Life Insurance Policy

[Stagleton]

Does anybody out there have a life insurance policy (LIP) and is it a good thing to have?

I am either exchanging mine or getting rid of it. My parents got one for me when I was born and I have to pay a premium on it each year! I think it's total BS but I am getting some crap for wanting to get rid of it. I am almost 30 with no kids, a girlfriend, and in good health; clearly I don't need it now, but I'm told maybe I will. I have saved plenty of money and I am continually saving so I have no idea why a future child would need that much extra money a LIP would provide in addition to my savings and property. Do you guys/ladies think a LIP is a good investment? Maybe if I get really sick I can use it as collateral to borrow money to buy organs?

[Monkey Uncle]

Is this a whole life or universal life policy?  If so, I would take out whatever cash value it has built up, cancel the policy, and invest the cash in something productive.  These types of policies are almost always bad investments - the insurance company pays itself (generously) out of the investment returns and then gives you the leftovers as "cash value."

If it's a term policy, you might want to consider keeping it if you plan on getting married and having kids.  If you cancel now and take out another term policy later, it will be more expensive.  But of course, you'll need to consider how much money you'll save in the interim.  And also whether the term of the current policy will actually cover the time period when you have dependents.

[YoungInvestor]

After 30 or so years, you may be at a point where it is worth it to keep the insurance.

Sadly we would need much more information before being able to determine that.

[FLBiker]

My wife and I both have life insurance because we have a baby and are not yet FIRE.  Having LI without a kid seems crazy to me (but maybe I'm missing something) as does getting LI on a kid (although we've received plenty of promotional materials).  To be honest, if it were just up to me, I wouldn't have LI even now (DW wants it, though).  We both pay ~$20 per month for ~$400K of coverage.

[protostache]

My wife and I both have life insurance because we have a baby and are not yet FIRE.  Having LI without a kid seems crazy to me (but maybe I'm missing something) as does getting LI on a kid (although we've received plenty of promotional materials).  To be honest, if it were just up to me, I wouldn't have LI even now (DW wants it, though).  We both pay ~$20 per month for ~$400K of coverage.

That is cheap insurance. Our justification for our much more expensive term insurance was that I'm the 90% breadwinner in the family and I didn't want her to be on the street if I died. I pay a lot more than $20/mo because the insurance company decided my cancer might come back. Of course, they did write the policy so they don't think it's *too* likely. Now we have a baby on the way so we're buying a policy on her as well, because I don't want to be in the position of having to work and grieve and take care of a baby at the same time if something were to happen to her.

[FLBiker]

My wife and I both have life insurance because we have a baby and are not yet FIRE.  Having LI without a kid seems crazy to me (but maybe I'm missing something) as does getting LI on a kid (although we've received plenty of promotional materials).  To be honest, if it were just up to me, I wouldn't have LI even now (DW wants it, though).  We both pay ~$20 per month for ~$400K of coverage.

That is cheap insurance. Our justification for our much more expensive term insurance was that I'm the 90% breadwinner in the family and I didn't want her to be on the street if I died. I pay a lot more than $20/mo because the insurance company decided my cancer might come back. Of course, they did write the policy so they don't think it's *too* likely. Now we have a baby on the way so we're buying a policy on her as well, because I don't want to be in the position of having to work and grieve and take care of a baby at the same time if something were to happen to her.

Makes sense.  I was worried that I wasn't going to get written because I was honest about a history of drug and alcohol abuse.  The nurse that came to my house for the exam told me I should have lied, which was funny.  Been clean and sober for almost 10 years, but thought honesty was the best policy.  My mistake. :)  I got written, though, and it's through work so I got the group rate regardless of my risk level.

And I agree about not wanting my wife to have to worry about money and grieve at the same time, but we've got ~$400K in investments ($60K taxable, but a lot of the rest would be freed up if I died) and our mortgage is only $100K.  Once our daughter is in school (and thus no longer needing either a SAHP or full-time child care) I think we'll let go of the insurance.  Ultimately up to my wife, though.  At the very least, we can get rid of hers. :)

[katsiki]

Suggestion for those who HAVE life insurance: pay your bill annually.  It will be a savings over monthly.

[okits]

Makes sense.  I was worried that I wasn't going to get written because I was honest about a history of drug and alcohol abuse.  The nurse that came to my house for the exam told me I should have lied, which was funny.  Been clean and sober for almost 10 years, but thought honesty was the best policy.  My mistake. :)  I got written, though, and it's through work so I got the group rate regardless of my risk level.

And I agree about not wanting my wife to have to worry about money and grieve at the same time, but we've got ~$400K in investments ($60K taxable, but a lot of the rest would be freed up if I died) and our mortgage is only $100K.  Once our daughter is in school (and thus no longer needing either a SAHP or full-time child care) I think we'll let go of the insurance.  Ultimately up to my wife, though.  At the very least, we can get rid of hers. :)

I had the same advice from the nurse that visited.  She didn't want to hear about that time I smoked pot in university, etc.  I still told her everything.  The last thing my spouse needs if I croak is any reason for the insurer to deny the claim, especially since I won't be around to answer questions!  Unless the nurse will also be adjudicating my claim it's irresponsible to advise omissions or lying.

OP, more details needed on your policy terms and premiums.  There is some small consideration to the possibility that you will not be insurable (or very expensive to insure) if you need life insurance later.  Also relevant is how much of an estate you could leave behind to a dependent.  Obviously, if you have significant wealth the LIP may be entirely redundant.

[protostache]

And I agree about not wanting my wife to have to worry about money and grieve at the same time, but we've got ~$400K in investments ($60K taxable, but a lot of the rest would be freed up if I died) and our mortgage is only $100K.  Once our daughter is in school (and thus no longer needing either a SAHP or full-time child care) I think we'll let go of the insurance.  Ultimately up to my wife, though.  At the very least, we can get rid of hers. :)

Yep. When our investment total exceeds the mortgage balance + life insurance total we'll probably drop the expensive policy because at that point it'll be redundant. Of course by that time we'll be out of the initial 5 year period where I'm paying a whole bunch extra, so it may stick around anyway. We'll see.

[slugsworth]

@ The original poster, I would not be hasty, if you have an old permanent insurance product, it can often have returns comparable to commercial bond funds with less volatility and tax advantages. I don't think that anyone would recommend a permanent life insurance product, but if you were given an old one it is a bit of a different story.  I think that this can be considered part of your bond allocation (though you can't exactly re-balance easily).

If you do cash it out, you will have a taxable event for any gain on the policy. You need to provide more info for anyone (probably someone with a lot more knowledge than me) to give insight. 

[Financial.Velociraptor]

If it is a whole life policy, you may be able to "auto-pilot" it after this much time.  The term portion of premiums can come from cash value and the ~5% returns thereon into perpetuity.  You keep the death benefit and never pay another dime.

[Stashaholic]

I wouldn't get a policy if I was single, and if I did, it would be term and small like less than $50k just to cover burial expenses.

My wife and I each have a 30 yr $500k term life insurance policy (bought 3 yrs ago) to cover for each other's income if something tragic happens to one of us. That should stay in place until we're in our early 60s. We also have small insurance through our employers for free. We have a baby but no plans on getting a policy because there's no income to supplement. The rationale is if one passes away, the insurance policy will cover most, if not all, of the lost income and if invested, should cover that for life. It's actually a great return and added peace of mind for just $720 per year total on both our policies (to payout $500mil-$1mil and knowing your family will be just fine). Even if we've become very wealthy before 30 yrs is up, I would still keep and maybe even buy more life ins. I think life ins plays a role in helping families become wealthy, stay wealthy or become wealthier over generations. It is not taxed, you can get covered significantly more than your net worth (increasing your family's wealth even more) and goes straight to the intended beneficiary so no hassles with your estate.

I also want to add that most policies include a terminal illness clause that pays you out early around 50% - 100% of the policy face value if you are terminally ill. That will help a lot if you happen to get sick and need some funds for medical or in-home care.

[Jim2001]

I wouldn't get a policy if I was single, and if I did, it would be term and small like less than $50k just to cover burial expenses.

My wife and I each have a 30 yr $500k term life insurance policy (bought 3 yrs ago) to cover for each other's income if something tragic happens to one of us. That should stay in place until we're in our early 60s. We also have small insurance through our employers for free. We have a baby but no plans on getting a policy because there's no income to supplement. The rationale is if one passes away, the insurance policy will cover most, if not all, of the lost income and if invested, should cover that for life. It's actually a great return and added peace of mind for just $720 per year total on both our policies (to payout $500mil-$1mil and knowing your family will be just fine). Even if we've become very wealthy before 30 yrs is up, I would still keep and maybe even buy more life ins. I think life ins plays a role in helping families become wealthy, stay wealthy or become wealthier over generations. It is not taxed, you can get covered significantly more than your net worth (increasing your family's wealth even more) and goes straight to the intended beneficiary so no hassles with your estate.

I also want to add that most policies include a terminal illness clause that pays you out early around 50% - 100% of the policy face value if you are terminally ill. That will help a lot if you happen to get sick and need some funds for medical or in-home care.

+1 on both reasons and benefit.  I think most people don't know about the accelerated death benefits available on many term policies.

[tj]

I wouldn't get a policy if I was single, and if I did, it would be term and small like less than $50k just to cover burial expenses.

What if this theoretical single expects to get married or have kids some day? Term life insurance is dirt cheap, I'm fine locking in a million dollar 30 year policy in late 20s or early 30s as a single. The odds of something going on with my health when I'm older are higher, I'd rather lock it in while I'm young. I pay something like $750/year. My future spouse will appreciate if it I don't make it past 60. if I do make it past 60, well then the insurance served it's purpose.....

[marty998]

Meh. If you cark it and are worried about leaving your family destitute keep in mind it's pretty common these days for surviving spouses to (a) work and (b) re-marry.

In the dark ages (pre 1990 lol) with SAHMs and a dogmatic church that gets all funny about non-traditional families for sure you would have needed life insurance.

If you're still worried, just self-insure by having investments and savings... enough to tide your spouse over till her circumstances change (up to you and your partner what that could mean... being deliberately vague so as not to be insensitive).

[tj]

Meh. If you cark it and are worried about leaving your family destitute keep in mind it's pretty common these days for surviving spouses to (a) work and (b) re-marry.

The whole point of life insurance is to remove that burden from your partner. Sure, they could enter the work force (if they aren't already) or re-marry, but they don't have to do. For "they can just marry some other guy" to be the primary plan does seem a bit insensitive. It's not to leave them destitute, it's to enable them to live the same lifestyle they had while you were with them.

If I don't get married, and I die young, then my parents and/or sister get some extra cash. It's dirt cheap insurance to have and I'm okay with it.

[FLBiker]

I also want to add that most policies include a terminal illness clause that pays you out early around 50% - 100% of the policy face value if you are terminally ill. That will help a lot if you happen to get sick and need some funds for medical or in-home care.

Interesting!  I'll have to see if ours has that.  Thanks!

[RedmondStash]

We've only ever had life insurance through our jobs. Honestly, I see pretty much all insurance as a waste of money, though we carry the necessary ones (health, car, etc.). The way I look at it, insurance companies make money, which means most of their customers lose money, so it's almost always a losing bet for us.

But I see comments about using LI as an investment, so it may be more complicated (and less unprofitable) than I realize.

I always figured we work and save, build up to FI, and then LI becomes irrelevant. It all depends on what makes you happiest and most comfortable.

MMM did a post on insurance that might be helpful: http://www.mrmoneymustache.com/2011/06/02/insurance-a-tax-on-people-who-are-bad-at-math/

Good luck.

[soccerluvof4]

I wouldn't have it. Especially in your case even though I cant find a reason why I should having a DW and 4 kids.

[LordSquidworth]

Does anybody out there have a life insurance policy (LIP) and is it a good thing to have?

I am either exchanging mine or getting rid of it. My parents got one for me when I was born and I have to pay a premium on it each year! I think it's total BS but I am getting some crap for wanting to get rid of it. I am almost 30 with no kids, a girlfriend, and in good health; clearly I don't need it now, but I'm told maybe I will. I have saved plenty of money and I am continually saving so I have no idea why a future child would need that much extra money a LIP would provide in addition to my savings and property. Do you guys/ladies think a LIP is a good investment? Maybe if I get really sick I can use it as collateral to borrow money to buy organs?

I'm young, healthy, and childless but I still have a life insurance policy. I have a mortgage which needs to be covered, and it'll provide a nice retirement bonus for my parents if anything happens. It's a 20 year term $1 mil for $40/month. No longer have time for video games, which I used to go through a few a month.

It's also cheaper the younger you get it.

Yep. When our investment total exceeds the mortgage balance + life insurance total we'll probably drop the expensive policy because at that point it'll be redundant. Of course by that time we'll be out of the initial 5 year period where I'm paying a whole bunch extra, so it may stick around anyway. We'll see.

That's the wrong way to look at it. Your investment total is for retirement. Your life insurance is for income for a spouse until retirement. Want to drop it? Wait till retirement. If something does happen, keeping it till then will be a blessing for your spouse.

[I'm a red panda]

I have life insurance through my company- one years salary. I don't pay anything.  We don't have an additional policy for me.

My husband we have the same through his company, but we have elected to take out a supplemental policy.  Most of what I do, he can do. Most of what he does I would have to hire out to other people.  Losing him would cost me money.  He also thinks he'd be able to keep working if he lost me, I don't think I would be able to work for quite a while if I lost him.

But if I was single, I wouldn't see the need for it.

[I'm a red panda]

I have a mortgage which needs to be covered

Or what, the bank takes the house? Let them- you'll be dead. 
If the estate can't cover your debts, the creditors are generally SOL. 

[katsiki]

For those saying to get it when you're young because it is cheaper: is that true of term?  I have only seen policies where it goes up every 5 years.  Is there really an advantage to buying earlier?

[protostache]

For those saying to get it when you're young because it is cheaper: is that true of term?  I have only seen policies where it goes up every 5 years.  Is there really an advantage to buying earlier?

I've never actually seen a policy that isn't level premium, even term. All of our term policies are level premium.

[tj]

For those saying to get it when you're young because it is cheaper: is that true of term?  I have only seen policies where it goes up every 5 years.  Is there really an advantage to buying earlier?

If you know you'll be alive and perfectly healthy X years from now, then obviously you should wait.  If you lock in life insurance while young, then you don't get to be the guy who suddenly gets cancer and is uninsurable.

[PhysicianOnFIRE]

I carried term life for 8 or 9 years after residency when I had a family of 4 dependent on my income.  It was just under a dollar per day for $1 million dollar coverage.

For better or worse, I never got a chance to collect.  When I was approaching FI, I stopped paying on the policy.  Same with disability insurance.  Being self insured is wonderful.

[marty998]

I have a mortgage which needs to be covered

If the estate can't cover your debts, the creditors are generally SOL.

Interesting you say something like that when it is likely you are the creditor through your ownership of bank shares in a typical index fund.

[branman42]

I have a mortgage which needs to be covered

If the estate can't cover your debts, the creditors are generally SOL.

Interesting you say something like that when it is likely you are the creditor through your ownership of bank shares in a typical index fund.

So what? He just stated a fact.

[MidWestLove]

"If it is a whole life policy, you may be able to "auto-pilot" it after this much time.  The term portion of premiums can come from cash value and the ~5% returns thereon into perpetuity.  You keep the death benefit and never pay another dime."

NEVER assume this - my wife has policy with illustrations from 1989 which show self sufficiency in the last century. Here in 2016, we are still having to write a check months after not missing any payments..

[slugsworth]

^you weren't able to convert to a paid up policy with a reduced death benefit?