Who needs life insurance?

[chela]

When my spouse lost his job, he also lost his company sponsored term life insurance policy. We have no other life insurance. DO we need life insurance? We do have a retirement fund established, and any funeral costs would be small. Guess it would be nice to pay off the house with it. As an investment tool I can't quite grasp the concept of waiting for a death to occur in order to reap the benefits.

what am i missing?

[Yllaria]

Do you have dependent children? If you're working and can handle the mortgage on just your salary, and you have no children, you may not need your husband to have life insurance. At least, you may not need much.

If you have children, there are always expenses when there is one fewer set of hands available. A life insurance payout can help buffer that. Of course you would have more need of it if you were a stay at home mom. And if you have kids and both work, if might be good to both have life insurance. Life insurance can also be handy if, for instance, the same accident that kills one of you leaves the other one injured and unable to work for a time.

You may want to actually price out the cost of a funeral, to be sure that they're not more expensive than you expect. It's possible to pre-pay funeral costs or to buy life insurance that pays funeral costs directly.

Also, some insurance policies allow you to withdraw the funds you've built up if you need them when you're older. For some people, that's the only kind of saving for retirement that they can make themselves do.

You may be right that insurance for you and your husband is not necessary. You might be better off putting the price of the payment into your retirement accounts.

[Rachellelogram]

I think I need it, even though I'm young. I have no major assets (just a 6-year-old car), no savings, and no retirement savings. I have a small life insurance policy that my mom took out for me when I was a baby, and I've kept paying on it (the payout is something in the neighborhood of $6-10k, I forget exactly). I don't plan on getting married or having kids. And if I were to die before my parents, they'd be stuck paying for the funeral if I didn't have the insurance. So, I'm glad it's there. I pay less than $6 a month, a fixed rate that was locked in over 25 years ago. It's nice to have that little cushion so that, when I die, my funeral will be paid for.

I googled life insurance for babies, and see that it isn't really considered a "good idea" to buy life insurance for your baby. I agree it's not really necessary. But it takes less than 5 minutes of my time a month to pay the bill, the policy doesn't depend on my health condition, and I cannot be dropped. It doesn't require any health examinations. And it hasn't cost more than its value (it likely never will, my family tends to be short-lived). With some quick napkin math, the policy has cost approximately $1700 over its lifetime so far. Even with the most pessimistic payout of the range above, I won't have paid more into it than I'll be getting out until I exceed 89 years of age. It's worth it. Yeah I could have invested the money instead and get bigger returns, but who invests less than $68 a year? Nobody, that's who.

Honestly, the peace of mind and low-hassle requirements to maintain my policy are totally worth the cost. I've seen TV commercials for seniors' life insurance, and that shit is predatory, invasive, and expensive. I'm very happy with my policy, in comparison.

But if you have a robust retirement account, you probably don't need it. I would just be worried about funeral costs--sounds like you guys have those covered.

[Cicero]

I have thought for a long time it is an outdated concept with compulsory superannuation (here at least).

I'd like to see a counter argument.

[lavenderviolet]

If you can get on a term life plan that you can later convert to whole life, it might be worth it as a way of passing on your assets to your heirs later. From what I understand, there are often tax benefits to passing on an inheritance this way.

[Dewey Finn]

Originally Posted by chela

As an investment tool I can't quite grasp the concept of waiting for a death to occur in order to reap the benefits.

I don't think this is the way to think of life insurance. Instead, it's meant to replace the income you're dependent upon. It's more necessary if the spouse does not work or there are children. If you work, and could maintain your lifestyle in the absence of your husband's income, you may not need life insurance. (And keep in mind that if he dies, you might inherit his retirement accounts, so that might replace the need for insurance.)

[jtgain]

Originally Posted by Dewey Finn

(And keep in mind that if he dies, you might inherit his retirement accounts, so that might replace the need for insurance.)

Except if you want to someday retire without starting from scratch. I agree with posters here. For single people with no dependents, it really doesn't make much sense. (Unless you want a small policy so you don't burden your family with funeral expenses.)

But say you are a married couple in your twenties on. Husband makes $50k per year. Wife makes $50k per year. One of the two dies. Can you survive with a 50% reduction in your income? Can you make mortgage payments, car payments, health care payments, etc. with losing a full HALF of income? I sure as hell couldn't.

Life insurance should give you enough cash for several years (the number of years is up to you) so that you can survive in the interim until you adjust to a new lifestyle, whether that is single or with a new partner.

[jtgain]

Missed the edit window:

And that is even more pronounced when the incomes aren't equal. If Husband makes $80k and wife makes $20k, SHE really needs life insurance on him. He still needs life insurance on her because 20% is still a huge hit.

It's really no different than any other form of insurance. If your house burns down, you typically don't have a couple of hundred grand sitting around to rebuild it. If a spouse dies, you typically don't have piles of money sitting around to replace his or her income. So we all pool the risk by paying insurance premiums.

[Manda JO]

Originally Posted by jtgain

Except if you want to someday retire without starting from scratch. I agree with posters here. For single people with no dependents, it really doesn't make much sense. (Unless you want a small policy so you don't burden your family with funeral expenses.)

But say you are a married couple in your twenties on. Husband makes $50k per year. Wife makes $50k per year. One of the two dies. Can you survive with a 50% reduction in your income? Can you make mortgage payments, car payments, health care payments, etc. with losing a full HALF of income? I sure as hell couldn't.

Life insurance should give you enough cash for several years (the number of years is up to you) so that you can survive in the interim until you adjust to a new lifestyle, whether that is single or with a new partner.

This. Also, if there's a knock on the door tonight, do you really want to have to go back to work on Thursday?

ETA: Also, dying can be really expensive. If a spouse dies after a six month battle with cancer, they probably weren't earning an income for much of that (FMLA gives you unpaid leave) and there's a good chance the surviving spouse also had to miss a lot of work because they are the caretaker. Then there's the medical bills, and the "life has gone to hell" bills (no one is thrifty when everything is falling apart). If both people survive, you rebuild together. But rebuilding when you have only half the earning power and are grief-stricken would be much more difficult.

[chela]

But we don't plan on dying soon! I almost would rather have a long term disability insurance plan given what I know about alzheimers in his family.

We both work part time right now, searching for that elusive good paying full time position. Have teenagers soon college bound but never did do the 529 plan, seemd like another ploy for a mediocre mutual fund. so instead we funnled money into a our own mediocre mutual fund.

How much does life insurance cost on average. We're over 45 yo, now, so guess we're screwed. I mean how much does a million or half million dollar polcy cost out of pocket? cheap? like $50 a month or more like a car payment a few hundred a month?

I've always heard term is better vs whole life.

[RandMcnally]

When my wife and I first got married I only had a $50k policy. The way I looked at it was that she is still young and pretty. There's no way in hell that I'm paying for her second honeymoon.

Now that she is with child I've had to bump it up considerably.

eta: As how it was with my $400k policy while in the military, it's a bit unnerving when you realize you're worth more dead than alive.

[Sandra Battye]

Term life is for a term of years (5, 10, 20 years). After the term is over, you have nothing to show for it. If you are in your 40s and in good health, I think the chances of the policy paying out are less than 10%. Not good odds.

Whole life is for your lifetime (or until you reach a fixed age - usually either 100 or 125). It allows you to borrow against the cash value. There are many life products so any discussion can only be in generalities. But that is the better plan.

Price is definitely a consideration. If someone bought it in their 20s with no health problems, they would probably pay less than $100 per month for the rest of their life. Someone in their 50s with high blood pressure would probably pay around $400 per month. Someone with serious health problems like cancer, heart problems, diabetes, etc. will get substandard rates and pay big bucks if they can get any life policy at all. Of course, it all depends on type of plan, health and how high the limits are. You can also buy a combination of term (much less expensive) and whole life (more expensive).

How much do you have to protect? How big a chunk do you want the IRS to take in estate taxes? Life insurance is 100% tax-free.

Tara's story is a (long) commercial for life insurance.

[chela]

But if I have a trust I thought would that avoid estate taxes. And if my life insurance product is NOT in the trust isn't that taxable?

I did watch a couple of those Suze Orman videos, she hates variable, universal and whole life life insurance. Says insurance is really for those who have young kids.

As far as borrowing against a life insurance policy, sees like a good way to bury yourself alive in debt!

[Zsofia]

I'd only get it if I had kids. (I do have a benefit at work that pays IIRC two years' salary.) If you're concerned about funeral costs, go ahead and pay for it upfront.

[RTFirefly]

Originally Posted by chela

But if I have a trust I thought would that avoid estate taxes. And if my life insurance product is NOT in the trust isn't that taxable?

I did watch a couple of those Suze Orman videos, she hates variable, universal and whole life life insurance. Says insurance is really for those who have young kids.

As far as borrowing against a life insurance policy, sees like a good way to bury yourself alive in debt!

1) If you have to worry about avoiding estate taxes, you probably don't need insurance. Last time I checked, the first $3M of assets was exempt from estate taxes. Not to mention, everything going to the surviving spouse passes tax-free.

2) Whole life insurance is a weird hybrid of insurance and long-term investment plan. You pay in over a few decades, and at the end of that period, you get the value of your policy, even if you're alive and in excellent health. And if you die sooner, your beneficiary gets the face value of the policy. But whole life is a lot more expensive than term. (Because it accumulates value, you can borrow against it, unlike term.)

[RTFirefly]

Simple: you ask yourself, "if I or someone in my immediate family died, what would be the financial consequences to the survivors, and would they be bad enough to warrant insuring against them?"

That's what insurance is all about: the modest possibility of bad shit happening that you could ill afford. You give up a little bit of money every month so that if the bad shit happens, someone else picks up the tab.

(I'm talking strictly about term insurance here: if you want to combine insurance with investment, go ahead, but it makes a discussion like this too complicated.)

If you're single, nobody's depending on you for financial support, and your assets if liquidated would pay for your funeral, then of course you don't need insurance. People may miss you if you die, but their wallets won't be affected.

If you've got kids or other dependents, then of course you need insurance, unless they've already got a comfortable trust fund to see them through.

If you're married and one of you would take a major lifestyle hit if the other died, then you might want life insurance to alleviate that somewhat. But it's a judgment call.

[chela]

No where near $3M in assets here...still and all guess we'd pass on the life insurance at this point, seems a bit like playing the lotto

[Ken001]

Forgive me, I haven't read the whole thread. I've been anti-life insurance since I started work.

However, once you have a family the odds change. In my opinion a young couple should hold sufficient life insurance to pay off the mortgage and other debts. Cover on both lives. A whole of life cover is not expensive and by the time you are 50 you can cancel it.

I've had to administer estates of people who died unexpectedly when young and the insurance has been a godsend.

Personally I have no cover today because I've saved and provided debtfree homes for my family but that has taken decades.

[Stendhal Syndrome]

Originally Posted by chela

But we don't plan on dying soon!

The thing about death is that it can happen unexpectedly...defying all our plans. My husband died recently, suddenly, and he had life insurance which our children and myself couldn't claim because his company messed up on some paperwork and it ended up going to his drug abusing ex wife from 12 years ago. That's a long story and I have made peace with letting go of that money. It was 25 K. My children and myself could have used that money. His parents were kind enough to pay the funeral costs which came up to around $4000. However, I was the beneficiary for his retirement and the children also receive a certain amount every month until they are 22 years old, which I am putting away in a separate account for them. But without his retirement, it would have been hard for me to make ends meet as a single mom. I was on maternity leave when he died. I am working full time now. So with my income and his retirement money we are doing ok in terms of finances.
I am in the process of getting my own life insurance so my kids or other family members wont be stuck with the funeral costs.
So if you have children, I think it is good to have life insurance, especially if you don't have other investments.

Everything aside: I could care less about all this bullshit money crap, retirement, life insurance...I'd rather have him here. But money is just money. At least it makes me feel better knowing that my children will have something to fall back on.

[Fir na tine]

Originally Posted by chela

But we don't plan on dying soon! I almost would rather have a long term disability insurance plan given what I know about alzheimers in his family.

Ever heard the expression "Shit happens"? Check out the obituaries in your local paper this week and see how many of them "died unexpectedly".

Your chances of dying are 100%, the only question is when. So, if the blackbird of paradise craps on you or your spouse tomorrow, what happens to your family unit financially? If you can continue with whatever you call an acceptable life style, you don't need any insurance.

If your life style would be impacted, check out term life insurance. It functions almost exactly like your homeowners insurance or your auto insurance. It's pure protection. If you don't die, your beneficiary doesn't collect a cent.

Anyone who tells you to buy whole life is either an insurance agent or financially naive.