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Learning, Sharing, and Teaching => Investor Alley => Topic started by: meadow lark on December 23, 2015, 11:46:30 PM

Title: Life Insurance
Post by: meadow lark on December 23, 2015, 11:46:30 PM
My father is in rather ill health and he has suggested I might want to buy life insurance on him.  Actually, it was more like I threatened to buy it when he was being an ass and refusing medical care, as a way to highlight that he was endangering his life, but now he thinks it is a great idea and has mentioned it several times.  I am not sure.  Yes, it is rather odd.  I am thinking about it.  It will be the only "inheritance" I would get, and that may be why he thinks it is a good idea.  It would have to be a "guaranteed acceptance" policy - hence very pricey, I think, as he is rather sick.

Of course, I have no idea when he will pass, but an educated guess would be definitely in the next 10 years, probably He will be lucky to make it through the 2 years it takes to season most of these policies.  Of course, this is all influenced by the fact he is very non-compliant with medical care, and if he were to suddenly start listening to his MD he might live 10  + years.  However, that is pretty unlikely at this late stage.

With AARP, for $25k it would be $227/month, $2729/year.  In 2 years it would be $5458, in 5 yrs $13,641.  10 years would be $27, 282. Is this the kind of investment/gamble you would do?
Title: Re: Life Insurance
Post by: marty998 on December 24, 2015, 12:40:57 AM
Is that policy quote after you have disclosed all his existing health conditions? Or is that just for a general male non-smoker his age?
Title: Re: Life Insurance
Post by: Monkey Uncle on December 24, 2015, 04:23:01 AM
Using MMM's "back of the napkin" math, $227/mo invested in an index fund should compound to over $39,000 in ten years.  So no, this is definitely not a gamble that I would do.
Title: Re: Life Insurance
Post by: dmn on December 24, 2015, 04:36:52 AM
I would also not do it. Insurance is good if you want to insure a specific risk, but not if you are looking for an investment.

Life insurance is great to manage the financial risk that the family's sole bread-winner dies unexpectedly. But the expected return will be below market returns, since the insurance company adds an additional layer of management fees.

The actuaries at life insurance companies are not stupid, and they know that a life insurance policy with "guaranteed acceptance" only attracts customers who are already ill. This is reflected in the premiums. Your gamble might work, but you have a better chance of winning by investing your money directly on the stock market.
Title: Re: Life Insurance
Post by: FI40 on December 24, 2015, 08:40:58 AM
I would also not do it. Insurance is good if you want to insure a specific risk, but not if you are looking for an investment.

Life insurance is great to manage the financial risk that the family's sole bread-winner dies unexpectedly. But the expected return will be below market returns, since the insurance company adds an additional layer of management fees.

The actuaries at life insurance companies are not stupid, and they know that a life insurance policy with "guaranteed acceptance" only attracts customers who are already ill. This is reflected in the premiums. Your gamble might work, but you have a better chance of winning by investing your money directly on the stock market.

Agreed. Only insure when you must, is a good general rule. Essentially insurance is a game where (if you play by the rules, which is advisable) you will always have losing odds.
Title: Re: Life Insurance
Post by: bdbrooks on December 24, 2015, 10:16:40 AM
I worked as an actuary (granted it was on the health insurance side), and the actuaries that price insurance know how to not lose their companies money. You should never buy insurance as an investment. It is insurance. And insurance always costs you money. Don't look to make a quick 10-20k. Start trying to do actual work and sacrifice to get yourself ahead.

For anecdotal evidence, my grandma was extremely sick 18 years ago. She was told she likely wouldn't live another year and definitely not 2 more. She is still around and as sassy as ever. She is almost 90. My grandpa was also told he wouldn't make it to Christmas and managed to see 4 more Christmases. Medicine can do amazing things now days and you should be aligning your goals with the health of your father and not trying to make money off of his death.
Title: Re: Life Insurance
Post by: YoungInvestor on December 24, 2015, 11:39:53 AM
Life insurance is useful in many situations, but I don't think that's one of them.

Plus, gambling on your own father's death seems quite morbid to me.
Title: Re: Life Insurance
Post by: BlueMR2 on December 24, 2015, 12:09:01 PM
Life insurance is useful in many situations, but I don't think that's one of them.

I would say "few" rather than "many".  For anyone that's got much of a 'stache at all, needing it seems very unlikely.  They don't put out those policies to lose money either...
Title: Re: Life Insurance
Post by: v8rx7guy on December 24, 2015, 12:46:39 PM
I wouldnt do it. You would practically be rooting for him to die... thats a messed up situation.  No one should bank on or is entitled to an inheritance. Read the what do you want to do with your stache when youre dead thread...
Title: Re: Life Insurance
Post by: lostamonkey on December 24, 2015, 01:12:57 PM
Life insurance is good in certain situations but not this one.

You are essentially make a bet with a negative expected value of your father dying. Why would you want to go that?
Title: Re: Life Insurance
Post by: Ohio Teacher on December 25, 2015, 06:46:02 AM
I agree with the folks above.  If your father had already had life insurance, whether term or whole life, on himself, that's one thing.  But waiting until he's ill and then going and getting a policy so you'll "get an inheritance" is just not right and kind of weird.
Title: Re: Life Insurance
Post by: meadow lark on December 25, 2015, 11:31:45 PM
Thanks for the weighing in, everyone.  Decided not to do it, the financial arguments make a lot of sense.  And bdbrooks...  I do "actual work".  I see this topic has offended several people's sensibilities.  A little confused by that - my actions would not influence his dying in any way.  At least I think that was what I learned at 4 yo when I moved out of the magical thinking stage.  But it may be family culture - in my family we talk about death, we have all signed Do Not Resuscitate paperwork, organ donation paperwork, we know what we want in terms of funerals.  I am an RN, my mom was an RN, my step-mother was a hospice volunteer and a minister, my father was a minister.  I think we are all comfortable talking about things others are not.