Life Insurance Help

smetter04 · January 2016

Last week I mentioned in a different post that we're looking into life insurance and the decision is stressing me out. Could I have extra pairs of eyes on the quotes we've received?

Me*
1. $300k policy, term to age 80, initial premium $170/yr
2. $500k policy, term to age 80, initial premium $236/yr

DH*
1. $750k policy, term to age 80, initial premium $399/yr.
2. $1mil policy, term to age 80, initial premium $509/hr.

*All four policies are term to age 80 with increasing premiums (increase beginning at year 4), and also say "non-guaranteed dividends used to reduce premiums"

Background:
We are both 26, currently working full time, healthy, currently no children but we're starting TTC later this year, and I don't plan to work outside the home with children.
Our financial advisor is advising that we convert these term policies to whole life policies piecemeal throughout the term.

Questions:
1. I never realized that premiums could increase - is this typical?
2. Do these policy amounts seem too low, too high, or just right? I realize that this is subjective based on individual needs, but at first glance what do you think?
3. Does the term to age 80 seem like too long? We are saving for retirement at 65, and I feel like these amounts will be too high for our needs at that age.

Thank you!

CuriousKiddosMama · January 2016

Check out zanderinsurance.com
That is some odd term insurance, and I would not go with it. You should be able to get a 20-30 year level term life insurance (price never changes during the length of your term).
I wouldn't worry about having insurance until you are 80. You maybe self insured by then, or you may need more insurance as your income goes up and you have a family.
The advice I've heard on how much to buy is 10-12 times your income. That way if you invest the life insurance $ you get if something happens you can live off the interest/growth every year.

cbee817 · January 2016

We have 2 girls and just have 20 year term polices. We've been told to convert to whole life as well, but we're not planning to do that.

Right now, DH has $250K for $212/year plus 3x current salary from his job at no cost to him. I have $600K for $285/year plus 2x current salary from my job at no cost to me. I make about 2x what DH does so it makes sense- I think we might actually increase his though since it shouldn't be too much $. We're both elite preferred (best ranking) based on our bloodwork and weight when we were screened. We're only at about 8x our current salaries, but we have substantial savings, retirement, 529 plans for the girls so we're ok with those numbers for now.

brij2006 · January 2016

Without doing a ton of research, since the premiums increase after 4 years, I am going to assume that this is a 4 year term policy that you can continue to pay after 4 years but there will be increasing premiums. You have the option to pay those increased premiums until you're 80, which at that point you are uninsurable. All term policies have the option to continue paying them after the term is up, but the premium is insanely expensive.

What you want is an actual term policy for a longer period of time (term). So if you're going to be TTC soon, I would recommend to look at 20, 25, and 30 year term policies. You can always choose to pay the increased premium beyond that term, but it isn't advisable unless you have been diagnosed with a non-insurable disease and want to continue the policy.

Who is it that quoted this for you? The reason I ask is that agents like Country Companies, State Farm, Allstate, etc will usually quote a policy like this or have some jibberish way of trying to get people to buy a whole life insurance policy (which is a crap policy), without actually saying it's whole life. It's shady, but it happens way too often and people don't fully understand what they bought. Or their intentions with writing a short term policy like this is that they want you to roll it over to a whole life policy before the term is up (within the 4 years).

If this is the case, call an independent insurance agent in your area and have them quote a TERM only policy for you.

Xstatic3333 · January 2016

I agree that those policies seem weird. My gut feeling is that your FA is trying to sell you something he makes a good commission off of. @CuriousKiddosMama has good advice.

We each have $350,000 for 20 years. This is a little below the recommended 10-12x salary. We were over 30 when we signed up, only got the second-highest tier, and are in the unusual situation of having almost equal incomes. We just did enough to pay off the house and all debt plus leave a generous cushion or college fund. Any jump up in amount or term length was going to drive the price way up, but I'm comfortable with what we have.

hoffse · January 2016

Ditto what the others said. I just wanted to chime in to say that 80 seems like way too long, especially if you guys think you'll be able to retire at 65. Once you retire you are considering yourselves to be financially independent, and that means that your spouse wouldn't really need life insurance to make ends meet from that point onward.

FWIW my parents were self-insured by the time they were in their mid-50's because they had saved well. They had other non-retirement investments they could tap into at that point, so they just cancelled their policies.

I would think that any policy that lasts past your retirement age is probably not necessary, and you may even be able to cancel before then.

brij2006 · January 2016

The recommendation is 10-12x your income so you can put that into an investment and draw from the gains on that each year as though the deceased spouse was still bringing in an income.

To give you an idea, H and I both have $500k on each of us (his is $470/year, mine is 214/year). We did a 20 year term, and we were TTC when we bought them. Our thoughts at the time were that we were in debt payoff mode and we would be debt free within 7 years (including the house). So once the term was finished on the policies, we would not buy more. In 20 years, our retirement funds will be large enough and our kids will be out of school or at least close to it and their college funds will be set to put them through school.

At some point there may not be a need for life insurance, and that's a good thing.

smetter04 · January 2016

Thanks for the comments everyone! I agree that the policies seem weird. I'm definitely not comfortable with increasing premiums as they would start increasing when we are living on one income.

The quotes are from the agent who works with my parents for their life insurance. My parents bought me a policy through them and I recently took ownership of that policy, which prompted us to work with them. I'll admit that we don't have the greatest rapport with them, though.

Follow-up question - how important is the reputation of the company that backs your life insurance? These quotes are through a very, very large and reputable local company.

short+sassy · January 2016

I'm always so shocked and jealous when I read these posts, lol. What most of you pay per year, is what my H and I would need to pay per month for similar coverage. But then, I'm in my early 40s and have a serious medical condition and he is in his early 50s and smokes. Soooo...yeah .

I did recently request info from a commercial for H...rookie mistake there, I'm sure. But it was a policy like you are talking about, OP. The rates automatically increase as a person enters a new 5-year age bracket. I didn't like that either. I suspected, and am glad to hear other PPs say this, that a longer term life would be a better choice. Back to the drawing board for me.

brij2006 · January 2016

Honestly, term life insurance is very cut and dry. If the insured passes away and has a death certificate, then it pays. So company reputation isn't as important with term life insurance as it is with something like home and auto insurance.

Just Google the companies reputation and reviews to give you a good idea. You can also search for their A.M Best rating. Our agency doesn't write with anyone less than an A-, but I personally would buy from anyone with a B or greater.

Xstatic3333 · January 2016

smetter04 said:
Thanks for the comments everyone! I agree that the policies seem weird. I'm definitely not comfortable with increasing premiums as they would start increasing when we are living on one income.

The quotes are from the agent who works with my parents for their life insurance. My parents bought me a policy through them and I recently took ownership of that policy, which prompted us to work with them. I'll admit that we don't have the greatest rapport with them, though.

Follow-up question - how important is the reputation of the company that backs your life insurance? These quotes are through a very, very large and reputable local company.

A good reputation is important to me. The good news is that many, many big name companies write term life policies. The website PP mentioned, Zander, is a good place to find a bunch. FWIW we use Liberty Mutual, though I'm not sure their prices are the best. H got really emotional about the process, though, so I'm not messing around with it now.

als1982 · January 2016

I think your terms are way too long, but also the amount for you way too low. Even though your H may end up being the only breadwinner, should something happen to you, it would be smart to have enough to hire a full time nanny and a house keeping service, in addition to extra for bereavement time and future college costs. I'm not sure $300,000 would cover that if your children were young.

JoanE2012 · January 2016

short+sassy said:

I'm always so shocked and jealous when I read these posts, lol. What most of you pay per year, is what my H and I would need to pay per month for similar coverage. But then, I'm in my early 40s and have a serious medical condition and he is in his early 50s and smokes. Soooo...yeah .
I did recently request info from a commercial for H...rookie mistake there, I'm sure. But it was a policy like you are talking about, OP. The rates automatically increase as a person enters a new 5-year age bracket. I didn't like that either. I suspected, and am glad to hear other PPs say this, that a longer term life would be a better choice. Back to the drawing board for me.

We're in a similar boat. Late 30s. I have a recently diagnosed medical issue that will probably make it near impossible to get insurance (or, it will be at a very high rate). DH could probably get a decent rate - he's just got age and a little extra weight against him. We'll probably get rates (or try) for kicks - but I have a feeling we'd be better off just continuing to save the money we'd pay for the premium. We have no kids (and no plans for them), so that's a big factor too.

bmo88 · January 2016

Others have already said this, but definitely considered a defined term insurance like 20 or 30 years.

DH and I just bought policies last year through Banner Life Insurance at 27 (me) and 29 (him) with the highest health rating. We have the following:

$500,000 policies each
$324 a year for me
$384 a year for DH

We will consider adding another policy of probably $100-$250k on top when we have children in the next few years. We did not go off of the 10x income recommendation, otherwise I would have purchased a $1 million policy. Our rationale is that our expenses are relatively low, our cash savings is increased and the idea would be to pay off remaining mortgage and have some money left to invest. Neither intend for the amount to fully replace each other's income, which we are comfortable with overall.

short+sassy · January 2016

JoanE2012 said:

short+sassy said:

I'm always so shocked and jealous when I read these posts, lol. What most of you pay per year, is what my H and I would need to pay per month for similar coverage. But then, I'm in my early 40s and have a serious medical condition and he is in his early 50s and smokes. Soooo...yeah .
I did recently request info from a commercial for H...rookie mistake there, I'm sure. But it was a policy like you are talking about, OP. The rates automatically increase as a person enters a new 5-year age bracket. I didn't like that either. I suspected, and am glad to hear other PPs say this, that a longer term life would be a better choice. Back to the drawing board for me.

We're in a similar boat. Late 30s. I have a recently diagnosed medical issue that will probably make it near impossible to get insurance (or, it will be at a very high rate). DH could probably get a decent rate - he's just got age and a little extra weight against him. We'll probably get rates (or try) for kicks - but I have a feeling we'd be better off just continuing to save the money we'd pay for the premium. We have no kids (and no plans for them), so that's a big factor too.

I went to Zander, like someone else recommended above, which pulls quotes from a lot of different companies. It was eye opening. And time to have a serious talk with H.

I put in 20-year term for $175K and first chose "yes" for "smoked tobacco within the last 12 months". $141/month.

Then, out of curiosity, ran it again with all the same info except chose "no" for tobacco use. $43/month. I need one of those emoticons where the mouth hangs open. $100/month difference...between a smoker and a non-smoker.

Never mind the cost savings for a sec...though that's the difference between buying and not buying insurance for us...but it's not like those insurance companies randomly decide smokers should pay 3.5x more. They have hard-core statisticians behind the scenes who exactly "calculate the gamble".

I mean, obviously smoking is bad for one's health, it wasn't like that was a surprise. But I was surprised at HOW bad it is for one's life expectancy, as based on the huge premium gap difference.

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