Do You Think Life Insurance Is Really Worth It, And Why?
Posted October 12, 2009 – 4:40 am in: structured settlements FAQI’ve heard things about life insurance being good for long term savings plans for tax reasons, but I don’t know how it all works.
Tags: Insurance, Life, Really, Think, Worth
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Normal life insurance policies are only worth it if you have dependent family.
The sort of insurance you are thinking of is what are called ‘With Profit Bonds’ in the UK. These are really savings policies, which just manage to keep within the rules of what qualifies as a life policy in order to take advantage of the tax laws. They normally have a cover value no higher than the sum you have paid into them, but you get this back at maturity and can make (or hope to make) further gains from bonuses, if the invested funds increase in value. This is a gamble, but one which has in the past often worked well. Get some professional advice on this.
Term is extremely useful for making sure your kids get through college. Whole life is a huge scam.
The best policy is a 30 year term. If you are in good health, you will pay $40-$50 per month for a $250k policy. Life insurance is great if you have kids and a mortgage. Even if you don’t it is still wise to have. Be very very careful of the fine print. Some policies will only pay out the full amount after a couple of years. So be sure to shop around. DO NOT buy crappy whole life or cash value insurance. The rates will always go up. You should never borrow money against a policy. Use the equity in your home. Also be sure to get a plan around the age of 55 for 30 years as well. The average life expectancy is 80-85 yrs so your family will be in good shape.
Life Insurance is needed less as you grow
older (a smaller policy) A Young Family Man,
needs it to take care of his Wife & Kids, and to
pay for His burial & the debts he leaves behind.
Life insurance is a very personal topic. Usually, it comjures up the idea that you will die. Well, you will die but we don’t like to think about that. Since it is personal, it customizable. By this, I mean you will want something different taken care than I will. So you have to ask yourself several questions:
A) Do you want your debts taken care of? If yes, list them and the amounts owed and total it up on the side.
B) Do you want income to be replaced? If yes, what percentage, for how long, can you survive on just your income if everything else is paid off?
C) Do you want your mortgage paid for?
D) Do you want your children’s education paid for?
These are all questions that you have to answer before putting your agreement on the bottom line. Make sure that the agent has YOUR interests at heart. Ask the person for how long they receive commissions on your policy.
Me, personally, I feel very strongly in recommending term insurance and investing the difference. Why? Because when we are younger we have children, lots of debt and a mortgage. We have very few assets. Loss of income would be devastating at this point. However, as we reach retirement, hopefully, we planned well. We have enough money for everything, children are grown and out of the house, education has been taken care of, debts are paid off and the mortgage is paid off. You do not NEED insurance at this point. Your money will take care of what you need, insurance cannot buy groceries.
Life insurance first off is to protect people that are dependent on your income. The classic view is a young family with 3 kids with a $200,000 mortgage. Young families need to have enough life insurance to pay off debt and replace income for at-least 5 or 10 years. Some people might say my wife can pay off the house and be fine she has a good education, but at the moment your children lose their mom or dad do you really want them to have to lose their other parent b.c they have to now work 40 or 60 hrs a week in order to pay the bills.
Cash value life insurance is good for people who will not by term and invest the difference. If you are going to spend $100 / month a term insurance and spend the other $500 / month. Then it would be better for you to have the permanent protection.
Also permanent policies which are Universal life with guaranteed premiums and whole life policies are great for clients with pensions with decreasing survivor payouts. For clients with estate problems or who want to create a legacy. Life insurance death benefits are federal income tax free.
Life insurance is important if you have people that depend on your income. To simplify, there are basically two types of life insurance – term (no cash value) and cash value policies. There are a lot of cash value policies out there. There is a lot of debate on both types. Term is cheaper though. I prefer to have term insurance and keep my investments separate.
If you have people that you are financially responsible for taking care of it certainly makes sense to purchase a term life insurance policy (you can buy a policy that goes for fixed amounts of years such as 5, 10, 15 and 20 years. If you are concerned with not being insurable down the road due to deteriorating health, then whole life may make sense (certainly not for most people) Generally Insurance is a way to shift risk and should not be part of your investment (usually called universal life)
It is really help to our depends when we die
Consider the source. An insurance agent is trying to sell you … insurance (even me). A media pundit is trying to sound just different enough for you to pay attention.
I could go into a long technical explanation about how this might or might not work, but there is just too much to go into and your situation might be different than an “average” person. If you are talking about a properly over-funded life insurance policy, no doubt you are looking at a hefty premium. I would suggest you pay a small portion of this premium to a fee-only financial planner (who has no obligation other than to you) to help you make a wise decision. You should be able to find a fee-only planner who will work just on this one problem for a smaller fee.
It really helps your family out when ou die and your screwed if you get into an accident if you don’t have it