Senior savings - life insurance
9 years ago
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life 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 MoreLife insurance
Comments (8)I have a bias against some of the things that the life insurance people have done. I believe that we need it when young - when our assets are few and potential need is great: we have little ones who depend on us financially, a mortgage, etc. Financial planners say that we should use insurance to provide for our loved ones during the time that they can't manage on their own. Perhaps also to provide for a spouse who might not be able to maintain herself, while children are young or later. I currently get a spam message regularly that says, "What would your loved ones do if you died?", to which I say to myself, "About the same as they are doing now", since the youngest just turned 40 a couple of months ago. If they both, being capable in mind and body, can't manage on their own by this time - when are they ever going to be able to do so? The idea is to build your asset base - one of the major ones being a home, until the mortgage is paid off, so that, as you get older, when there is a larger likelihood in any given year of you dying, so the premiums on term insurance increase, you are developing an increasing asset base, looking to the day that you don't need insurance any more. There is a case to be made for people to buy insurance, which usually is paid tax-free, enough to cover the tax load that would be assessed at death, in order to preserve their estate intact for their offspring. Some feel that the insured person is betting that s/he is going to die and the insurance company is betting that s/he will live and keep paying premiums for an extended period - and that the insurance company has the actuaries. Such people decide that they will save and continue to invest the premiums, which may mean that their estate will have a lower after-tax residue to pass on if they die within the next few years, but if they survive for an extended period, they may come out better in the end. Some suggest to their offspring that, since it would be the offspring who would benefit, that the offspring pay the premiums. Not a good idea should one harbour even a minimal suspicion that the offspring might poison one. Have a great year, all. joyful guy...See MoreHow do you figure what's the right amount of life insurance?
Comments (14)The basic service provided by life insurance is to replace an income: to provide the income (or service) provided by the insured in life, throughout the period of need of the dependents. The amount that one needs depends on the financial needs which the family has: in the case of the income-provider, to provide the income that the wage earner provided. I agree that it is wise to carry coverage on a SAHM, as well ... for, as several have said, a SAHM provides several services which will need to be replaced, and usually paid for, following her death Some needs are to pay off debts, including credit card, car loan, mortgage, etc., the major priority being the rate of interest being paid relative to the rate of return that may be obtained on investing the proceeds of the insurance. The main one is usually mortgage, whether immediately or over a number of years, the choice of which to use depending largely on the expected rate of return that the survivor can develop on the fund that would have been used to pay it immediately, related to the rate being paid on the mortgage - and including tax considerations on each. Many insurance companies have sold whole life, or permanent, insurance, over the years, which covers the insured until death and builds up cash values, due to the premium being higher than is needed to cover the cost of coverage in the the early years. The concept of whole-life insurance troubles many of us, as it's quite expensive. Many recommend term insurance, which runs for a given number of years, then expires. Many carry renewable term, to ensure that at the end of that term, they will be able to buy for another term ... sometimes/usually without a new medical test being required. In those situations, as the possibility of death is low in early years, the premium rates in the early years is low, then escalates in later terms, when the possibility of death during that term increases. The total need is largest then, as there will need to be assets in place that will provide an income for the survivors to provide for their ongoing needs ... which in the case of a young family will include surviving non-income-earning spouse and the young children through the years as they grow, then at least part of their advanced education. Will the former SAHM continue to stay at home, or will she go out to earn an income? Is she equipped to obtain an income which will provide a net return, above the extra costs that will be incurred? As the children grow, in the case of Mom will she join the work-force? Will she need re-education in order to do this efficiently? As the years go by, current needs usually increase for a time, which children are growing - but as years pass, the total amount neede to meet the family's needs will decrease. Thus, many families arrange for a total amount of coverage to reduce "reducing term", as the price per unit of insurance increases as the person insured ages. Once the offspring are on their own, what will Mom's income needs be? Will she be able to earn enough to live in the manner to which she had expected/become accustomed? How capable is the survivor of managing money wisely? Will s/he be able to manage it well? Some would fritter such an unaccustomed large amount away, and be destitute within a few years. In such a case, perhaps it would be well to invest much of the proceeds of the insurance into an annuity, to provide ongoing stable income ... but the rate of payout usually depends rather heavily on the rates of interest available at the time it is set up ... which will not be altered later. That would have been much better in the early '80s, when Canada Savings Bonds (briefly) paid 19% ... but not so hot in current low-interest-rate conditions. Especially since many feel that, with the huge debts being carried in our economic environment, and the lack of private savings, and with recent disruptions in the financial markets to cope with, there is almost a certainty that interest rates will soon rise, probably substantially. I have to go, as I need to do some things ... but this will help you consider soe of the parameters involved, I hope. Good wishes as you make your plans. ole joyful P.S. One other major, major issue ... don't forget the ravages that inflation will wreak on your asset base and future costs. Many retirees who forgot to factor in that problem have lived to *regret* that overloooked situation ... which usually more strongly affects people who choose to invest their assets where their future asset (and, less so, income level) is guaranteed). You want guarantees ... there's usually costs. o j...See More- 9 years agolast modified: 9 years agotwo25acres thanked morz8 - Washington Coast
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