What is your strategy with life insurance?

Parents Forum Parent Cafe
#1

<p>OK, we first got term life insurance about 20 years ago after D1 was born. We rejected whole life because we didn't care to use insurance as an investment (didn't feel the amount 25 years down the road which would by then be small warranted the premium). Also for the death benefit amounts we were looking for, it made sense to go with term. </p>

<p>Now my 10 year fixed is coming for renewal by year end, and we're scratching our heads to see what our term, amounts, and objectives should be. Ten years ago, our incomes hadn't peaked, we were looking at three college expenses with no 529s, and had a fresh mortgage, so it was critical.</p>

<p>Now we have two almost done with college and the third getting ready, and we're very lucky to be able to cover all three with 529s. We've played with several calculators which didn't throw any red flags. Retirement and other savings, outstanding mortgage, and both our current jobs, and our lifestyles, all look reasonable and matched barring a mini-Madoff or a Zimbabwe. </p>

<p>So what would you use to determine if and how much insurance one would need as the big six oh approaches? I for one feel uncomfortable leaving any amount of substance as inheritance to the next gen unless a child is in some manner disabled. Is that a reasonable or naive position (based more by my prejudice) given my kids have lived comfortable lives and their future may be much harder than thier past? The last thing I want is for them to begin behaving like several of my coworkers who decided either not to have children at all or stop at one mainly because of financial considerations. But then again, I want them to sweat and celebrate, more so than what they've had to do.</p>

#2

<p>I would be looking at retirement income projections, for both of you, and seeing if there will be a shortfall if one departs earlier than expected. It really forces you to think about what lifestyle you'd lead if one was suddenly single, but it happens so often that it can't be discounted. As regards the children...that's completely a personal choice. My parents did not leave large life insurance policies and I won't either. I have reduced my term policies as the kids have grown (2 still in college) and the mortgage dwindled and will probably keep a nominal amount ($50K or so) to pay any final expenses.</p>

#3

<p>I'd fund Long Term Care insurance before Life Insurance in your circumstances, assuming you've already done what sk8rmom suggests.</p>

#4

<p>I agree with sk8rmom. DW and I always ask "What is the compelling reason?" Based on the peculiar nature of our family circumstances, it turned out there was a compelling reason for just me to have life insurance ... and only for the current 10-year period. YMMV of course, and probably will. Of course you can dream up scenarios where having gobs of life insurance would be beneficial. That's different from having a compelling reason.</p>

#5

<p>It is an interesting question. I have both term and whole life plus a very good pension. College has been paid for. my retirement application is in ( it protects my wife if I pass away she can claim the pension) so I am considering what to drop if anything. While my wife would keep my pension if I died she loses health care coverage. We still have a mortgage and will throughout retirement but that expense is easily covered by the pension. For me the cost of health care for my wife becomes the issue.</p>

#6

<p>The purpose of life insurance is to insure, not to invest. For example, I own a term policy that expires when my kid is 26. Then, he is on his own. I have 9 years to go.</p>

<p>If I don't die within the 9 years, I won't say that the insurance money was wasted. It served its purpose, no different than having fire insurance on your house, or auto insurance on your car.</p>

<p>Sounds like you don't need insurance anymore, because the REASON you bought the insurance no longer applies.</p>

#7

<p>Thank you.<br>
I appreciate the notes about long term care. I know so little about it I'll have to start with my search engine. Does anyone have an FAQ or link on what to look for and avoid?</p>

#8

<p>I set up a term policy way back when, and set the term to the time my kids would finish grad school. Even if grad school is on their dime (which it is) there are benefits to having parental support and encouragement during that time, as well as a home base to return to. Sans those supports, I'd think an infusion of cash would be very helpful. </p>

<p>Yes, they'd get money from sale of the house and investments, but the life insurance while still finishing education I'd think would be most helpful. </p>

<p>I'd think that any of our kids may choose to curtail family size due to financial limitations.</p>

#9

<p>Are you aware that only 3% of term life policy had ever cashed out? Statistcally, you will out live the term based on today's life span, like I, most likely I will out live the term life I bought at 2017..</p>

<p>Life insurance with a cash value, or whole life, is a lot safer things to do, but it would be too expensive for me at 2017.</p>

#10

<p>I had term life insurance to partially replace lost income if I were to die. Now unfortunately there would be no lost income, in fact there would be one less mouth to feed, so no more term insurance. I even skipped the final year of my 15 year locked in rate.</p>

#11

<p>
[quote]
I appreciate the notes about long term care. I know so little about it I'll have to start with my search engine. Does anyone have an FAQ or link on what to look for and avoid?

[/quote]
</p>

<p>My mid-80s parents bought LTCI 20 years ago and thank goodness! They paid about $35K in premiums over 20 years, and stand to get $230K or more in benefits if they both live another 3 years. They are getting a payout of $4800/month (for a total of 4 years), versus only $3100/mo from their combined Social Security and pensions. It is definitely a difference-maker.</p>

<p>Having said that, my parents were in the first big wave of LTCI buyers, and the insurance companies have learned that they set the premiums far too low on those early policies (obviously!). Back then, they didn't anticipate that those insureds go into Assisted Living/Skilled Nursing so soon and stay so long. I believe that the premiums are much higher now and/or have lesser benefits. </p>

<p>I haven't made a study and you certainly should do your own research, but I can tell you how my parents' insurance works. The benefit kicks in when two conditions are met: First, the insured needs assistance with two of the six Activities of Daily Living (ADL). (The insurance company will come out and do an in-depth assessment to verify this). Second, the insured is paying for certified care, either in a facility, or in-home. </p>

<p>The ADLs can vary by company, but the standard ones are: Eating, Bathing, Dressing, Toileting, Transfer (eg, help getting from bed to wheelchair), and Continence. The insured doesn't need to prove that they're completely incapacitated in a given area, only that they need help. For example, Mom is unable to bend over far enough to put her shoes and socks on; someone helps her with this every day. This qualifies her as needing assistance with Dressing.</p>

<p>Things to look for: </p>

<p>Go with a reputable carrier. Ask your current agent about this. And ask what happens if the carrier goes out of business before you file a claim.</p>

<p>Make sure the policy has an inflation clause. The payout on my parents' policy has more than doubled over what it would have been at the beginning. </p>

<p>Make sure all six of the ADLs are covered. Dad's coverage hit a snag because he needs help in the shower and the policy didn't cover bathing. The Assisted Living staff was shocked; they'd never seen bathing not covered, but there it was, right in the policy. </p>

<p>Our policy is structured this way (I don't know if this is standard, but has worked for them, and probably made the premiums more affordable): The policy pays out a Daily Benefit -- 100% of the DB when they're in Skilled Nursing, 60% of the DB when they're at home in Assisted Living. The Benefit pays out regardless of any other of insurance, assets, or income.</p>

#12

<p>Would it make sense to think of life insurance as a means to provide for those financially dependent on your labor if you die and buy (or not buy) accordingly?</p>

<p>Also, if you have people financially dependent on your labor, don't forget to consider whether you need disability insurance. Disability may be financially more costly to your household, since you may run up more expenses while disabled compared to dead, in addition to the loss of labor.</p>

<p>Note that labor in this case may include unpaid labor provided to your household, such as for a homemaker, or a person who provides skilled investment management, either of which may have to be paid for by the rest of the household if the person in question dies or becomes disabled.</p>

#13

<p>Well, H bought some sort of life insurance long before he & I met. It was some hybrid policy that had a component of whole life & a component of term. It also pays an annual dividend and you don't have to pay any premiums once you reach age 65. He also has insurance thru his employer. When he retires, he has the option of paying to continue it or paying NO premiums & allowing it to decrease until it's only worth 25% of its current face value. By the time he retires, we will have paid off all our debts and our kids will be done with undergrad, graduating debt-free. He will retire with a good pension and health insurance. We're leaning toward letting the work life insurance decrease to 25% and just collecting dividends as they are paid by his life insurer (tax free). His pension significantly exceeds our expenses. We hope to be able to help the kids with purchasing housing (which is VERY expensive in HI).</p>

#14

<p>We are older than OP. We do not think about life insurance, it is paid by employer. Why would anybody care when they are dead anyway? When we do not work anymore, we will not have life insurance. However, we have no plans to retire, we will whenever they will kick us out. hopefully not before 66, but there is no guarantee.</p>

#15

<p>I think the concern is whether there will be enough for the survivor to pay all his/her expenses and debt, especially when the pension or assets significantly drop after the death of the major breadwinner (as happens with some families, including our household). Some folks also want to have funds to help pay for other things, like equalizing the estate, helping with grandkids' education, etc.</p>

#16

<p>I carried fairly substantial life insurance when I was younger so that my H could continue our lifestyle basically with me carrying enough insurance to cover my salary until the kids were 21 and allow him to grow his business and plow his money back in. My H carried substantially less life insurance because I would selll his business if he passed away and invest any proceeds. As the kids grew we decreased the amount and when 3 is done with college we'll probably drop it even lower, just enough to cover and debt and expenses we have at that time. Now I am interested in Long Term Care Insurance, that seems to make some sense to me..</p>

#17

<p>If you have a pension option allowing you either joint or individual life options, it is worth considering the option of taking a pension for the worker's life only and getting whole life insurance on him/her. Oft times the pension calculations will provide you a much larger benefit that way, even calculating the premiums paid.</p>

#18

<p>For the federal government, you have to be careful and be sure to leave the survivor SOME annuity or they can't get medical insurance. It's good to explore options because sometimes the incremental benefit doesn't match up with the peace of mind that the survivor will draw a stream of income. These days, annuities aren't paying at very good interest rates, so payouts are pretty low as well. Another issue with insurance is to be sure that the company insuring is as solid as possible. A policy/annuity on a defunct company is worthless.</p>

#19

<p>When I was at the OP's stage in life, I felt the same way. Cancelled all term policies - that money was to support my kids to adulthood, and they're there (or nearly so) now, with the last bit of tuition covered by the last gasp of the 529. We still have a couple of small whole life policies that weren't worth cancelling, and to which we don't pay any more premiums. My wife is not entirely happy about that, but I just point out that it's called "life" insurance, and at this point I'm happy to be worth more to her alive than dead. :D</p>

#20

<p>Life insurance seems to have served its purpose for you since you have don’t have any debts, your kids are almost out of college and you have savings to cover retirement, etc. I would suggest Long</a> Term Care insurance – these policies are on the expensive side but if you’re healthy and don’t have a family health history of chronic illnesses you have a good chance of getting affordable rates. You might want to check AccuQuote.com for more information on LTC. You can also get free quotes from top-rated insurance companies. </p>

<p>Denise Mancini
Disclaimer: I work for AccuQuote and this is my personal opinion.</p>

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