Life Insurance--pros & cons

<p>We have some life insurance and are thinking about how much we want to keep going forward and whether we want to switch one of the plans we currently have for something else. We have one plan that will go down 75% after hubby retires in the next few years but we don't need to pay any premiums on it. If we want to keep it, we would need to pay about $235/month forever (term insurance).</p>

<p>We have another hybrid cash-value policy that is fully paid up and has a significant cash value and pays us an annual dividend that is about 3% of that cash value (which is about 75% of its face value upon death).</p>

<p>Hubby will retire in the next few years at age 70 and get an annual pension that we can live comfortably on, which will have a survivor benefit that I should be able to live comfortably on if he predeceases me. We will have no more tuition payments and no mortgage payments after retirement.</p>

<p>My younger brother just cancelled life insurance policies on himself & his wife (they have significant assets & he will have a generous guaranteed pension when he retires). We were talking the other night about H & I trying to decide what to do about our life insurance. He says it depends on what we think we could get if we cashed out the cash value policy and what other options they offer us. </p>

<p>The proposed policies we've been presented to date all show the current cash value & that we're paying about $10K to the agent for selling us a rollover policy: some are long term care or life insurance and all do not require us to pay any additional premiums (but we will no longer get the dividend). There is virtually no cash value on these policies but they have a higher face value upon death. </p>

<p>I'm really not clear on how to evaluate the values of the policies. Any thoughts about how to evaluate various life insurance policies?</p>

<p>I have always just had term life insurance which is cheap. After the kids are out of college, I may cancel that. I do plan on getting long-term care insurance as not to be a burden on the kids.</p>

<p>You have to determine why you need insurance. If you have no tuition payments for children, you have retirement benefits that you can live on comfortably, you have no mortgage payments, you need to question what are you exactly insuring? Long term care insurance is a good idea to protect you and your husband. And if you have funeral expenses covered and don’t have other expenses that can surprise you, then there is no reason to carry any life insurance. The purpose of life insurance is to cover mortgage payments, living expenses, raising children if one of the breadwinners dies. This does not appear to be where you are in life, so I would really question if life insurance is necessary.</p>

<p>Good topic.
Our decision process is less complex.
I have (only) employer provided life insurance for 5X my salary and will probably work till age 65. Very little chance of leaving this employer. Will have no insurance after that.
DH has a few term policies that will lapse about the same time, at his age 69ish.
Will will have no mortgage by then.</p>

<p>Time has passed for us to purchase new term at our ages. When we both pass, son will probably need to sell our home to divide that asset between himself and disabled sister’s family trust. Bought years ago, it will have substantial equity.</p>

<p>One thing you might want to consider is whether you feel you will always have enough to cover medical expenses, what type of coverage you will have in retirement, and whether you would actually want to be in a nursing home as opposed to remaining in your own home.</p>

<p>When my father died after spending a month in intensive care, as the result of a car accident which required several surgeries, I saw a fairly large bill which was covered largely by the auto insurance and Medicare. If not for the auto insurance, I’m not sure Medicare would have covered all of his expenses…they did not cover many of my mom’s when she was in the hospital and then a rehab facility as they exceeded some of the maximums (ie 100 days for rehab). After that point, she had to use her income/assets to cover the balance of her stay, therapies, and caregiver expenses when she came home. Although she also had private medical insurance, she easily went through an additional $100k in uncovered medical expenses (private nurses/caregivers are not covered expenses under many policies) over the next few years because she did not want to live in a nursing home. She had a decent pension but, had she lived another five years, we would have had to mortgage her home to continue giving her the care that she needed - and that was only to cover the day shifts, while we were all working, as we took turns sitting with her in the evenings and overnight.</p>

<p>^apropos of above - one reason for life ins would be to cover estate taxes (if large estate) or for disabled child, otherwise not much reason if all “obligations” are paid up, as mentioned.</p>

<p>Read LTC policies carefully…</p>

<p>it’s an interesting subject. i have a 3 or 4 x my salary life insurance through work that i pay like 3 dollars a month for. that’s term life. I also have a whole life insurance policy. You pay the premiums on it up till you are 65, and then it’s paid off. With it being a whole life insurance policy you can borrow loans against it and it gains cash value the longer it’s in force. My parents took it out for me when I was little. I like the fact that it’s paid off at a certain age, so when you are older and more limited in money you are no longer paying towards it. I have my 401k and my pension which i am fully vested in as well.</p>

<p>Some of the things on my companies website say the following:</p>

<p>If the welfare of your spouse and children is secure, consider changing your contract’s beneficiary to the charitable organization of your choice. In addition, there may be tax advantages to creating a gift of charitable life insurance.</p>

<p>If your estate size and tax rules at the time of your death allow, you may be able to pass proceeds from a cash-value life insurance contract to your heirs without incurring any estate tax.</p>

<p>BEWARE what the agent wants to sell you. He is likely not benefiting from what you have now but will benefit royally if you change.</p>

<p>BEWARE of changing anything having to do with a policy with cash value that you no longer have to make payments on. Cashing out has tax consequences, using that cash to buy different insurance means you loose $ and the agent gains $. Let the dividends pay expenses, let the cash value increase, keep the death benefit in lieu of buying a new policy. You can easily “borrow” from the cash value. </p>

<p>Let a financial planner make recommendations and review what the agent wants you to do. The agent is not making an unbiased rec here.</p>

<p>In terms of changing an existing cash value policy (assuming you are keeping one) you can obtain an in force ledger to show how your existing policy is performing and may perform in the future.</p>

<p>Being older means more expensive usually, but rolling existing cash value into the new one can negate that. What about health? Are you in the same or better rate class as the old policy?</p>

<p>What about the old company? So many companies bought up other companies in the 90s & 00s, it is possible your initial company is now owned by someone else and may not be performing as well as expected?</p>

<p>What about estate liquidity? If you both died and your kids had to deal with your home etc, would the infusion of some cash help them hold RE until a market recovery? For example my parents old house is a rental now, we tried to sell for a couple of years and decided not to lower the price any more, just to rent it and wait until the CA market recovers. In some cases, your kids may need the cash from life insurance to maximize the RE investments at sale.</p>

<p>I see many clients from the 70s & 80s using their life insurance as an income supplement, they pull out cash value for extras, but have the money ‘invested’ in the policy. It will either pay the death benefit or they will keep taking the cash out…said cash is earning the policy guaranteed low interest rate of 6% which looks pretty good right now…wish I had one of those old policies.</p>

<p>Yea, we are pretty ambivalent about making changes. To keep H’s term life insurance in effect after he retires (for the amount of his current annual base pay) would use up the dividend check from the other policy. We will continue to mull this over and maybe hear the presentation made by the insurance agents while we mull. We tend NOT to make quick decisions. Any policy will be “rolled over” so there will be NO taxable event IF we change the policy.</p>

<p>Yes, liquidity is an issue. Our home has considerable equity, as does other real estate assets. We do not have as much cash & easily converted assets as would be easy for settling an estate. Thanks for that additional issue for us to ponder.</p>

<p>This is really the right time to speak with an estate attorney. Initial consultation could be free. Fees an attorney will charge for setting up a good estate plan/trust can, we have found the hard way, vary greatly. Discuss up-front. A good estate plan by an attorney need not be particularly expensive at all (at least in our area). Said attorney will discuss whether/what type of trust you should have, how to minimize (possibly to zero) those estate taxes others are worrying about, be sure you have appropriate Durable Medical Powers of Attorney/Living Wills (I am NOT an attorney and it’s been a while since we set ours up so I may be getting the terminology wrong).</p>

<p>Once our S and H’s grandS were finished with college, we stopped carrying life insurance. We did make this decision during the depths of the Global Economic Meltdown, when money was feeling really tight. Our attorney had previously suggested we think about how term life insurance (which is what we carried) can provide a nice little nest egg for the heirs at relatively little cost. Worth pondering, although we did opt out ourselves.</p>

<p>My term came up for renewal, I thought about renewing, but W said what for.
We are moving a bunch of $ to annuities which have a built in LI, cheap considering my age and health.</p>

<p>fendergirl, You really need to think WL through. Why would you ever want to have the right/ privilege borrow money on your policy and pay interest, and a extra premium for this right. You’d need to look more into the internet and money books.</p>

<p>We did meet with an estate planning attorney but haven’t done anything yet except make our inventory of our assets, including current life insurance. We have fewer than $5 million, so don’t have to worry about that. Do have some real estate assets co-owned with extended family, so that is a complication that needs to be worked out. Have stalled pending this resolution.</p>

<p>There is a lot of inertia. <sigh> Will have to make some movement in the near future.</sigh></p>

<p>DW and I each got 30 year level-premium term policies about 10-12 years ago, and I have a small WL policy my dad started for me when I was a kid.</p>

<p>The stuff I get through work is basically single-year term, and it is getting expensive as I get older. Plus, if/when I leave this job, I would lose the insurance and who knows if I will be insurable somewhere else and at what price. We never wanted to be dependent on it, so we got our own policies.</p>

<p>Currently our estate would have no need for a big cash inflow, but the tax laws change all the time. Who knows where it will be in 20 years.</p>

<p>I’m starting to ponder LTC insurance, nursing home costs seem like much more of a risk to my estate than my death.</p>

<p>I’d read the policies VERY CAREFULLY on long term care. They were pushing them on federal workers some years back. I read all the terms and then talked to an agent who agreed that my interpretation of the policies was correct–it doesn’t pay UNTIL & UNLESS you can’t perform 3-4 activities of daily living. The people who really benefit from these policies are those who get accidents, strokes (paralysis), or dementia/alzheimers. My aunt paid her policy for decades & tho she had lung cancer & was in a lot of pain & could have used help, didn’t qualify for benefits until the last MONTH of her life! Many others I know had similar issues with any policies their loved ones held. </p>

<p>Insurers generally do what they can to deny coverage; it’s a business & was can be quite lucerative for them.</p>

<p>Personally, I wouldn’t want my H to cancel his life insurance policy until I’m covered by Medicare. Too many employers are contemplating giving up retiree heath care coverage, and i would hate to be 58 and left without insurance. If something happens to him between now and retirement, I could be on the hook for medical insurance costs plus OOP med expenses. With a serious illness that runs $60k/yr in prescriptions, even a large term life ins policy won’t last that long. I’d either pay through the nose for a policy with unlimited Rx coverage, or I’d pay for a cheaper policy and have to pay a lot more in Rx charges than I already do.</p>

<p>My work-provided insurance is 1x pay, and I have a separate policy that we bought when I was pregnant to pay for college for both kids. Considering I’m now uninsurable, this is my major asset to pass on to my kids and spouse.</p>

<p>My boss sells insurance. The commission on a first year policy is huge. Residual commissions (for each year you maintain that policy) dry up over time. Be wary.</p>

<p>That said, I bought a long-term care policy at age 41, seven months after I was diagnosed with cancer. When the feds had their open window that fall and offered LTC for the first time, I could get a basic policy without restrictions on pre-existing conditions (though not the higher level of coverage, which did involve detailed health questions). The cost is minimal and since we don’t have family in the area who could help if I’m really ill, this seemed like good peace of mind. My situation is not typical, however.</p>

<p>I gave up a whole life policy a number of years ago, as the expense did not seem to justify the benefit for someone in my lower income bracket. I then bought a level term policy to last till the kids would hopefully be done with grad school. Anything else, mutual funds, real estate, you wouldn’t want them to be pressured to sell at a bad time for the purpose of meeting immediate expenses. </p>

<p>CD, what a great thing that LTC policy is! I’ve though I should get a policy, but am wary. I’ve heard some of the companies have failed, and then what are you left with? Very expensive to play with those substantial payments.</p>

<p>'it doesn’t pay UNTIL & UNLESS you can’t perform 3-4 activities of daily living. The people who really benefit from these policies are those who get accidents, strokes (paralysis), or dementia/alzheimers."</p>

<p>Yes, long-term care is for those who need long-term nursing care. I feel I should protect my kids from this burden. Assisted living, which my retirement savings should cover, is not as expensive as full care nursing homes. It is the rare person who has assets that can cover such an expense.</p>

<p>LP, I don’t really have any intention of borrowing money from my policy, I just know that option is there. I like the idea that it will be paid for and done with at that age and I don’t have to worry about it anymore. I don’t know all the terms of my policy but I know the benefit amount increases each year as I am paying into it. If I remember right I think the dividends purchase more coverage. Term life you have to keep renewing, and the premiums change due to age, etc. I work for an insurance company and my term life through work is very very very cheap.</p>

<p>The life insurer wouldn’t tell me how much insurance dividends would purchase, so that seemed very odd and unhelpful. It’s tough making informed choices WITHOUT complete information, but that appears to be how they want you to choose. The company also said they can’t talk to or work with me; I could only speak with licensed insurance agents.</p>