Life Insurance

bradgator2 · Mar 8, 2019

What's your take? Whole or term? How much coverage?

When my wife and got married back in 2004 (we were both under 30), we both got 20 year term policies. Well, certainly life has changed for us since then. I realized a couple of years ago that... damn, both of the policies will expire in 2024 when we approaching 50 and I will still have kids at home. So we both just got new 10 year term policies while our premiums were are still very low and reasonable. So we are actually doubled up for the next 5 years.

I have known some people who have invested in whole life policies, but I have obviously only done term. It's a very low cost to for a very big payout if it gets used. For those of you who dont know, these term policies are very cheap right now if you are fairly young and in good health and they are very easy to get.

I'd want to: pay off the house and any other debt, pay for college, and replace 5 years of my income.

Bait'n Gator · Mar 8, 2019

I went the whole life route with NW mutual. Have a pretty big one on me and a $500,000 on each of my 3 children. I've never been worth a damn at putting back money so I went this route. By the time each of my children graduate high school each one will have around 75 to 80k in cash value that I can draw out and still have the insurance policy that will have grown 20 or 25% by that time as well.

Thinking of getting one on my wife as well, will probably go mostly term on her being the premiums are so much lower. I've got all their asses covered in case something happens to me, now I need to cover my ass in case something happens to her.

bradgator2 · Mar 8, 2019

Bait'n Gator said:
I went the whole life route with NW mutual. Have a pretty big one on me and a $500,000 on each of my 3 children. I've never been worth a damn at putting back money so I went this route. By the time each of my children graduate high school each one will have around 75 to 80k in cash value that I can draw out and still have the insurance policy that will have grown 20 or 25% by that time as well.

Thinking of getting one on my wife as well, will probably go mostly term on her being the premiums are so much lower. I've got all their asses covered in case something happens to me, now I need to cover my ass in case something happens to her.

Yeah, absolutely on Mrs. Bait. For me, my wife teaches at a Christian preschool for 4 hours a day, and brings home less than $10,000 a year. So my thought on her policy isnt income replacement... rather, I would basically have to get a nanny or something for a few years if she passed away today. She is 43. We literally just signed the paperwork on a new 10 year, $500,000 policy for less than $300 a year.

williston_gator · Mar 8, 2019

I sadly don't have anything other than what my work offers, but I would chose term if/when I get one.

TLB · Mar 8, 2019

Anyone recall the rule of thumb in estimating how much coverage you need? Based on debt, income, what you want to have covered, etc? I generally go with 5x my income for insurance on myself, mostly because I want the wife to pay off everything and be set with the kids. I don't have much on the wife or kids, as their income isn't much and my income would still keep coming in.

Zambo · Mar 8, 2019

I would think it a combination of debt and income. If you're going to pay off your house soon for example, your bills going forward aren't going to be as high as they are now.

Brad, 500k for 300 bucks a year sounds outstanding. What company wrote that policy?

MidwestChomp · Mar 8, 2019

Urg has been waiting for this thread for years.....

bradgator2 · Mar 8, 2019

Zambo said:
I would think it a combination of debt and income. If you're going to pay off your house soon for example, your bills going forward aren't going to be as high as they are now.

Brad, 500k for 300 bucks a year sounds outstanding. What company wrote that policy?

I was a tad off, it is $350 a year for her. My new term policy through them is 1.2M and that is $550 a year.

Protective Life Insurance Company | Affordable Life Insurance & Annuities

We did have to jump through their hoops to get their best rate, but it was worth it in the end as that rate seemed to be roughly half of other rates. They actually reviewed our medical records with our primary doctor, plus they sent out a nurse to our house to give us a full workup, full background check, etc, etc. We debated on going with a 15 year policy vs 10 year. Stuck with another 10, as that will put me at 53, youngest kid will be 20, and the house will be paid off.

Pablos Tunnel · Mar 8, 2019

Look up the Economic Human Life Theory. That is the definative rule of thumb.

Pablos Tunnel · Mar 8, 2019

Stay away from A- or worse companies and only buy permanent insurance (whole life and guaranteed universal) from mutual insurance companies.

no1g8r · Mar 8, 2019

I went with term life on both my wife and I. I figured I could do better investing the difference between the premium for term vs whole life myself and come out ahead (and I was right).

When we were in our late 30's, I took out 3 policies on myself - I'm the sole income earner:

a 30-year level term $500k policy, which was designed to protect our family until retirement
a 20-year level term policy for $500k, designed to expire when my daughter became an adult (and when I had at least $1m in assets
a 10-year level term policy for $500k, designed to cover us until I had at least $500k set up in investments

I also took out a 20-year $500k level term policy for my wife, with the idea that it would pay for a hired domestic goddess to take care of my daughter (and me) until my daughter became an adult.

I'm now in my mid 50's and everything is tracking at or better than planned. The only thing that I would do differently would have been to set $2m or more as my target, instead of $1.5m. $1.5m wasn't going to go as far as I was thinking that it would. Fortunately investments have done better than originally planned, so barring something catastrophic, it should all work out fine.

Albert · Mar 8, 2019

I’m an agent, whole only works if you get in the game under age 28 as far an investment, then the premium becomes cost prohibitive vs term. As far as needs go, get enough to expunge all debt, pay for kids education and leave the spouse with at least 2.5 years of your highest income.

crosscreekcooter · Mar 8, 2019

I thought Ox was selling insurance

no1g8r · Mar 8, 2019

Albert said:
I’m an agent, whole only works if you get in the game under age 28 as far an investment, then the premium becomes cost prohibitive vs term. As far as needs go, get enough to expunge all debt, pay for kids education and leave the spouse with at least 2.5 years of your highest income.

Why only 2.5 years of highest income? That doesn't seem like it would be adequate. What am I missing?

Concrete Helmet · Mar 8, 2019

divits · Mar 8, 2019

I went with term. I never really liked the idea of whole life as a hybrid investment/insurance idea. It's much cheaper and your money grows much faster and bigger if you keep life insurance and investing separate.

Albert · Mar 8, 2019

no1g8r said:
Why only 2.5 years of highest income? That doesn't seem like it would be adequate. What am I missing?

Keep in mind that is over and above what it would take to erase all debt, and the 2.5 year salary is the minimum. Let’s just say you were 40 making 150k a year, two teenage kids and a home mortgage principal debt of 200k. Go ahead and figure $150k each for college, the 200k mortgage plus 375k in salary replacement. Take in any short term debt (car notes, credit cards etc) you might as well look at $900k just to start. 375k goes a little further if you are completely debt free.

no1g8r · Mar 9, 2019

Albert said:
Keep in mind that is over and above what it would take to erase all debt, and the 2.5 year salary is the minimum. Let’s just say you were 40 making 150k a year, two teenage kids and a home mortgage principal debt of 200k. Go ahead and figure $150k each for college, the 200k mortgage plus 375k in salary replacement. Take in any short term debt (car notes, credit cards etc) you might as well look at $900k just to start. 375k goes a little further if you are completely debt free.

It still seems too low to me. From contributing $150k per year to the household, even with the heavy debt load you outlined, to contributing ~$30k per year ($375k x 8%), is a pretty dramatic dropoff. I'd look to have at least 2-3 times that (5-7.5 years) left to a working spouse, and 4 times that or more (10+ years) to a non-working spouse.

Pablos Tunnel · Mar 9, 2019

Albert said:
I’m an agent, whole only works if you get in the game under age 28 as far an investment, then the premium becomes cost prohibitive vs term. As far as needs go, get enough to expunge all debt, pay for kids education and leave the spouse with at least 2.5 years of your highest income.

You are wrong. Sorry but you are misimformed. I know hundreds of individuals and corps that purchase whole life for the cash value build up well beyond age 28. While not exciting a net 3-6%, tax deferred, creditor protected and sometimes tax deductible policy is a nice keystone for their portfolio. Plus the additional planning techniques are endless. There are plenty of policies out there with good companies that perform this way.

Pablos Tunnel · Mar 9, 2019

divits said:
I went with term. I never really liked the idea of whole life as a hybrid investment/insurance idea. It's much cheaper and your money grows much faster and bigger if you keep life insurance and investing separate.

This strategy is called buy term and invest the difference. Works good for those that are disciplined and will NEVER need life insurance later in life. I do not have a crystal ball. Permanent insurance is a valuable long term planning tool for many. The more wealth you have the more you will want permanent life insurance for future planning.

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