Term Insurance vs. My Life Insurance Plan via the office

[txsteve]

As a consumer, I'm trying to wrap my mind around why I would need to purchase Term Life Insurance.

My delima is that I pay about 15/month for my 130,000 plan via my job. My wife does the same with her job. If I understand this plan correctly, should I die, my wife would get this money in a lump sum payment. It would pay off our home, wipe out our debt and have enough to bury me. Going forward with her life, she would live off of her income. Or should she decide to remarry, then she would be back to 2 incomes. Either way, she would be debt free and own the home.

On the other hand, I understand if I go with Term Life Insurance, my wife and I would be insurred for something around 400,000. Should one of us die, the other would get payments for "x" years to live the life style we live today. (Keep in mind, she would still get the one time payment from the job. )I have quotes out and am anticipating that Term Insurance may be in the hundred/s per month for my wife and I.

So, based on the above, why get Term Insurance? Would it not be better to invest the hundred/s month that would have gone into the Term insurance into a Mutual fund growing at 10-13%/year.

Please let me know your thoughts.

 

[somarco]

What happens to the GTL if your job goes away?

So does your life insurance.

Does your homeowners insurance go away? How about your auto insurance?

Nope.

So why tie your life insurance to your job?

And just how much life insurance do you need? More than $130,000? Less than $400,000?

http://www.ipipeline.com/iquote/e-needs.htm

Term insurance, any life insurance for that matter, is not an investment. Once you get beyond that you might be able to get a better grasp on solutions to your problem.

 

[txsteve]

These are very good points and something my wife and I need to consider. Thank you.

I am aware that Term is not viewed as an investment but more on this at the end of my response.

I should probably take a hard look at our lifestyle (i.e. do we do very risky things), the stability of our jobs, how close are we to retirement, our health and health family tree, our existing investments, existing insurance and to ask what we want our lifestyle to be should one of us pass.

You may be saying to yourself, “Geesh this guy simply does not want Term life” If so, this an incorrect assessment. I believe it has great value. My underlying issue is, our family is middle class. I don’t have a whole heck of a lot to invest above and beyond my existing retirement plans at work, and like many people, we are behind the curve.

My wife and I have looked at what we want to do together when we are retired. Living off of Social Security and our existing retirement plans will not get us there. We feel we need to step up our investing into something like a Mutual Fund. Just as we were about to do this, we were approached by a gentleman that indicated he could help our family. He talked and talked. At the end of his presentation, he pointed out that we need Term Insurance. We should receive a quote within the next few days. Surfing the web, I am anticipating him to return to say it is going to cost us about 200/month. (Not sure if this is per person or not) Nonetheless, 200/month is 2/3 what I wanted to put into a Mutual fund.

With that said, IÂ’m having to decide if the focus the bulk of my money each month go into Term Insurance with little to nothing left over for a retirement investment or should I focus on growing at 12%/yr in a Mutual Fund.

Finally, the hard question I believe I should address is, Do I focus on what my wife and I can do together when we retire, or do I focus on the possibility of death and what only one of us will do in life.

 

[somarco]

You may be saying to yourself, “Geesh this guy simply does not want Term life

Not at all.

Most folks have no idea how much life insurance they need, or how long they will need insurance. The majority think their need for life insurance diminishes over time which is contrary to historical fact. Everyone thinks they will be self sufficient and debt free by the time they are in their 50's.

Fact is, over 85% of Americans still have debt (including a mortgage) at retirement age and are overly dependent on SS and the charity of others. This will become even more so over the next few years as a smaller percentage of workers have DB pension plans to rely on.

Life insurance can become a very valuable asset, particularly in later years. In some cases the death benefit can be advanced to pay long term care & critical care expenses. With more people relying on Medicaid to pay their long term care expenses, the presence of life insurance can preserve the estate after the state puts a lien on the family home to recoup monies paid for long term care.

He talked and talked. At the end of his presentation, he pointed out that we need Term Insurance. We should receive a quote within the next few days. Surfing the web, I am anticipating him to return to say it is going to cost us about 200/month.

Why not wait and see what his recommendation is?

I don't know how old you are, or anything about your health, but $200/month will buy a lot of term insurance for most folks.

But if you need the coverage and also need to save for retirement, what then?

You plan.

Set up a budget to coincide with your goals. It may mean changing some things in your current lifestyle. If you are behind the curve (as you say) then start by examining why this is so. If you are like most, you have squandered opportunities in the past. But no sense in beating yourself up over that. A financial plan is not a one-legged stool. It takes a balance of insurance, investments & budgeting to make it work.

Of course as long as you are weighing in on things, your pay check can stop because of disability as well as death (or job loss). Chances of a disability are far greater (in most cases) than death.

 

[txsteve]

Well put and again great suggestions. Thank you. A lot to think about.

 

[Sam]

I don't know where your price assumptions come from, but you can get some free quotes at http://www.insure.com/quotesmith/co...ntroller?reqid=qstermindex&REF=99998&redirx=x

If you fill out all of the information correctly, this will give you an accurate glimpse into what the costs are. I suggest that you actually buy from an agent, but it doesn't hurt to keep him honest by knowing the best prices.

 

[Dave020]

For some reason I keep reading OPs posts and thinking he is referring to whole life or some variation as opposed to term life.

Term is pure mortality cost life insurance coverage for a temporary period of time. There is no investment component, no cash value component nothing, just straight death benefit. It appears that either OP is being shown something other than term life or is researching something other than term life.

BTW, your group life is TERM life, it is group term. It has little or no portability if you leave the employer and is often more expensive per $1000 of benefit than a personal term plan from a term carrier.

Be sure OP that you are looking at TERM insurance, and not some whole life cash value variation thereof (some policies are a blend of term and whole life). $400k of term at preferred rate should be available to both of you for far less than $100 per month on a 20-year level premium plan.

 

[James]

As a consumer, I'm trying to wrap my mind around why I would need to purchase Term Life Insurance.

My delima is that I pay about 15/month for my 130,000 plan via my job. My wife does the same with her job. If I understand this plan correctly, should I die, my wife would get this money in a lump sum payment. It would pay off our home, wipe out our debt and have enough to bury me. Going forward with her life, she would live off of her income. Or should she decide to remarry, then she would be back to 2 incomes. Either way, she would be debt free and own the home.

On the other hand, I understand if I go with Term Life Insurance, my wife and I would be insurred for something around 400,000. Should one of us die, the other would get payments for "x" years to live the life style we live today. (Keep in mind, she would still get the one time payment from the job. )I have quotes out and am anticipating that Term Insurance may be in the hundred/s per month for my wife and I.

So, based on the above, why get Term Insurance? Would it not be better to invest the hundred/s month that would have gone into the Term insurance into a Mutual fund growing at 10-13%/year.

Please let me know your thoughts.

I'm somewhat puzzled, I believe what the agent is saying is if you place the DB (400 grand) inside a interest bearing account you would then have the proceeds (say 5% times 400 grand or having 20 grand a year minus taxes to use). In other words you do what you want with that 400 grand in the case that one of the two dies.

Yet a 40 yr old male should be able to obtain a 20 year term policy with a 400 grand DB for around or less than 50 dollars a month. If you shop around you should be able to meet the price you are getting insurance via your employment. That is if you are 40, if younger the price drops if older it will be more.

 

[Guest]

You can get your own life quotes here for term and permanent.

https://online.statefarm.com/apps/lrq3/lrq02/StateSelect.asp

And do not be deterred by them telling you it will take a few minutes. It may take a few seconds, but it is fast.

After you get a quote, they will ask if you want an illustration. Answer yes. An illustration is a year by year breakdown of premiums, charges, and cash value accumulating in your account (if you go with whole life).

What is great about being able to do your own illustrations, you can see how the various options with whole life affect the cash value.

 

[James]

You can get your own life quotes here for term and permanent.

https://online.statefarm.com/apps/lrq3/lrq02/StateSelect.asp

And do not be deterred by them telling you it will take a few minutes. It may take a few seconds, but it is fast.

After you get a quote, they will ask if you want an illustration. Answer yes. An illustration is a year by year breakdown of premiums, charges, and cash value accumulating in your account (if you go with whole life).

What is great about being able to do your own illustrations, you can see how the various options with whole life affect the cash value.

Just wondering, do they also have a specimen contract to view?