Life insurance

[Ian J]

Originally Posted by WacoFan

It is premature to discuss what kind of life insurance is best to purchase - term, universal life, variable universal life, or whole life. These products all exist for a reason and if any of them were "bad" or didn't serve a specific purpose - they would not be for sale.

I can't wholly agree with this - there are "bad" products out there but they do serve a purpose. An example is payday or title loans. They are "bad," but serve the purpose of making the payday loan company money.

What this thread is doing is similar to almost any discussion of life insurance that takes place amongst individuals - it devolves into an discussion about which kind of insurance is "better" or what type of purchasing method is "better" (fee based planner, agent, etc). What nobody is talking about is the method they go through to make this purchase, the proper assessment of amounts, how to pay, etc.

Agreed, but then again I think the method an average family should use to determine the right life insurance is fairly simple.

Fee-based planners, agents or other distribution methods are not necessarily more "ethical" than others - there are a great many unethical bozo's in each - so it is incumbent upon you, the consumer, to take care with who you work with.

My suggestion to speak with a fee-based financial planner was meant to mean a financial planner who does not sell insurance. Sure, while they could take you for a ride, especially if you don't research them, the likelihood is less. The more likely "bad" scenario with them is that they just aren't that good.

OCC 2004-56 - Interagency Statement on the Purchase and Risk Management of Life Insurance

Good stuff!

Don't focus on the "which kind" - focus on the "Why" the "How much" and the other areas first.

Could you give a reasonable example why a regular middle-class would do better with whole/UV vs. term?

[Ian J]

Originally Posted by WacoFan

Additionally Ian, per the other thread, I want to work on your insurance personally. I have a fine idea about "focus point number one" above. An amount that will pay all your debts, all of SC's debts, and would allow her and I to have a really exciting life together after you croak. Once she has conservative she'll never go back.

Poor Jim... so delusional.

1. I have no debts.

2. After I croak SC will most likely limit her relationships to one night stands.

3. I am a conservative.

[WacoFan]

Originally Posted by Ian J

I can't wholly agree with this - there are "bad" products out there but they do serve a purpose. An example is payday or title loans. They are "bad," but serve the purpose of making the payday loan company money.

Arcane, but whole life CAN work, if purchased from one of the big three mutual companies (New York Life, MassMutual, Northwestern Mutual). It generally is best on the very, very young - but those companies have extremely strong dividend payment histories. Also, when a mutual company decides to de-mutualize I have seen people clean up financially because they can get a significant amount of stock in the new entity. Like I said, arcane - but, the longer I have dealt with this the more I stay away from blanket statements.

Agreed, but then again I think the method an average family should use to determine the right life insurance is fairly simple.

Generally simple and significantly easier than the stuff I do. BUT - what method do people use? It generally varies and they back into the amount they need after deciding what kind of product they are getting (UL vs. Term) and then buy as much as they can afford. Many people don't objectively look at the true cost of their death and its impact. They also focus on the amount needed the day they die - not five or ten years after death. If they do project their families needs they will often use unreasonable multipliers for investment growth, etc. None of this stuff is hard - but it is often not done. People will say "Wow...half a million bucks...that's a lot of money" when it actually isn't over the course of a family's life.

My suggestion to speak with a fee-based financial planner was meant to mean a financial planner who does not sell insurance. Sure, while they could take you for a ride, especially if you don't research them, the likelihood is less. The more likely "bad" scenario with them is that they just aren't that good.

After talking with the fee-based planner you are still going to have to speak to a commisioned agent generally. The planners (generally) do not touch on life insurance in depth many times because it is actually a more complicated area than it first appears. Also, there are some significant tax ramifications to insurance ownership and death benefits that many don't touch. It cuts both ways - a person on commission is always suspect because he only gets paid if you DO something. A fee-based planner gets paid whether they are good or not. Pick your poison - I have seen too many instances of people getting jobbed by "fee-based planners" to have any faith that they are more or less ehtical than anyone else. As I said - same percentage of people are a-holes no matter what - always beware.

Good stuff!

Could you give a reasonable example why a regular middle-class would do better with whole/UV vs. term?

Couple of examples - people that have permanent insurance needs need a permanent product. Generally "middle-class" people have needs that are significant until retirement so 20 or 30 year term works best in those cases.

I am actually creating a deal here that will deal specifically with Estate Planning for people with special needs. This is an area close to my heart and there is little true service available for these people. Many "commissioned" people only sell high-commission products to them while many fee-based or asset-based planners don't mess with them because they are not a lucrative market segment. These people have permanent needs - a child who is physically or mentally handicapped that will need care their entire life. Permanent as well as term is probably the answer here because no matter what the date of death of the parents, there is going to be a need to create an estate.

Other examples of permanent vs. Term would be if someone wants to name a charity as a beneficiary of all or a portion of the death benefit. This would represent a permanent need (actually a permanent "want") that permanent insurance could fulfill.

A last item is to protect your insurability. This can be done either owning a permanent product, or more reasonably (for most people) by owning a convertible term policy. Convertible term allows an insured to convert from term to permanent without having to prove they are insurable. So...you are rocking along with term and enjoying the low premiums, then are stricken with a dread disease that will render you unable to pass an insurance examination in the future. With convertible term you can simply convert the term insurance into permanent (and pay the correspondingly high premium) and have the protection for life.

Generally (and I hate blanket statements):

1) Middle-class people are better with term.
2) Life insurance is life insurance. Do not buy it as in investment or savings account. Life insurance has special tax features which CAN make it attractive...but those are really best exploited by banks and large companies for various tax-dodges or deferred compensation plans (Yay WacoFan! Yay huge premiums and commissions!).
3) Put as much thought into this as a corporation is expected to - it isn't difficult to accomplish the steps I laid out. Many of them can be answered in a sentence or two - but go through the process and document WHY you chose to do what you are doing - makes it much easier when you review next year because there is no reliance on memory or ambiguous statements by a life insurance guy.
4) If it sounds too good to be true it generally is (unless you are a large corporation dealing with WacoFan...YAY huge commissions!).

[Ian J]

Originally Posted by WacoFan

Large post...

Great stuff man... thanks for the time you put into all that.

[WacoFan]

Originally Posted by Ian J

Poor Jim... so delusional.

1. I have no debts.

2. After I croak SC will most likely limit her relationships to one night stands.

3. I am a conservative.

Excellent news about the debt situation.

Excellent news about SC limiting herself to one night stands!

Not sure about number three...I mean...you haven't been to a seal clubbing with us. I mean...you are certainly more conservative than SC...but how would you stack up against me or even a lessor conservative like Glen Beck?

[Ian J]

Originally Posted by WacoFan

Excellent news about the debt situation.

Excellent news about SC limiting herself to one night stands!

Not sure about number three...I mean...you haven't been to a seal clubbing with us. I mean...you are certainly more conservative than SC...but how would you stack up against me or even a lessor conservative like Glen Beck?

Pretty much the same except more intelligent and better looking.

[WacoFan]

Originally Posted by Ian J

Pretty much the same except more intelligent and better looking.

I agree. You are better looking than Beck.