Author Topic: Broken Record Question: Life Insurance? Trust?  (Read 2835 times)

jeromedawg

  • Magnum Stache
  • ******
  • Posts: 4155
  • Location: Orange County, CA
Broken Record Question: Life Insurance? Trust?
« on: May 01, 2015, 07:15:54 PM »
Hey all,

So several years ago, a 'friend' (now more of an acquaintance) who just starting out as an agent at Northwestern Mutual tried to sell me whole life insurance (pretty sure it was whole, not term). He took me out to lunch and went over some sample portfolio ideas, etc. I *almost* signed up but then decided not to and let him know I'd reach out to him later if I decide. Ever since that time, he keeps trying to call me (maybe every few months at a time) and I never answer his calls. He never leaves a message either so I figure it's not for friendship more than it is just a means for him to "catch up" and sell me life insurance. At this point, whether or not it's term or whole doesn't concern me, it just feels *slimy* each time I see his name pop-up, because I know he's sold life insurance to a ton of other mutual friends that we have. I had a similar encounter with a financial advisor who was very pushy when she first started, and her services were only well known because of the circle of "friends" that we're in. I guess this is not an uncommon way for someone in the "financial services" field to get started yea? Referrals of course... but I always get a bad feeling just based on prior experience. I know there are plenty of good ones out there but it's hard to know who to trust anymore, and who's just trying to sell you fluff you don't really need.

This all said, I'm not quite sure what to do about life insurance. My wife has brought it up a few times because her friends (who happen to be the same friends who the NW Mutual guy sold life insurance to) seem to tell her it's *very important* to get life insurance hahaha. Now, I did purchase an extended life insurance policy through work which basically triples my current salary. I don't know if I should continue with that or if I should drop it and just buy term life. I'm not really sure how all of it works to be honest. I'm 34 and my wife is going to be 29, and we have a baby on the way as well (due August). I really wouldn't be surprised if the NWM agent/friend heard through the grapevine that we're expecting... so what better time to start cold-calling again and sell life insurance! In either case, I suppose it's at least a good reminder for me to start doing some research and due diligence. Any recommendations on what to do or where to look?

Our other older/wiser friends, one of whom is a financial advisor but has not ONCE offered her services (which I appreciate... plus, I think she's a high-profile advisor who advises the 1% LOL), really encouraged us to open up a trust as we are expanding our family.

All this stuff is very foreign to me so I think I need to start educating myself more. Any advice? TIA!

As another addendum, I am replaying what I've heard about other friends who bought life insurance and how some of those policies are like for millions of dollars or whatever. I thought I heard, in passing, questions like "oh so what happens if you die? Don't you want your wife and family cared for completely so they never have to lift a finger to work for the rest of their lives?" - I'm a bit confused because that just seems like a lot of money. Sure, why not spoil them a bit right? But considering Mustachianism, frugality, and simple living, doesn't this kind of go against such huge policies like this? I guess it kind of depends on how the money is planned to be used, perhaps? But most of the people I've heard from who buy such large policies, it seems like they intend for their wives (or husbands) and kids to be able to buy mansions and luxury cars with the insurance money....!
« Last Edit: May 01, 2015, 07:29:28 PM by jplee3 »

JoJo

  • Handlebar Stache
  • *****
  • Posts: 1732
Re: Broken Record Question: Life Insurance? Trust?
« Reply #1 on: May 01, 2015, 07:34:36 PM »
I'm not expecting you to answer these, but these are the questions you should ask yourself:
Do you have a mortgage? How much?
Does your wife and child have enough if you die? 
Do you want to help pay for your child's education if you die?

I'm not crazy about work coverage.  If you end work, you no longer have that coverage.  And maybe by then some health problem will have arisen that will prevent you from buying at that point.
Also, sometimes the work coverage is a bit expensive.  How much are you paying for the work cover and for what amount?

Assuming you're a healthy guy, you should consider getting 10, 15, or 20 year term on the open market, at least in the amount to cover your future earnings.  At your age you should easily be able to get a pretty cheap plan (for example, $500K 10 year term is only $200 a year if you a very healthy and you shop the competition).


jeromedawg

  • Magnum Stache
  • ******
  • Posts: 4155
  • Location: Orange County, CA
Re: Broken Record Question: Life Insurance? Trust?
« Reply #2 on: May 01, 2015, 07:46:22 PM »
I'm not expecting you to answer these, but these are the questions you should ask yourself:
Do you have a mortgage? How much?
Does your wife and child have enough if you die? 
Do you want to help pay for your child's education if you die?

I'm not crazy about work coverage.  If you end work, you no longer have that coverage.  And maybe by then some health problem will have arisen that will prevent you from buying at that point.
Also, sometimes the work coverage is a bit expensive.  How much are you paying for the work cover and for what amount?

Assuming you're a healthy guy, you should consider getting 10, 15, or 20 year term on the open market, at least in the amount to cover your future earnings.  At your age you should easily be able to get a pretty cheap plan (for example, $500K 10 year term is only $200 a year if you a very healthy and you shop the competition).

Thanks! No mortgage - my parents and I co-own the condo so I do pay them "rent" (and this is a very low amount) but basically the money is just being put into an account that will ultimately come back to us anyway (I think some or perhaps all of it and more may actually come back in the form of a 529 for the kid's[s'] education).
Also, my parents are planning to transfer the deed to us fully so technically we can do whatever we want with the place (although, I will have to send them a lump sum of probably at least $40k based on the arrangements we've worked out); there's still an understanding that whatever we sell on the place will be split between my brothers and I. So this is sort of an "early-inheritance" situation we're in. As far as 'having enough' my wife plans to stop working soon after the baby comes so we'd be on single income - I'm assuming this is greater reason to go get a policy then...
But as far as the first and third questions are concerned, a lot of that would be covered per the inheritance from my parents as far as I know. They have a lot and have done the same/similar for my older brothers and their kids too.

I'll have to see how much the cost of insurance is through work - I don't *think* it's an awful lot but maybe it is? I recall maybe no more than $10 per month but will have to double-check the figures.

Are there any good sites to check that compare prices for you? Or is it pretty much just Google Searching?

I'm not in horrible shape but I'm not like super cross-fit or whatever either LOL. Trying to get healthier biking into work at least.

EDIT: YIKES, I just checked and basic life looks to be $9.21 per pay period and supplemental life is $3.84 per pay period. With 26 pay periods that comes out to $339.30 a year according to my calculations... gah, I guess it's time to look for term life haha
« Last Edit: May 01, 2015, 07:50:01 PM by jplee3 »

fa

  • Stubble
  • **
  • Posts: 233
Re: Broken Record Question: Life Insurance? Trust?
« Reply #3 on: May 01, 2015, 11:30:53 PM »
An irrevocable life insurance trust has to do with estate planning.  It means the trust owns your life insurance policies.  I would definitely talk to an estate planning attorney before doing anything like that.

Term life is the way to go.  Very cheap and good protection for your family.  The amount to insure depends on the amount of money you think your family will need to get on their feet and the money your SO will need to make ends meet.  I thoroughly disagree with having a ton of insurance so that your family is set for life.  Another element is whether your wife can go to work and whether she can cover her expenses and save.

We discontinued our life ins. policies when we realized we were FI.  Being able to simply cancel without a loss is another benefit of term life.  I am not an expert, but I hope this helps.

ltt

  • Pencil Stache
  • ****
  • Posts: 749
Re: Broken Record Question: Life Insurance? Trust?
« Reply #4 on: May 02, 2015, 06:37:56 AM »
Term life insurance.  Probably enough so you would be able to pay off a mortgage and enough to get your child raised and through college (that would include all the expenses so that you or your spouse would be able to stay home with your child if need be)--so probably a 25 year term policy.  You could even split up the policies so they are not with the same carrier.

I see nothing wrong with buying life insurance through work.  We have some through my husband's employer, but he has worked there for a very long time.

Also, as your assets/investments increase, you will be able to get rid of those policies you don't need.  Ours were bought when our children were very young, and we are now at the end of our term and the prices are going to be going up on our policies.  We will relook and, more than likely, start cancelling them as our investments have grown and our children, realistically, are capable of working/paying their own way through college, even though we have some money set aside for their education.

begood

  • Handlebar Stache
  • *****
  • Posts: 1002
  • Location: SE PA
Re: Broken Record Question: Life Insurance? Trust?
« Reply #5 on: May 02, 2015, 07:01:49 AM »
As someone with the benefit of 20/20 hindsight, I say go out and buy your own term life insurance, and some for your wife too. I'd get the longest horizon you can comfortably afford - 20,25,30 years. You can always cancel term life insurance, but the older you get the more expensive it becomes to purchase it, and health can get more iffy. Buy a "level" term, where the premium will be the same every year of the policy.

I am not practicing what I preach, but that's certainly what I would tell my 30-year-old self if I could!
« Last Edit: May 02, 2015, 09:27:11 AM by begood »