Life insurance

[USMCmech]

I didn't want to hijack Ben's thread, but I can't help thinking about his wife and how she will take care of their girls for the nest 20 years.

If you have kids, YOU MUST HAVE LIFE INSURANCE!

This is the second time I've seen an airplane crash leave a widow with two little kids. This is terrible enough with out the burden of debt and no income on top of the normal grief. Term life insurance is really cheap, even for pilots (500K costs me about 25/month).



You also need a will that says who and how will take care of your kids. You particularly need to appoint someone in case both of you were to die at the same time.

If you haven't sat down with your wife and talked this out, you absolutely need to ASAP. It's a bit morbid, but you need to do it.

[Realms09]

And definitely make sure it is term life. Term life = good deal, whole life = bad deal.

[drunkenbeagle]

Originally Posted by USMCmech

You also need a will that says who and how will take care of your kids.

You need a will, you don't want to be going through probate...

[Kristie]

don't forget a living will and power of attorney either!!

[pullup]

Originally Posted by USMCmech

I didn't want to hijack Ben's thread, but I can't help thinking about his wife and how she will take care of their girls for the nest 20 years.

If you have kids, YOU MUST HAVE LIFE INSURANCE!

This is the second time I've seen an airplane crash leave a widow with two little kids. This is terrible enough with out the burden of debt and no income on top of the normal grief. Term life insurance is really cheap, even for pilots (500K costs me about 25/month).



You also need a will that says who and how will take care of your kids. You particularly need to appoint someone in case both of you were to die at the same time.

If you haven't sat down with your wife and talked this out, you absolutely need to ASAP. It's a bit morbid, but you need to do it.

Great advice and is something I have had from day 1 of being a parent. Helps me sleep at night and fly, drive, whatever a little easier knowing they will be taken care of.

[Ian J]

Do we know if Ben had it or not?

EDIT: Just realized how this could sound... this isn't some macabre question - it relates to his donations. If he had life insurance his family may simply need some transition money and the very least the donations are a nice gesture. If he didn't have insurance, we need to really step up those donations.

[WacoFan]

Originally Posted by drunkenbeagle

You need a will, you don't want to be going through probate...

A will, by itself, will not bypass probate (which can eat up to 1-5% of the estate). A Living Trust (different than a Living Will) will avoid probate. You will need to retitle most of your assets but it is worth it. Some things bypass probate automatically - Life Insurance, Annuities, Retirement accounts, etc. Other assets do not - house, car, money in the bank or mutual funds (held outside a qualified retirement plan). A living trust will automatically avoid the costs of probate.

Originally Posted by Kristie

don't forget a living will and power of attorney either!!

Very important items.

[minitour]

Originally Posted by Realms09

And definitely make sure it is term life. Term life = good deal, whole life = bad deal.

That's..........just............awful advice. Wow.

Whole life is bad, but term life is worse. Get a UL policy and over-fund the crap out of it. Even if that means getting less of a face value at first (you can bump it up later). Over fund it! Figure out how much you can afford and get a policy that only requires 70% of that amount....and then pay that whole amount anyway. After a while, your policy will be self sustaining. It's the way to go. You can take money out if you need it and if it's funded well enough, you may not have to pay it back.

ULs are the way to go. Seriously.

The only term I sold was to a guy that absolutely refused to get the UL policy (that he could afford) and wanted $1,000,000 in coverage but didn't want to get x-rays as part of the physical. I had to work with the underwriter to get that approved and the only thing they would approve was a term or a single pay life. I didn't like the policy, but I loved the commission check.

Anyway...term sucks. Get a UL (Universal Life) and over-fund the living shizzle out of it.

-mini

[Ian J]

Originally Posted by minitour

That's..........just............awful advice. Wow.

Whole life is bad, but term life is worse. Get a UL policy and over-fund the crap out of it. Even if that means getting less of a face value at first (you can bump it up later). Over fund it! Figure out how much you can afford and get a policy that only requires 70% of that amount....and then pay that whole amount anyway. After a while, your policy will be self sustaining. It's the way to go. You can take money out if you need it and if it's funded well enough, you may not have to pay it back.

ULs are the way to go. Seriously.

The only term I sold was to a guy that absolutely refused to get the UL policy (that he could afford) and wanted $1,000,000 in coverage but didn't want to get x-rays as part of the physical. I had to work with the underwriter to get that approved and the only thing they would approve was a term or a single pay life. I didn't like the policy, but I loved the commission check.

Anyway...term sucks. Get a UL (Universal Life) and over-fund the living shizzle out of it.

-mini

You sold life insurance? Well then of course you're going to say term sucks.

On a universal or a whole life policy you're paying a whole bunch more money into the plan to build a "cash value." You're going to get a horrible rate of return and won't have any control over what that extra money is invested in. The actual "insurance" part of it is the same as any other insurance.

In term life, your premiums are dirt cheap and the insurance is the same as universal or whole life. You die, your family gets money. That's all insurance needs to do. Take your extra money and invest it yourself.

Edit: I also forgot to mention - what actually gets paid out upon death in whole and universal? The face value of the policy or face value + "cash value?"

[minitour]

Originally Posted by Ian J

You sold life insurance? Well then of course you're going to say term sucks.

Actually the commission on term is much larger than whole or UL, so your implication really doesn't work here.

On a universal or a whole life policy you're paying a whole bunch more money into the plan to build a "cash value." You're going to get a horrible rate of return and won't have any control over what that extra money is invested in. The actual "insurance" part of it is the same as any other insurance.

You obviously lack the understanding of over-funding a smaller face value on a UL policy.

In term life, your premiums are dirt cheap and the insurance is the same as universal or whole life. You die, your family gets money. That's all insurance needs to do. Take your extra money and invest it yourself.

Until the term runs out. Then you paid all of that money for nothin. Well done.

Edit: I also forgot to mention - what actually gets paid out upon death in whole and universal? The face value of the policy or face value + "cash value?"

Depends on what you do with the dividends. Paid up additions? Pay on the policy? Write you a big fat check? What do you want to do with them?

*I forgot to mention...

A UL is only worthwhile if you're going to buy a smaller face value policy and over fund it. If you're going to pay for a policy you can afford, you might as well get the whole life...you'll get the same thing out of it. You really need to over fund it to get any benefit. Make the money work for you. After your "bucket" is over-flowing, you can increase the face value or stash the cash and have it paid out as a death benefit...or take it back out as a loan (that you may not have to pay back - think College).

Term is great...until you die the day/week/month after the term is up. That's where we saw most of our pissed off customers. They understood when Grandma only got a $2500 policy and all they were getting is $2500 (even though the cost of a funeral is up around $10k now). When they were pissed is when they had been paying on a policy, the term expired and then someone died...they'd come in and we'd have nothing for them. They knew what they wanted when they got the policy, but they wanted something else when it came time to cash-out.

Saw lots of that.

Do yourself a favor. Get a UL and over-fund it. We started off paying $300/month (for both of us) on our UL policies. We're still paying $300/mo, but our monthly premium is now under $80 to "sustain" it. We're over-funding it so we can sit back and relax while our money works for us. UL can be a very good investment if you do it right.

One more piece of advice. Make sure your wife owns the policy on your life and vice versa...or maybe the kids should own it. Either way, make sure YOU don't own it. You don't want your loved ones to pay the estate taxes on the money. It's not income taxable...but they'll want their cut if they can get it (which they can if you own your own policy).

Of course, I haven't sold insurance for 2 years and you really need to consult with a licensed insurance professional in your state for more details on how the policies work. Don't walk, run from anyone that says "buy term and invest the rest". The commission on term is huge and that's all they want.

-mini

[Realms09]

I think what would be helpful here are some numbers. Mini and Ian, can you construct some examples with $ amounts to show how each type of policy would work, where it is beneficial or not, or what personalities it suits. There may not be a one size fits all answer here. My opinion at the moment is to leave insurance to the insurance company and the investing to me.

[minitour]

Originally Posted by Realms09

I think what would be helpful here are some numbers. Mini and Ian, can you construct some examples with $ amounts to show how each type of policy would work, where it is beneficial or not, or what personalities it suits. There may not be a one size fits all answer here. My opinion at the moment is to leave insurance to the insurance company and the investing to me.

Call your local insurance agent. They'll be happy to sit down with you and run the numbers and explain how they apply in your state. It won't cost you anything.

That's the best way to go about this, seriously. If you get a "weird vibe" from the agent, you can go see another one...for free. They won't charge you to sit down and go over everything. As you can tell, we all (agents) have our own opinions about the best way to run your insurance policies. Sit down with a few and see which ones you agree with and why. It's time well spent.

I'd be more than happy to help, but I don't have any numbers to give you. Normally those are kept on a company database and the agent either gets a "rate sheet" or laptop to consult while working with you.

...and for the Love of God, get some insurance on any children you have the moment they're born! Get them a 20-pay life. It'll be paid by the time they turn 20 and they can do with it as they please from that point...maybe pay for College or save it or whatever. Good stuff!

-mini

[Ian J]

Originally Posted by minitour

Actually the commission on term is much larger than whole or UL, so your implication really doesn't work here.

What company did you work for? What you're saying is the exact opposite from every agent I've talked to, every financial adviser I've talked to, and every article I've ever read on the subject. Last thing I read on this was something like 30-50% commission on a term and 90-95% on whole/UL, or 4% vs. 6% a year.

You obviously lack the understanding of over-funding a smaller face value on a UL policy.

I'm pretty sure I understand it but I'd be happy to learn more so I can advise people against it.

Until the term runs out. Then you paid all of that money for nothin. Well done.

Not at all - you paid all that money to mitigate risk. Using your example below paying $300 a month for UL and me paying $25/month for term. Let's say my term is 30 years. I take that $275 I'm not paying for whole/UL and invest it. At a 10% rate average rate of return I have $626k. I'm self insured at that point.

Depends on what you do with the dividends. Paid up additions? Pay on the policy? Write you a big fat check? What do you want to do with them?

I want to do the thing that gets me the most money. After 30 years on say a $400k policy what in round numbers is my average case scenario in pulling money out of it?

Term is great...until you die the day/week/month after the term is up. That's where we saw most of our pissed off customers. They understood when Grandma only got a $2500 policy and all they were getting is $2500 (even though the cost of a funeral is up around $10k now). When they were pissed is when they had been paying on a policy, the term expired and then someone died...they'd come in and we'd have nothing for them. They knew what they wanted when they got the policy, but they wanted something else when it came time to cash-out.

Saw lots of that.

I don't understand this example. Grandma only purchased a $2500 policy and the kids were pissed when she dies and only got $2500... the exact policy she chose?

Or they are pissed that the very affordable term policy expired and grandma failed to invest any money over the 20-30 year term leaving the children to pay the expenses? And they'd be pissed at the insurance company why? Again, be pissed at Grandma.

Don't walk, run from anyone that says "buy term and invest the rest". The commission on term is huge and that's all they want.

-mini

Why is "buy term and invest the rest" a bad idea in your opinion?

And on the commission thing... again... that blows my mind. There's some part of that story I'm not getting.

[Ian J]

Originally Posted by minitour

Call your local insurance agent. They'll be happy to sit down with you and run the numbers and explain how they apply in your state. It won't cost you anything.

My opinion is the opposite. Do not call an insurance agent. They are going to explain how the numbers best get them a commission. Except they'll leave out the commission part.

Call a fee-based (not commission-based) financial advisor instead.

[Ian J]

Originally Posted by Realms09

I think what would be helpful here are some numbers. Mini and Ian, can you construct some examples with $ amounts to show how each type of policy would work, where it is beneficial or not, or what personalities it suits. There may not be a one size fits all answer here. My opinion at the moment is to leave insurance to the insurance company and the investing to me.

For term, this is easy to do. Go to a independent site that shops policies from various companies and you get get an idea of what a monthly rate will be. Very very generally you can expect to pay $20-$30 a month on a $400,000 ish policy for a 20 year term. (Those numbers are very round numbers). And that's it. If you die your family gets the money. If you don't, you've successfully mitigated your risk while using the time to self insure.

For whole/UL it gets very complicated. Mini can probably tell you. Limits on when/if you can pull money out. Fees. Face value pay out vs. cash value payout. Etc.

[Realms09]

Originally Posted by Ian J

What you're saying is the exact opposite from every agent I've talked to, every financial adviser I've talked to, and every article I've ever read on the subject.

This is where I'm at. I might do some internet shopping later and present a comparison.

[minitour]

Originally Posted by Ian J

What company did you work for?

Western & Southern, United American and AFLAC. We didn't do life products at AFLAC or UA. It was all either health or Medicare stuff (eh...I won't say that. I sold some UA life products, but not many). W&S was mostly life (some annuity work). I got much more money on a term policy than the same premium on a whole. The shorter the policy or premium payment term, the higher my commission was. Annuities, obviously, were lots of commission dollars.

20 year life was an absolute pleasure to sell to those that wanted it. I still think UL is a better vehicle for both insurance and "play money" (an investment) down the road. Term runs out...fantastic! Let's buy more!

...where are you getting a 10% return on your investment? I'm obviously working with the wrong guy.

-mini

[Ian J]

Originally Posted by minitour

I got much more money on a term policy than the same premium on a whole.

Premium as in monthly payment?

No no... how did the commission vary between policy's of equal face value? Say you sold a $250,000 20 year term and a the a $250,000 whole life policy? What would the commissions be then?

...where are you getting a 10% return on your investment? I'm obviously working with the wrong guy.

-mini

I'm not sure if you are joking with me or are serious. You know I'm talking about long-term rates of return, right? (30+ years).

If I was talking short term... heck... things have been awesome since January!

[minitour]

Originally Posted by Ian J

No no... how did the commission vary between policy's of equal face value? Say you sold a $250,000 20 year term and a the a $250,000 whole life policy? What would the commissions be then?

I always elected to receive the commission on the premium (monthly) rather than on the face value (one time) and face a charge-back. So to answer your question, I have no idea. It would depend entire on the premium.

I'm not sure if you are joking with me or are serious. You know I'm talking about long-term rates of return, right? (30+ years).

My point is you're lucky to get a 4% ROI most of the time (depending on the investment).

Plus 60% (maybe even more...I haven't seen the charts for a few years) of the people that "buy term" to invest the rest simply don't. They either use the money on Chinese food or something else they don't need. Then when their term runs out, they're hosed. The responsible thing to do as an agent is to recommend something that will be there for them. Which is why I sold a boat load of over-funded UAs. Granted, those people had to sacrifice one less Kung Pao Chicken per week...

Don't get me wrong...term does have it's place!!!

You buy a house - Term
You buy a boat - Term
You send a kid to college - Term

Covering a limited-life expense with a term policy = Good idea!
Expecting to use term as long...term (eh..)...life insurance = Better ideas available.

Talk to an agent licensed in your state. Seriously.

*edit*
Actually, if there's this much of a market for Term insurance on the board, I'll go do my CE next week while I'm on the road...seriously! I'll find good rates for the term insurance if anyone wants it! Then I can place my order for my new Baron.

-mini

[drunkenbeagle]

Originally Posted by Ian J

For term, this is easy to do. Go to a independent site that shops policies from various companies and you get get an idea of what a monthly rate will be. Very very generally you can expect to pay $20-$30 a month on a $400,000 ish policy for a 20 year term. .

Just keep in mind most life insurance policies will exclude any flying that isn't for an airline.

[minitour]

Originally Posted by drunkenbeagle

Just keep in mind most life insurance policies will exclude any flying that isn't for an airline.

Most, yes. There are some out there, though.

-mini

[USMCmech]

Originally Posted by Ian J

Very very generally you can expect to pay $20-$30 a month on a $400,000 ish policy for a 20 year term. . If you die your family gets the money.

That's why I like basic term life insurance, because it's simply "insurance". Not insurance/retirement plan, those get way too complicated for me to understand.


The debate has gotten somewhat off my intended point,

For the cost of two pizzas and a 6 pack of beer, you can make sure your wife and kids will be taken care of if something happens to you. You CAN afford that even as a CFI.

This is NOT AN OPTION for us parents.

Originally Posted by drunkenbeagle

Just keep in mind most life insurance policies will exclude any flying that isn't for an airline.

You can still get plenty of insurance as a GA pilot. You'll pay a little more, but we're still talking about pocket change.

[Ian J]

Originally Posted by minitour

I always elected to receive the commission on the premium (monthly) rather than on the face value (one time) and face a charge-back. So to answer your question, I have no idea. It would depend entire on the premium.

Let me ask it another way, then. If you're getting commission on premiums only and a term costs $25/month and the same value whole policy costs $160/ month - on which would you make the most commission?

On which kind of policy do insurance companies make the most money?

My point is you're lucky to get a 4% ROI most of the time (depending on the investment).

Highly disagree. Source?

Plus 60% (maybe even more...I haven't seen the charts for a few years) of the people that "buy term" to invest the rest simply don't. They either use the money on Chinese food or something else they don't need. Then when their term runs out, they're hosed.

This, I believe. And I have little sympathy for those who do this. Don't Rely on a whole life policy as an investment tool - take responsibility for your own financial future.

Talk to an agent licensed in your state. Seriously.

-mini

Actually, don't listen to me or Mini. Instead, talk to a fee-based financial adviser, first

[WacoFan]

I have resisted this thread but feel somewhat of an obligation to chime in. I apologize in advance for the length of this document - but it may be helpful in your thoughts about life insurance.

I am in the insurance business and a large portion of my income is derived from life insurance. I do very little work with individuals, and the majority of our work is with financial institutions, non-bank corporations, and large trusts. This is a somewhat limited niche, and there are specialty products that "people" cannot but. That said, the process that institutions go through needs to be adopted by individuals - who mostly don't have a process, or if they do it is flawed.

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. 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. Universal life is great - but if you can only afford $100k of UL death benefit vs. $750k of term...and you need $750k of term...then the UL is obviously not "better" in this case as it would leave you under-insured by $650k.

Couple things - the available commission on most life insurance products is somewhere between 90%-120% of the first years premium. This is true of term and universal life - whole life pays less, but pays higher renewal commission for longer, so you end up at about the same place. Now - agents that say they make "40-50%" are not necessarily lying to you, they just work in an agency structure where the selling agent receives 40%-50% of the compensation, the agency and other hierarchy receiving the rest. Now...if you are WacoFan...you get 90%-120% directly. Woo-hoo! 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. Saying "he was fee-based" is not a defense when someone takes you for a ride. Meet people, assess whether or not they are trustworthy, and go from there. Commissions on life insurance products are inextricable - the products are filed with the states as to rates, guarantees and commissions and they can not be waived.

Now...what most people lack is a "method" or a way to analyze a life insurance purchase - not just a product - but the overall buying decision. Because a huge amount of my business is done with banks, thrifts and credit unions (highly regulated financial institutions), there are rules in place that must be complied with for ever sale. What is irritating is that individuals do not also have a system and compliance system for their personal purchases. The current regulations (jointly created by the OCC, FDIC, OTS, and Federal Reserve) state that prior to entering into a life insurance contract, a bank must complete a detailed analysis of the following "Focus Points" and "Risk Areas". Below I will go into the "Focus Points" that are worded exactly as you would find on the FDIC website. By each point, I will give a basic definition on how you, the individual buyer, could translate that to your purchase:

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

Focus Points

1. Determine the Need and Economic Benefits of the Insurance - This is a "macro" assessment - you should identify the risks you are facing and specific obligations associated with those risks. Also analyze how the insurance will address those risk areas and obligations.
2. Quantification of Amount of Insurance Needed - Once the above step is completed, analyze the amount of insurance needed to cover those obligations given reasonable economic conditions.
3. Vendor Selection - self explanatory - who do you want to work with. Are they honest? Is the situation complex and what kind of expertise is needed?
4. Review the Characteristics of the Available Insurance Products - this is where you start to delve into the "what kind". Analyze the long-term characteristics of each product. Is there value? looking at term - is the risk temporary or permanent. Price.
5. Carrier Selection - once a "Type" of insurance is determined, look at what company you want. Financial strength, past performance, price, value, contract terms and features.
6. Determine the Reasonableness of Compensation Provided to the Insured Employee if the Insurance Results in Additional Compensation - This really has no relevance to a personal insurance buy.
7. Analyze the Associated Risks of the Transaction and the Banks Ability to Monitor and Respond to those Risks - This is an analysis where you need to determine how difficult the transaction is, your ability to understand and monitor the plan (independent of your agent) and the process you will undertake to manage this transaction (service - what is expected and when).
8. Evaluate Alternatives - as it says - what other alternatives, if any, could also accomplish your goals.
9. Document the Decision - These are compliance manuals we put together for banks. Generally they are between 200-300 pages of numbers, legal opinions, and accounting opinions. An individual doesn't need that level of detail - but you do need to get the answer's to the above 8 questions in written form so that you can measure and manage on a go forward basis.

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

[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.