Life insurance advice

[Noir]

Looking to buy some life insurance. Any suggestions? What to look, types to buy, etc.

Any suggestions appreciated!

-H

[immortal_suby]

evil never dies.

[Trevor]

Originally Posted by Noir

Looking to buy some life insurance. Any suggestions? What to look, types to buy, etc.

Any suggestions appreciated!

-H

Your question would require the writing of a book by way of a useful answer. There could be something on these lines available on the internet.

You are talking about an area of perceived investment, which can have many traps for the unwary. Be aware that those claiming to be advisers are in fact salesmen, working on commission, for personal advantage.

Seek advice outside of the industry which it has become. In this regard accountants can accrue commission and are part of the industry. I suspect and hope, that this aspect may be the incentive behind your post.

[Tim]

My dad sells life insurance. I remember he mentioned to me that whole life is the worst one to purchase because you have the highest premium (salespeople make the most commission) but a lower amount of coverage than term life.

If you'd like more info I can ask him specific questions.

[Landshark]

Originally Posted by Noir

Looking to buy some life insurance. Any suggestions? What to look, types to buy, etc.

Any suggestions appreciated!

-H

for you, i'd recommend Horse Farm. or Skaters Mutual.

[Kelvin]

One thing: Make SURE you are not purchasing accidental death and dismemberment insurance. I used to work for a company that did that, and they preyed upon people who didn't read between the lines, to find out what they were really getting.

[Nevin]

What the largest portion of the population needs to have is TERM life insurance. Do not buy whole life or any other kind of insurance that claims to have a cash value. Most often, people buy this type of insurance because the agent suckers them in by telling them that it has cash value after a while, it's a good way to save for retirement... blah blah blah. Truth is that this cash value often builds value at rates LESS than that of inflation. WHat does this mean?? It means that over time, your cash value is actually losing money! It means that you're paying money in this whole time, your money is growing slower than inflation, and they are keeping the rest of your money. ALso, when you die, you only receive the death benefit. They claim whatever cash value you've incurred over time, and laugh their way to the bank! ALso, this type usually says you can borrow against your cash value. But guess what... you have to pay interest!!! Paying interest on your own money?? NO THANK YOU! I don't know of many people that got rich borrowing their own money... In addition, by federal law, insurance companies are not even required to put anything into your account in the first 3 years of the policy. So, it means that You're paying for cash value, but guess what? You have no cash value! Also, when you die, you get one or the other. There is no way for you to get the cash value AND the amount of insurance!

I had to find this out for myself the hard way. Over a year ago I purchased a whole life policy thinking that it would be a good investment for my future. I'm 23 years old, I figured it would be a good way to start planning ahead, and guess what.. I GOT SUCKERED! Also, after I learned the error in my ways, I sat down and figured out that if I would just be putting the same amount I was paying my insurance company each month in a jar, I would have had moremoney in the jar in 25 years than I would have had in my cash value!

Here's the easiest way to explain how term insurance works. Basically it'slike car insurance. You pay for coverage and when your car gets totalled, they pay up. Term is like that, but you know right away what your loves ones will be getting (that is the death benefit) and if you buy the right kind (level term) it means that your rates NEVER go up.

Term is the best bet for your money because all you're doing is paying for coverage and if you ask me, that's all you should HAVE to pay for! That way, you have money left to invest where you want to, and you can decide for yourself what to put it in.

Here's what you want to cover when you're looking for insurance.
Funeral costs
Pay off mortgage or other bills in full
plan ahead for child (ren) college tuition
Replace your income for x amount of years
Any other sort of monetary buffer (care of elders, etc...)

Usually you can add children to a policy easily too, for only a few dollars a month. The coverage on a child is usually enough to cover a funeral. The normal amount on a child (up to age 18) in most areas is $10.000.

So, all this together should give you a dollar amount you'llbe shopping for. If yours and your spouses incomes are about the same, you generally want the same amount of coverage. (that makes sense) Then, after you know what kindof coverage you need you can go start getting quotes from people. Just an idea, but lets say you're 30, you have 3 kids and you are the primary breadwinner and you have a $200k mortgage which you've been paying on for oh, lets say... 5 years. You're probably going to want at LEAST $300k on you, and at LEAST $200k on your spouse. These are just ballparks, but it will at least give you an idea of what numbers you should be looking at.

ALso, it is of note that most companies will give you a price break when you get over the half a million mark on the whole policy. It's usually actually cheaper to to a $300k/ $200k than it would be to do 200/200 just for that reason.

So anyways, that's my shpeel for now. I am licensed by the state of Iowa to sell life insurance, so no, I am not just pulling this out of my butt. If you have any other questions, feel free to ask, and if I don't know the answer, I'll certainly try my best to find it for you!

So, to sum this up quickly, BUY TERM INSURANCE, you work too hard for your money to consider throwing it away on anything else! I don't care what brand you buy as long as you keep this in mind!
-nevin

[Trevor]

Nevin,

Your comments are interesting, as it would seem that life insurance policies must be different in the U.S. from what is usual here in N.Z.

When one takes out a life policy here, along the lines of what you term “cash value” it is an “endowment” policy. In this instance, after a short period the policy most certainly does accrue a cash value and can be turned in and the value collected. In this instance depending on how long the policy has been in affect, the figure will exceed the insured figure, but will be less than what the payment would be at death.

The value increases at a rate in excess of premiums paid. This results due to the insurance company putting money out to the market and gaining interest thereon. In a way the policy holder becomes the holder of safe managed funds, required by law to be invested against solid security.

I have before me a small whole of life policy, taken out on my life in 1971, for a special purpose, the sum insured being $5,000.00. If I had died during 1998, $12,650.00 would have been paid to my estate, currently this figure stands at $18,037.88. The fixed premium is $11.93 per month.

Life insurance companies here are a major players in home mortgages and this is where they are able accrue the returns which benefit policy holders. It is usual for them to require any mortgage granted to say a young couple, to be covered by a life policy on the bread winner, so that the dependant is consequently free of debt with the mortgage repaid in a contra manner. Likewise a life policy is sound collateral against any other loan or bank overdraft. This all makes good valid business sense, is value for money and works well for all parties involved.

I am demonstrating is that in this country, a genuine whole of life policy, can and will have a very real cash value. What is more there is an investment and saving factor built in, as well as insurance against death.

However all that said, I agree with the principle that you have wisely stated, i.e. that the essence of the matter, is to provide a sum for the benefit of dependants in the event of death, all else should be considered as subjective. The problem remaining involves keeping the insured figure in line with inflation. The insurance policy I have presented as a sample, covers this aspect admirably, as well as having other advantages.

Surely life insurance along the same lines is available in the U.S. and should not involve the losses and risks you mention.

[dcarrb]

Buying whole life is akin to having the highest possible taxes deducted from your paycheck, just so you'll get a refund. Better to have the least withheld and do something else with the surplus. Invest it wisely and you'll come out way ahead. Blow it, and your heirs still get the insurance payoff (unless you outlive the policy term).

dcb

[Nevin]

Trevor, you also have some good points in regards to cash value.

I'm not saying that your cash value will have NO value, yes it surely will, but the "guaranteed rate of return" on something like that is usually in the neighborhood of 4% annually. Oftentimes they can go higher which would lead to a larger profit for you, but most frequently they do not. In the u.s. the current inflation rate is about 3% annually, give or take a few tenths. You can see here how these numbers being so close together would yield little results in the area of accrued cash value.

Also, you saying that your life policy has an investment built in is borderline illegal here in the U.S. Life insurance can NOT be sold as an investment, as that would be considered fraud. Even the U.S. government does not recognize whole life as an investment! The agent can advise on other investments if they are so licensed, but marketing an insurance policy as said investment would get you a letter from the insurance auditor's office very quickly. That's what happened to the fellow who sold me my whole life policy over a year ago.

In the past, whole life WAS the way to go, simply because nothing else existed. After the 1980's, however, things started to change here in the U.S. when consumers found out what the costs of insurance were, and that they could buy just insurance by itself, just an investment by itself, save on both AND get more coverage.

I certainly don't know the story in NZ, and I am still learning here, but that's what I hear...

[zcarguy]

Trevor,
One of the questions I was hoping Nevin would ask is "In the event of death what happens to the cash value of your whole life policy?" In other words do you retain the cash value as well as receive the entire death benefit or is the cash value forfeited?

When I was young and stupid I also bought a "Whole Life" policy thinking it was a good "investment". After paying premiums for about a year my wife and I had a our first child and the insurance agent dutifully showed up to sell us an add on for him. During the process I finally asked the right questions and found out that the policy I had purchased would not pay the death benefit and allow my loved ones to retain the "cash value" of the policy. If I died my loved ones got the death benefit and the cash value was rolled into it, in effect the insurance company made up the difference between the 2.
Once the policy "matured" the cash value would be large enough for the interest it earned to pay the premiums, which sounds like a good deal, but again at death my loved ones would not get both the death benefit and the cash value but only the larger of the 2. This happened even though the policy was still active and the premiums were being paid.

This is supposed to be a good deal?

[Nevin]

Originally Posted by zcarguy

Trevor,
One of the questions I was hoping Nevin would ask is "In the event of death what happens to the cash value of your whole life policy?" In other words do you retain the cash value as well as receive the entire death benefit or is the cash value forfeited?

...

This is supposed to be a good deal?

You're right, I worded that poorly previously. I knew the answer, but assumed everyone else knew the question. My mistake.

Long story short, with a whole life policy, you only get to have one or the other, Seldom if ever both. You can not have the cash value and the insured value. You can not have your cake and eat it too.

[Trevor]

Originally Posted by Nevin

Trevor, you also have some good points in regards to cash value.

I'm not saying that your cash value will have NO value, yes it surely will, but the "guaranteed rate of return" on something like that is usually in the neighborhood of 4% annually. Oftentimes they can go higher which would lead to a larger profit for you, but most frequently they do not. In the u.s. the current inflation rate is about 3% annually, give or take a few tenths. You can see here how these numbers being so close together would yield little results in the area of accrued cash value.

Also, you saying that your life policy has an investment built in is borderline illegal here in the U.S. Life insurance can NOT be sold as an investment, as that would be considered fraud. Even the U.S. government does not recognize whole life as an investment! The agent can advise on other investments if they are so licensed, but marketing an insurance policy as said investment would get you a letter from the insurance auditor's office very quickly. That's what happened to the fellow who sold me my whole life policy over a year ago.

In the past, whole life WAS the way to go, simply because nothing else existed. After the 1980's, however, things started to change here in the U.S. when consumers found out what the costs of insurance were, and that they could buy just insurance by itself, just an investment by itself, save on both AND get more coverage.

I certainly don't know the story in NZ, and I am still learning here, but that's what I hear...

Nevin,

My post was intended to ascertain differences within markets and in no way is controversial. I basically agree with what you say, but in pointing out what amounts to a low interest rate in respect of a return, you have not allowed for the benefit included, which is after all the prime object of the policy. Many do die young and such an unplanned event is well worth protecting against. This protection must be paid for and has very real value.

There is no suggestion that a policy should be considered only as an investment, but as an instrument with a dual value. This fact is well understood within the market in N.Z.

Here a policy on ones life can be sold as it has intrinsic value. I did exactly this, when I was first employed and needed cash. My employer purchased a policy I had running, knowing its investment value, when coupled with the cover on my life. My death would have involved costs and would disadvantage the business. Insuring a key employees life is not uncommon here.

Your point regarding reduced income tax being an incentive is interesting. We used to have such a system but this no longer applies and this most certainly has reduced the sale of endowment policies.

An interesting topic and a break from SVX stuff.

[Trevor]

Originally Posted by zcarguy

Trevor,
One of the questions I was hoping Nevin would ask is "In the event of death what happens to the cash value of your whole life policy?" In other words do you retain the cash value as well as receive the entire death benefit or is the cash value forfeited?

When I was young and stupid I also bought a "Whole Life" policy thinking it was a good "investment". After paying premiums for about a year my wife and I had a our first child and the insurance agent dutifully showed up to sell us an add on for him. During the process I finally asked the right questions and found out that the policy I had purchased would not pay the death benefit and allow my loved ones to retain the "cash value" of the policy. If I died my loved ones got the death benefit and the cash value was rolled into it, in effect the insurance company made up the difference between the 2.
Once the policy "matured" the cash value would be large enough for the interest it earned to pay the premiums, which sounds like a good deal, but again at death my loved ones would not get both the death benefit and the cash value but only the larger of the 2. This happened even though the policy was still active and the premiums were being paid.

This is supposed to be a good deal?

I think there may be confusion here between whole of life and terminating endowment policies, whereby the policy matures and is paid out at a certain time as per the terms which apply. This type of policy will protect younger members of a family until they become earners, and at the same time work as a savings instrument for the insured, to the point when life insurance as such is no longer required.

I have not come across any policy whereby the insured amount does not accrue value in excess of the "cash" value, in accordance with what is the essence of the policy. The prime object is surely to insure others, during the policy term, against any monetary loss, resulting as a result of ones death.

It would appear that there may be different instruments on sale in the U.S. The policies I have outlined, are a good deal in respect of the objects involved.

[Trevor]

Originally Posted by Nevin

You're right, I worded that poorly previously. I knew the answer, but assumed everyone else knew the question. My mistake.

Long story short, with a whole life policy, you only get to have one or the other, Seldom if ever both. You can not have the cash value and the insured value. You can not have your cake and eat it too.

It would appear that the usual types of life insurance, taken out in our two countries, are at variance.