Should I keep whole life insurance policy?
Andy Henson
7 years ago
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Life Insurance
Comments (7)Thanks for the additional thoughts. I know I explained things sort of clinically and coldly, but DH and his ex-wife are very realistic about these things and we often talk about the possibilities of the future. When you have a kid like this, you DO need to be very practical. For example, when she turns 18 next year, she'll need to be adopted by us (her mother is bowing out), otherwise, she'll become a ward of the state and we don't want that to happen. WE want to make the decisions about where she'll live and who will care for her, not leave that up to the state. That's not to say that this isn't an emotional decision for DH, as has been pointed out. It certainly is, however, DH has had to remove himself from some of the emotion to make these decisions. The funeral is already planned, right down to who is doing what at the service - precisely so they don't have to worry about making those decisions when emotions are running high. There won't be a squabble about the finances, because we pay for everything as it is, even though step-daughter lives with her mother...we'll pay every last dime of the funeral, just as we'll pay every last dime of her existence until that point, and will do the same for step-son's college. That's just a given, since ex-wife has no money whatsoever (there was never any alimony required when they divorced, additionally she remarried before DH and I got married). Even though we foot the bill, in the interest of keeping the peace and out of respect for the kids, we do take ex-wife's opinions into consideration and more often than not, decisions are made jointly. As suggested, I guess I'll tell DH to decide if we do more research into insurance or pay the premium for this year and see where that takes us. We do expect the premium to go up every year and no, we have no idea of what life expectancy looks like. It could be next week or it could be several years. Sorry, looks like I've rambled a bit but wanted to provide a bit more context for the question. Thank you....See Morelife insurance
Comments (5)Yet another example of why your best buy in life insurance is a level term product....a level term for 20 years at age 55 would have cost her about $600/yr for $300K insurance. Oh, well! >>If you have enough money saved for retirement and can afford to pay premiums, would you do it?Yes, IF I wanted to leave an sum of money to someone and think if I might use up all my own liquid assets by the time I die. A woman age 62 has a current estimated lifespan of another 27 years. Wait another ten years, and that will grow by another 5 years at least, so her money needs to last a good 30 years, at a minimum. The question is really, why does she have this insurance? Generally at retirement, insurance has a limited usefulness if your heirs are grown and supporting themselves. If her estate is sizable, she would be much, much better off establishing a proper living trust with pour-over will. Most attorneys make this a package with power of attorney and healthcare power of attorney (make sure it includes a HIPAA release!) for a reasonable flat fee. Life insurance is part of estate planning, but it should be done properly, not "I hope this takes care of everything." However it turns out, you might want to remind your friend that although life insurance is not taxed as income tax to the beneficiaries, there are some gift tax considerations to be considered in the overall value of the estate. Note that if your friend dies in 2010, and ONLY in 2010, there will be no estate tax due no matter how large her estate is. Obviously since she canÂt guarantee that, her estate planning must consider how the insurance proceeds work in conjunction with her individual situation. However, in 2011, if and only if, Congress does nothing, the estate tax limit plummets back down to $600K. Anything over that will get socked with up to 45% in estate taxes, and in certain situations that may include the insurance. IÂm terrible with numbers, so IÂll let someone else do an analysis of your friendÂs options. I just wanted to point out sometimes there are other aspects of the situation to consider rather than just straight numbers-crunching. BTW, donÂt depend on a tax advisor for estate planning advice. Use your tax advisor for tax considerations, but estate planning, especially in the US with the current changing estate tax rules, is not a job for the amateur  and Âamateurs include anyone who isnÂt a licensed financial planner (including me!). Here is a link that might be useful: White paper on Insurance in Estate Planning...See MoreLife Insurance for 23 yr old male?
Comments (23)This being a fairly long thread, I'll answer a couple of points from ole joyful on behalf of the OP (but if I've gotten anything wrong, pls do correct me - I'm going on memory here, having contributed several times): >>This was term insurance/most are guaranteed renewals ... but usually at a substantially increased annual fee. >> No. This was an offer from the US Government. It is an unlimited term policy, which is unheard of from a private carrier. The premium remains the same in perpetuity, until the policyholder dies or allows the policy to lapse. >>If he could delay purchasing, until a time when people depended on him financially, he could (but - would he have?) invest the value of the premium for a few years until his need developed. >> The annual premium is a MAXIMUM of $365/yr and a minimum of $3.20/yr. I don't think there's an investment on this earth that would turn even the $365 maximum amount in a five- or ten-year period, into enough money to purchase a lifetime of premiums for a $400,000 30-yr Level Term policy on a male who is ratable for occupation and may by that time be ratable medically as well. Being ratable for occupation normally means a premium penalty from 40-150% in annual cost. The federal government is offering to insure this young man for: - The same premium a highly-rated A+ private carrier would charge to a healthy, non-smoking, "low-risk occupation" for $400K face amount - But instead of a 30-yr Level Term that would go up dramatically at age 54**, this policy remains in force and the premium remains the same, forever. ** For those that are not conversant with Level Term, the premium remains the same for the set number of years, but after that jumps so high (because you are now 10, 20, or 30 yrs older) that everybody drops the policy. So you want to have the term policy last until you have no need for it any longer. How high does it go? Well, after the Level Term period expires, it becomes an Annual Renewable Term policy, which is what ole joyful is referring to. For example, on a $250K policy I purchased on a 15-yr Level Term, I was rated standard for health, no rating for occupation. My premium is currently $600/yr. At the end of the 15 yr term, the annual premium jumps to $4,525, the year after that $4,912, then $5,360, etc. etc. Therefore, I will allow the policy to lapse at the end of the Level Term period....See Morewhole life, or term life insurance
Comments (20)Hi Moni, Whole life covers one for the rest of one's life ... and, as they say, builds cash value. But the cash value relates to the lower price of insuring one while young, with the actual annual costs rising as one ages, resulting in the cash value decreasing as one gets old. One can borrow against the cash value, resulting in a cost for interest. It is my understanding that the cash value disappears when one dies: one then gets only the death benefit that was guaranteed. You can have the cash value, or the death benefit ... but not both. Term insurance covers the life insured for a specified number of years, e.g. 10 years, 20 years, etc., usually for the full face value, but I think that, though seldom used, decreasing term is available, where the payout rate diminishes as the years in that contract period go by. As one ages, the possibility of one's dying during the period of the next term increases, so the price quoted rises, very substantially as one ages. It becomes very difficult, if not impossible, to initiate any policy for a person over age 80. As Iva Mae says, in Canada "Term to 100" is available, to cover one until age 100. It may cover one beyond that, but I suspect that the coverage dies on one's 100th birthday: if it's claimed that such isn't so, I'd want it in writing. Ordinarily, over one's lifetime, a fanily's need for insurance decreases, being for a large amount when young, if there's a family, to pay off mortgage (and I don't like insurance just to cover mortgage), and provide the surviving spouse and small children with their needs until they become independent, probably including at least part of the cost of advanced education. As one ages, the need reduces, so, while the premiums for a specified amount of term insurance increases, the amount that the family needs to carry reduces, thus they can continue to pay less for term than for whole life with the difference available for investment. The idea then is that the amount of one's invested asset increases over the years, thus reducing the amount needed to support the family's needs. The goal is to have enough assets built up over the years to be able to self-finance, thus being able to do without term insurance late in life, when it becomes very expensive. Thus, we often hear the saying, "Buy term (when young) and invest the difference (between the cost of whole life that stays constant through the years and term, which increases as each term expires). ole joyful...See More
joyfulguy
7 years ago
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