posted
So....since we now have our new garage up and own a business, our Insurance Agent is pushing Life Insurance on us. I am so confused between Term, Life, etc. that my head is spinning. I turn to you all, who have a plethora of knowledge and experience in this sort of thing to educate me.
Can anyone explain some of this stuff to me in a nutshell and give recommendations as to what is a smart way to go, and why?
My thanks in advance.
-Teri
Posts: 7198 | From: Near Portland, Oregon, USA | Registered: Feb 2000
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I used to think of term insurance as coverage that was not an investment, it was only coverage and did not appreciate in value. With whole life, you make an investment and hopefully it's value increases. This means that term insurance is a lot cheaper than whole but the payback on whole life is greater.
Posts: 5946 | From: Litchfield, NH, USA | Registered: Feb 2000
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quote:Originally posted by DanA_F99_1977: Email Hawkeye, he should be able to help.
I used to think of term insurance as coverage that was not an investment, it was only coverage and did not appreciate in value. With whole life, you make an investment and hopefully it's value increases. This means that term insurance is a lot cheaper than whole but the payback on whole life is greater.
That's about as far as my understanding of it goes. We both have Term coverage through my work and we both have disability coverage in case of an accident that causes us not to be able to work.
Hopefully Hawkeye can give us some guidelines on what amounts are good to have, and of what kind.
I figure it won't hurt to get educated here on the forum since it's something we all should think about (we all have assets and debt, I figure). If it can help everyone, I appreciate the dialogue here to help us all.
Posts: 7198 | From: Near Portland, Oregon, USA | Registered: Feb 2000
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posted
Whole life insurance has a "cash value" or the sum that grows over the years with taxes deferred. If you cancel the policy, you receive a lump sum. You pay taxes only if the cash value plus any dividends exceeds the sum of premiums paid, according to the American Council of Life Insurance.
Many term policies are renewable, which means they may be renewed without providing evidence of good health until a specified age. However, because of an insured's advancing mortality (increasing chance of death at higher ages), renewal premiums will always be higher than previous premiums. Many term policies are also convertible, which means they may be exchanged for another type of policy, such as whole life.
More commonly, whole life insurance is used as a form of level protection during the income producing years. At retirement, many people then begin to use the accumulated cash value to supplement retirement income. Some policy's will even pay dividends.
You can buy term insurance that stops after 10 or 20 years, or that can be continued until age 70 or later. You can choose for your premium to increase each year (annual renewal term) or to be the same amount for a fixed number of years.
P.S. Hope some of this makes sense. Actaully taking a finance course right now at penn state that touched on this!
posted
Thanks Dan. How about some figures as to what kind of amounts people should think about as a minimum?
Posts: 7198 | From: Near Portland, Oregon, USA | Registered: Feb 2000
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Term, with the exception of Term to 100 is meant to be temporary insurance to fill a specific need for a "term" or length of time. I.E. a mortgage, business loan, buy sell agreements, key man, etc.
Whole life is designed to begin estate creation process. A lot depends on your health, and the amount you can afford to buy, and what you want the insurance for. In many cases you can acutally outlive the need for insurance.
How much to buy? A good question - enough to replace the income of a lost spouse, or to cover an outstanding debt. Young families need a lot of term - the least expensive insurance to buy and most bang for the buck when you're young. I like a combination of both for most couples. You can start a whole life now, with GIO (guaranteed insurability option) it gives you the right to increase your coverage later - regardless of your health. Add term riders to the whole life to increase your coverage now when you need it most.
Most companies are now allowing lots of options. Critical Illness rider - pays you lump sum - on the diagnosis of several major illnesses. You could then have the $$ to seek treatments that you might not be able to afford. Long term care is another option gaining popularity.
Personally, I have a whole life policy that was started many years ago. It's a participating policy that pays dividends. I have a Term to 100 with reduced paid up. If I want after year 20, I can get back all the premiums I've paid in, or keep paying, or stop paying and have a fully paid reduced amount policy. I have one other, a first generation Universal Life policy. It is a combination of Life Insurance and Investment that receives very favourable tax treatments in Canada. I'm not sure about your laws there, but I imagine their similar.
What really is most important is that there is no right or wrong policy. Every situation is different, and every situation changes over the years. Make sure you trust your broker, and review your coverages with him every couple of years.
You may appreciate an analogy to automobiles. There is no such thing as the perfect car. (cept for Fbodies of course!). The best car is the one that suits the current needs of the owner - same with life insurance.
Hope that helps!
Posts: 5558 | From: Windsor, Ontario. Canada | Registered: Feb 2000
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posted
Thank you Brian and everyone. That gets me started. I took a look at the policies we have, and it confirmed what I was already thinking. We're good for now, but still need to think of the future. I appreciate everyone's input. I know it's kind of a dry subject, but it's something all of us should think about and know.
Posts: 7198 | From: Near Portland, Oregon, USA | Registered: Feb 2000
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posted
A rule of thumb I've heard ... this speaks to J.R.'s comment ... you don't want to be worth more dead to someone than alive.
FWIW, Marion and I share a relatively small universal life policy ... we call that our "funeral" policy. Plus each of us has coverage through our employee group plans ... something like 2x annual income.
At work the corporation carries sufficient term life on the partners to be able to do a 100% cash buyout without creating any cash flow problems.
IMO debt, dependants and future insurability are the major considerations.
Posts: 4222 | From: Winnipeg MB CA | Registered: Feb 2000
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posted
FWIW, we have a few of each. We started out with a 50K term on me (the money maker) and a 25K on her. In other words, I can still afford to live without her.
We also have Whole life for the future. I have increased all of my policies in the past 2 years.
My company has a policy on me 100K and $150K on my dad so if something were to happen to either of us, the other could afford to a) hire someone (my option) or b) keep the $$$ and find a new job, try to sell off the customers ect (my dads option) because he is close enough to retirement.
Posts: 2502 | From: Binghamton, NY | Registered: Feb 2000
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