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Before I begin, if this isn't the proper forum for this, please point me to the proper place. So the question of purchasing life insurance came up recently, and I realized that I have no concept of what's good, bad, or necessary. A bit about myself, I'm a 29 year-old single guy who recently got out of the active military. During that period I was covered under SGLI, which to my understanding, now only covers me during active call up periods. Effectively, I have no life insurance day to day. I am in good health, have sound finances, good health/dental insurance (TRICARE), etc... and an undergraduate degree in Finance. My father recently went to end his term policy due to the ridiculous rates that will now be charged, simultaneously he offered to open a universal policy for me in which he'd pay the rates for a time. Now, the whole 'free' thing aside, I sat down with the agent to discuss the policy and found that he couldn't answer basic financial questions on the policy, things like: - When or why are the rates adjusted for the savings growth on this policy? - Why would I not be better off investing the monthly fee into a Vanguard retirement account instead? After asking him the first question, and sputtering for an answer, he told me he didn't know when or how State Farm adjusts the savings growth rate (currently 2.5%) and I told him straight up, "That's a bad answer." I have had reason to mistrust this guy previously for a bad deal he had given my father, and now I'm sure he's either a) ignorant, b) malicious. Either way, I simply don't trust anything he's offering and I told him I wouldn't sign for anything I don't understand. Near as I can tell, at my current age, I'd be much better off taking the monthly charge and investing it. At an average return rate, 40 years compounded, the simple return would be larger than the savings growth on the policy and the death-kicker combined. There are some tax variables here that I haven't sat down to figure out yet, but I wanted to get a general thought on the issue and perhaps some help in pointing me towards where I should focus on further reading about this. Boon fucked around with this message at 17:57 on Apr 27, 2016 |
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Apr 27, 2016 17:54
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| # ? Apr 24, 2024 02:04 |
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First question I'd have to ask: as a single guy, why are you considering life insurance in the first place? Accumulation life insurance can have useful tax advantages, however it's generally better to max out your 401k and IRA options before you even start considering those. I'm an actuary who has worked in pricing life insurance, and my general impression is that far too many people get involved with a universal life policy without fully understanding either the advantages or disadvantages.
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Apr 27, 2016 22:33
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Fistful of Dynamite posted:First question I'd have to ask: as a single guy, why are you considering life insurance in the first place? It's something my parents offered to purchase as they know I don't have it (and they purchased one for my sister long ago). Frankly, I have no idea since I've never had to deal with it, they have no idea because they don't know how financial instruments really work (and are inclined to believe a salesman who draws simple diagrams on paper). Based on what I know, it doesn't seem like it's worthwhile and my parents should just save their money for retirement.
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Apr 27, 2016 23:13
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Boon posted:Near as I can tell, at my current age, I'd be much better off taking the monthly charge and investing it. Yup! You're neither rich enough nor old enough for whole life policies to give you any tax advantage. Their primary purpose is putting money in someone else's pocket, anyway. Doesn't sound like you need life insurance at all, either. A good general principle is, if you need life insurance, buy term life insurance. If you want to invest, use cheap broad-market mutual funds. Don't mix up the two goals. More: This guy writes a lot on this topic and generally knows his poo poo. slap me silly fucked around with this message at 23:56 on Apr 27, 2016 |
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Apr 27, 2016 23:54
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Boon posted:So the question of purchasing life insurance came up recently, and I realized that I have no concept of what's good, bad, or necessary. Boon posted:Based on what I know, it doesn't seem like it's worthwhile and my parents should just save their money for retirement.
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Apr 28, 2016 02:42
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Thanks guys, I appreciate the help!
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Apr 28, 2016 03:25
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I'm not a financial planner, but life insurance is great in only limited scenarios: 1) purchased for an infant when it is dirt cheap. Great for young parents who lose a child and also nice for the child through their entire life. 2) provided dirt cheap by your employer to cover lost income to your family 3) a small policy later in life. Great way to amortize funeral expenses, especially if you think you will die sooner than the actuaries do. buying it just to buy it is literally betting that you will die sooner rather than later.
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Apr 28, 2016 04:58
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It also give the beneficiaries a great motive to murder you.
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Apr 28, 2016 12:44
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It's a bet, cause I could probably invest it, but if I get hit by a bus tomorrow my wife gets about 10 years worth of my current income. We don't have kids, but when my dad died unexpectedly at 43, it was a huge help. I wouldn't worry about it unless you have dependents.
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Apr 29, 2016 05:41
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Not to hijack, didn't think another life insurance thread was necessary. I just gained a dependent and was wondering if and how much life insurance is a good idea. We currently live with my parents and are trying to save for a house. At the moment we have no debts/mortgage to worry about, but I am not sure if it would be a good idea to get something now rather than waiting until we actually do move out some day since it may be a few years. We have some cash since we are trying to save for a down payment, but it will mostly disappear (excluding emergency fund) once we get a house. How do people calculate what is appropriate for their situation?
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May 19, 2016 03:18
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better than mama posted:Not to hijack, didn't think another life insurance thread was necessary. I just gained a dependent and was wondering if and how much life insurance is a good idea. We currently live with my parents and are trying to save for a house. At the moment we have no debts/mortgage to worry about, but I am not sure if it would be a good idea to get something now rather than waiting until we actually do move out some day since it may be a few years. We have some cash since we are trying to save for a down payment, but it will mostly disappear (excluding emergency fund) once we get a house.
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May 22, 2016 20:23
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quote:SiGmA_X posted:10-20x salary is safe without thinking hard. I'd go for the lower-middle of that range myself (12-15?) I'd also go for a 20-30yr term. Thanks. I'm going to double check how much we currently have through his job and start looking to get something not reliant on work.
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May 31, 2016 08:58
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