a whole plan. i was like, "holy crap, that's expensive. but if you say so". a few months later, i got a little more educated and, incidentally, got kind of pissed about my whole life plan. now, what i've been told is that at any point, we can cancel the policy and get back all the money we've put into it. is that true at all? if so, whatever. we can afford it, and i'm not much of an investor, so it's not like i'm wasting money by putting it into that program.
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Re: Life Insurance

Postby Shyster on Wed Mar 06, 2013 4:59 pm

newarenanow wrote:It's something to think about. I've had 2 or 3 friends die long before their time, and 2 of them had children and a wife. Neither had life insurance and there is a big burden on the wife trying to take care of the kids and pay for everything with half the income. They had some insurance from work, but nothing significant.

I believe that’s the reason I keep hearing recommendations for life insurance in an amount of no less than 10 times one’s income. If that amount is invested and earns interest, the interest will replace a big chunk of the deceased parent’s income. Although, with the lousy interest rates available today, it might be better to go even higher than 10 times. For example, a $1 million policy earning 3% interest income will generate only $30,000 per year. If the decedent was earning, say, $60,000 per year, that will replace only half of that salary.
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Re: Life Insurance

Postby Pitt87 on Wed Mar 06, 2013 5:09 pm

My general rule of thumb for single people: (Total Debt - Total Assets) + Uncovered Medical Expense + Funeral Costs = Life insurance... simple. Basically, if I died today and wanted to make sure my parents didn't have to pay my debts.

Then, think about you life events... for instance, if you get married and buy a house, your wife would need to pay both the mortgage, taxes, etc. If she cannot afford to do that on her salary, you need to have life insurance for that too. Then, you have kids, and kids need child care so your wife can keep working... so you have to think about both the debt and operating expenses of a family, once you have one.

Sometimes its important to talk to an actual financial planner as opposed to an insurance agent. They may take a more comprehensive view that someone the sells insurance... not a criticism, but a CFP is bound to different standards.
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Re: Life Insurance

Postby newarenanow on Wed Mar 06, 2013 5:51 pm

Pitt87 wrote:My general rule of thumb for single people: (Total Debt - Total Assets) + Uncovered Medical Expense + Funeral Costs = Life insurance... simple. Basically, if I died today and wanted to make sure my parents didn't have to pay my debts.

Then, think about you life events... for instance, if you get married and buy a house, your wife would need to pay both the mortgage, taxes, etc. If she cannot afford to do that on her salary, you need to have life insurance for that too. Then, you have kids, and kids need child care so your wife can keep working... so you have to think about both the debt and operating expenses of a family, once you have one.

Sometimes its important to talk to an actual financial planner as opposed to an insurance agent. They may take a more comprehensive view that someone the sells insurance... not a criticism, but a CFP is bound to different standards.


This is also good advice.

To me, and I could be wrong, the insurance salesman is just that, a salesman. He is main goal is to make the sale. I'm sure they are very smart and also would like you to be properly insured, but ultimately there is going to be some skewing of the facts to make a sale. Talk to someone with a financial background to get additional advice as to what you need if you need any help.

As for the first point, I noted the two individuals with a wife and kids. The individual that passed away w/o any left all of his debt and burden on his mother. He had numerous rental homes and other debt as he was not the best at keeping his finances in order. He died suddenly, and after the funeral and everything, his mom just got bill after bill after bill for not only medical stuff, but his debt and other expenses. It simply overwhelmed her both emotionally and financially.

Thankfully with the help friends and family and some fundraising, she was able to get through the financial burden over time, but it was a very difficult task on top of just the grieving.

I just hope with my policy, that if something were to happen to me, my family would not have to go through that extra burden.
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Re: Life Insurance

Postby Tomas on Wed Mar 06, 2013 7:22 pm

Shyster wrote:
newarenanow wrote:It's something to think about. I've had 2 or 3 friends die long before their time, and 2 of them had children and a wife. Neither had life insurance and there is a big burden on the wife trying to take care of the kids and pay for everything with half the income. They had some insurance from work, but nothing significant.

I believe that’s the reason I keep hearing recommendations for life insurance in an amount of no less than 10 times one’s income. If that amount is invested and earns interest, the interest will replace a big chunk of the deceased parent’s income. Although, with the lousy interest rates available today, it might be better to go even higher than 10 times. For example, a $1 million policy earning 3% interest income will generate only $30,000 per year. If the decedent was earning, say, $60,000 per year, that will replace only half of that salary.


But you are working under the assumption that you want to keep the $1million intact. I think it's more realistic to think about insurance payments as bridging the X number of years to raise kids, get into the retirement - while continuously spending the principal ($1 mil) as well. In other words, exchanging the $1mil. for the *annuity of payments* lasting X year. With your "lousy" 3% interest rates, the annual payments corresponding to $1 mil (present value) insurance payoff are:
X=20 years: C=$67,215.71
X=25 years: C=$57,427.87

If you get the "typical" long-term historical Treasury rate (~5%) appreciation on your original $1 mil, then you have
X=20 years: C=$80,242.59
X=25 years: C=$70,952.46

With the 10% rate (typical long-term rate for stocks):
X=20 years: $117,459.62
X=25 years:$110,168.07

(For any other scenarios, play with +PMT function in Excel)
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Re: Life Insurance

Postby Tomas on Wed Mar 06, 2013 7:29 pm

Pitt87 wrote:My general rule of thumb for single people: (Total Debt - Total Assets) + Uncovered Medical Expense + Funeral Costs = Life insurance... simple. Basically, if I died today and wanted to make sure my parents didn't have to pay my debts.


OK, I have the question for the lawyers:
In my home country, if Total Debt > Total Assets, then the surviving party (parents if the child dies, children if the parent dies) have the full right to renounce their inheritance - in which case they will not be responsible for any debts. Is it different in the US? (If yes, then there is pretty much no reason for a single person without dependents to buy a life insurance).
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Re: Life Insurance

Postby Shyster on Wed Mar 06, 2013 7:45 pm

Tomas wrote:But you are working under the assumption that you want to keep the $1million intact.

Yes, you raise a good point; the principal can be invaded as well.
Tomas wrote:OK, I have the question for the lawyers:
In my home country, if Total Debt > Total Assets, then the surviving party (parents if the child dies, children if the parent dies) have the full right to renounce their inheritance - in which case they will not be responsible for any debts. Is it different in the US? (If yes, then there is pretty much no reason for a single person without dependents to buy a life insurance).

Generally speaking, the heirs of a decedent are not liable for that person’s debts unless they have independently agreed to be liable, like for example co-signing a loan with the decedent. If a person dies and their debts exceed their assets, their estate will be liquidated and distributed to pay their creditors as best as can be. Any creditors who don’t get paid in full are generally SOL. For example, my mother could die with a million dollars in debts, and while that would likely mean I inherit nothing because everything she has will go to pay her creditors, neither would I be liable for covering any shortfalls. So indeed there isn't much reason for a single person without dependents to buy life insurance.
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Re: Life Insurance

Postby Pitt87 on Thu Mar 07, 2013 9:36 am

Tomas wrote:
Pitt87 wrote:My general rule of thumb for single people: (Total Debt - Total Assets) + Uncovered Medical Expense + Funeral Costs = Life insurance... simple. Basically, if I died today and wanted to make sure my parents didn't have to pay my debts.


OK, I have the question for the lawyers:
In my home country, if Total Debt > Total Assets, then the surviving party (parents if the child dies, children if the parent dies) have the full right to renounce their inheritance - in which case they will not be responsible for any debts. Is it different in the US? (If yes, then there is pretty much no reason for a single person without dependents to buy a life insurance).


Not a lawyer, but I was an executor once. In the US, the ESTATE is responsible for debts. Individuals can't 'inherit' debt, necessarily, but liens against property absolutely must to be satisfied before an estate can close. If a loan is co-signed it can be transferred, but until someone assumes ownership and secures financing, the lender owns the property as a result of the mortgage. Consider that a house is among the most significant assets in an estate, and you can be in a bad position if the note is larger than the net value of the property.

Creditors can sue for other items, and if you are tied up with a house it can take a long time, which gives creditors plenty of time to come after estate assets. A good lawyer would guide you through the public notice and probate processes, then liquidate and close the estate in a timely manner.

One interesting scenario is young, unmarried couples that own a house (deeded) together. If one party dies and there are no children, parents inherit their child's ownership in the house...
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