Life Insurance

katiewhompus

Kind of a personal question, so feel free to be as vague/not answer if you so choose.Who do you or dh use for life insurance? Dh was using USAA for his 7 year term (just ran out last month) but was quoted at $500/month to go to a 30 year. Is that normal or is that ridiculously high? The company keeps telling dh that "he must plan for the worst, and that will cover his income, college for 2 kids, the house mortgage and my car payment for 30 years". Um..hi..we don't have kids yet and I don't need to be a millionaire if something happens to him.They also wanted to cover me for like...$500k for another $300/month. Dude...I made less than $30k/year, I think he'll be ok without getting that much money for me...

bbyckes

This sounds like a whole-life policy.  Sounds expensive, but I'm unsure what's normal. I have a policy with a term life policy for about $300k or so, with my son as the beneficiary.  It costs me about $60 a month.When we marry, FI and I will obtain an insurance policy that will basically pay off the house and any shared debts.

jajph1974

That seems pretty high.I get life insurance through work. Only about 150k, but I only pay like $30 a month.I think you should shop around.

berryholly

$500 per month is ridiculously high, even for a 30 year, $500K policy.  I work for a company that wholesales life insurance and I have never seen anyone quoted that high.  I would advise shopping around a bit.

berryholly

Of course it will depend on his build, health history, family history, etc...but that is still extremely high.

IrishBrideND

Has he looked into not using term?Its not just about covering each other. Life insurance can be a good investment in general (instead of just letting money sit there)

katiewhompus

Ok so I'm not insane for side eyeing that quote. Thanks

katiewhompus

I think he wants to go with whole since then we can use the money after the 30 years and nothing happens, verses just throwing it away.

IrishBrideND

I think its smart to go with whole.

SarahPLiz

If you are investing this much in a whole life policy ($500/month would be enormous for us), then make sure you couldn't make more investing in some other financial instrument. While you risk only having that amount of cash should something happen, you may be paying to mitigate that risk by losing a lot of potential investment income. If you SAVED $500/month in an account and layered it in CDs or bonds, could you make more income? It would only take you 100 months (less than 9 years) to save $500K on your own.. That is something to think about.

RachNRich

[i]It would only take you 100 months (less than 9 years) to save $500K on your own.[/i] Really? Not so sure I agree with your math. Katie--that does seem extremely high--did they offer an explanation for the high quote?

SarahPLiz

SOrry, my brain doesnt work on sundays..nevermind. I missed a 0, which makes a heck of a lot of difference Its still a valid point to look at the projected cash value after 30 years as opposed to other investment models.

IrishBrideND

Its still a valid point to look at the projected cash value after 30 years as opposed to other investment models. of course. But I think its smart to diversify investments and have life insurance as one of them. Just because you can earn more with bonds and such doesn't mean one should put all of their money there.

katiewhompus

Yeah well, right now $500/month is my entire 2 week paycheck, so we really can't afford it regardless, that's why we're shopping around.They quoted us for 2x his income, the house (which we haven't purchased yet), 2 kids college tuition (we don't have kids yet), my car (only about 10k left), the remainder of his bike, and our student loans. My first thought..um..why are we going to pay crap tons of money for things that don't exist yet? Can't we just get a policy to cover my butt for the next 5 years if something happens and when the rest happens upgrade or something?

thesuninherhead

Our life insurance policies are contained within our super funds (I think you call it 509k or something? retirement funds, anyway) and the amount we pay per month from there for it is tiny in comparison to what you're talking, but given I'm in another country I can't really help!

baby green bird

While the rates may be high, you really do need to look at life insurance as an investment and a necessary expense. You really do not know what the future holds and it is short sighted to not look at life insurance as an important factor in your life. Remember you have funeral costs to consider, as well as other expenses, and what if your company doesn't have paid bereavement leave? You won't want a time frame as to when you have to return to work if the unthinkable should happen. It is crucial to have a life insurance policy to hold you over during the grieving process and beyond.

baby green bird

Remember, if you don't like the rates from a company, check around. Right now is the time to buy life insurance while you are young and healthy.

ExpatPumpkin

I have an insurance license - and deal in insurance products - and I couldn't tell you with a straight face that whole life is in any way a good investment... It's actually flat out crummy. But the commissions are fantastic, so many agents sell the whole "cash value" and "savings" component. The only circumstances where I could recommend a whole life policy in good faith would be for wealth-replacement estate planning objectives OR as part of a highly-compensated executive package (in which the company is paying the premium, not the executive). Insurance is meant to protect against a catastrophe (in this case, death), not to help you save money - so just carry cheap term life and invest the VAST premium differential on your own... You'll come out WAY AHEAD in the end

katiewhompus

Oh I know that we definitely need this, especially with our current job positions. Dh makes more than twice what I do at this point and I'd be hurting/screwed if something happened to him.That being said, $200/month would make our finances a little tighter, $500/month would mean that we would be getting rid of the tv, cell phone, and using candles to heat our (hopefully soon acquired) house.

katiewhompus

Expat, I think part of the confusion is Dh and I are looking at this in 2 different ways. I view it as giving me the ability to get through the grieving process and maybe a couple of years so I can get a better job and figure out my life. If we have kids then I want to be able to also provide for those kids without having to beg and borrow.He's viewing it as he wants me to be set for life, and fully fun our kids college without taking out loans, etc.Hmm honey...if you die...I'm not going to be having kids anytime soon now am I?

ExpatPumpkin

Katie - I think you're making this too complicated, and I wouldn't be surprised if the agents who are trying to sell you a policy are helping to cloud the issue All you need is a lump sum of money if one of you dies to replace that person's earnings abilities. You can get that money via various types of insurance plans: whole life, term life, universal, etc. Except for term life, the other plans have a savings component. Said savings components are crummy. Ask them to run you a 20-year quote for PURE INSURANCE with NO SAVINGS component, also known as term life. Unless you have health problems or are older, that should be extememly cheap. Then, take the difference in what you would have paid for a whole life policy and invest it on your own... You come out miles ahead in the end.

ExpatPumpkin

Also, you can raise your insurance at any time depending on your financial responsibilities and dependants... Example: Right now, my DH could carry 250K and I'd be fine in the case of his passing. That would get me though the grieving period without worrying about money, etc. As soon as I'm pregnant, however, he'd carry a million because then we'd have 20+ years of tuition and living expenses to cover. Additional children would mean additional coverage... In order to raise the insurance coverage, all he has to do is call and find out what the higher premium is and sign up for it and start paying it. So we're not locked into our current insurance situation - it's flexible.

IrishBrideND

In order to raise the insurance coverage, all he has to do is call and find out what the higher premium is and sign up for it and start paying itnot necessarily. Things can change and you might not be eligible for additional coverage.

ExpatPumpkin

Irish - Of course it depends on the individual contract, and there are limits - DH can't just call and say, "sign me up for $10 million!" - but my point is that there are affordable term life contracts that offer this level of flexibility.

IrishBrideND

gotcha

katiewhompus

Since I have someone not trying to get a commission...We were told that the difference between term and whole is that with whole we would have access to the money after the 30 years if he survived. With term we would not have access to the money after he died. So it we put in $200 a month for 30 years for term we would have just spent $72,000 that is essentially gone for us, whereas with whole we could use that money afterwards.

ExpatPumpkin

So what they are telling you is that the cost of the insurance portion is $72,000 (or $200/month) over 30 years... What they are not telling you is that you won't get THAT money back. You still have to pay for the insurance... What you'll get back is the $300/month additional premium that you paid - at a seriously crummy (or no) interest rate... Whole life example: - You pay $500/month X 30 years = $180,000 - $180,000 - $72,000 (cost of insurance) = [b]$108,000 cash value after 30 years[/b] - But you paid them $180,000 - they're keeping the $72,000 Term life example: - You pay $200/month X 30 years = $72,000 - You invest $300/month X 30 years = $108,000 - But your invested money grows at an average of 5% a year... - So, you actually have [b]$250,000 after 30 years[/b] Does this make sense? The point is that they will never give you an interest rate on the savings portion of your premium that's competitive with market rates.

aallenba

I have my term life insurance through USAA and pay like $21/month, for a $300k policy. Once we get married I plan to increase it..even though we don't have kids right now it's bettern to plan for the future and get the policy when you're younger so it's cheaper. I would never ever pay for whole life insurance, you can put that $500/month into a 401k and do better....at least that's what Suze Orman always preaches.

katiewhompus

Oh ok, that makes much more sense then. The way I was hearing it was that we would get back the policy amount. So if it was a $600,000 policy we'd have access to that amount, not what we paid.Now it does make more sense to just do a term life, then set up an IRA or something.Dh was getting term through USAA for like...$5 a month.MY next question though, if he gets say, a 20 year term life, how difficult would it be to renew that when he's 55?

aallenba

It will be a lot more expensive since the risk of a payout is a lot higher.....personally I would just do the highest, which I believe is the 30 year term.

katiewhompus

Gotcha, and then you can add to it during the term or just when it's over? For instance, when we have kids can we make the policy larger or is it a set amount?