IMHO (and I am NOT an insurance agent or actuary), one difference is that if you buy life insurance your family is protected right away. You don’t have to wait for the value to build up. If you get hit by a bus the day after your first premium payment, Spousie and Kiddo get the whole thing, same as if you’d been paying for 20 years.
In addition, you can’t be sure that the rate you get now on your mutual fund/CD/whatever will still be paying that next year. If it makes the difference between your dependents being able to live normally, go to college, keep their home, not go on welfare, be a burden to the rest of the family, how much risk do you want them to accept?
Finally, these kinds of questions always assume that one has the self-discipline to actually put the money that would have been spent on insurance into that investment. When things get rough, there is always the temptation to put off that contribution “just this month; I’ll put in more next time.” With a bill that comes due one is less likely to fail to pay it.
7 X - income term insurance
2 X - income employer-funded term insurance
plus a small whole life policy from childhood which should cover cremation, ceremony, plus dinner and several kegs of beer for the wake…
FWIW, this was set up before the tax laws changed, so we have a trust which is the beneficiary and owner of “my” two policies, and the beneficiary of the employer’s policy.
IANA accountant or tax lawyer. But when my dad died the tax basis of his holdings moved up from the original purchase price to what it was worth on the day he died. I do NOT know if that is typical, or if it had something to do with the trust that owned my parents’ assets. But it bears investigation… it was a big deal considering that my folks had owned some stocks for 30-40 years.
My school district provides about one year salary(90% of it anyway) in life insurance that I don’t have to pay for. We don’t have a house yet, but when we get one, I’ll probably take out a long term policy for myself, to cover our mortgage.
Some mortage companies/banks offer what’s called “mortgage insurance,” just to cover *themselves * in case you go to that great mansion in the sky before your earthly home is paid for. I’ve been told by some people that their mortgage holders required it. IMHO it’s a better bet to have regular life insurance, the proceeds of which go to your family.
I have $450,000 in life insurance all on my own. That is, it is not through my employer, because that usually ends when the job ends.
Currently, I also have another $280,000 in term life thru my current employer.
If I bite the big one, the last thing I want to have on my mind is, “How will my wifey get by without my income?”
The second thing is, if we both buy it, I do not want to be like my parents or my wife’s parents (“Fuck you, get by like I did”), I want to provide for my child.
Not the best financial decision perhaps, but the peace of mind is priceless.
When I lived in the US I did, but when I moved here my husband and I decided to just let it lapse as my superannuation gives a generous life insurance amount, plus I’d have what super I saved. We do have income protection insurance, too. We have 1 child.
Nope. Single, no dependents, and all my debts go away if I die. Everyone in my immediate family agrees that we want to be cremated and disposed of as cheaply as possible. That is not particularly expensive, in the grand scheme of things. Rather than insure ourselves to cover a relatively minor expense, we just accept that if one of us dies, the others will pay for it.
Actually, if your grandfather (who I presume was OLD) put all of his insurance premiums into the stock market over the years, I GUARANTEE your grandmother would have been provided for much better. It highlights the problem with taking out a policy.
You’re letting someone else assume the risk of you dying young. And you’re assuming the risk of living long. For most people, life insurance is a bum deal. What you’re buying is “peace of mind”.
Anyway, I have a wife, but no kids. I make considerably more money than her and it would be somewhat of a hardship for her, but not a disaster.
So, how would we get screwed? If I died young.
But, if I died young, she could still get a better job AND, her family would provided a blanket of security. For me, it’s a bad investment.
I’ve got two policies - one worth 7x my salary (that’s a term policy through work though supposedly it’s portable), and another worth about one year of salary - that’s a whole life policy and costs considerably more but of course it’s good even if I make it to my 80s or whatever. Oh, and a small policy that my folks took out when I was in college - I guess they wanted to get payback on my tuition in case I died young My work also provides a policy worth 2x my salary, obviously that’s not portable though!
My husband currently has about 12x his salary.
Either of our insurances would be enough to pay off the house plus provide a decent nest egg for educating the kids.
We may look into a “second to die” policy to provide a nest egg for our son, who may never be fully self-supporting. This was advised by a financial planner years ago. I guess they’re cheaper than a standard policy.
For those of you who plan to get insurance in the future: One thing to consider is if you develop some long-term health issues later on, it may be tougher to get insurance. My husband had a bout with melanoma about 2 years ago and though he’s considered “cured”, he’s still higher risk for a recurrence. We assume he’s uninsurable at this point (his policies were established years ago, pre-C).
Well, then. . .you have an inflated sense of your chance of dying during that 20 year period. You’re basically getting paid a little better than 1000-1 on something that’s probably (total estimate here) 20,000-1 against happening. Shoot, let’s say the event of you dying during that period is 2000-1 against. You’re being returned $.50 on a dollar.
You don’t get that ripped off on a slot machine.
Let’s all agree on something: if life insurance policies were actually worth it STRICLY ECONOMICALLY, then life insurance companies wouldn’t offer them.
Make no mistake, “peace of mind” is all you’re buying.
Perhaps, if newscrasher’s grandfather was an undisciplined investor (that is, he would have thrown his money away instead of paying life insurance premiums) then, he’s actually buying a solid investment for him.
But to me, P.O.M. is not something I need to pay for. I sleep fine.
No, you’re buying (stay with me here)… INSURANCE. Ofcourse it isn’t the best investment you could possibly make. It’s risk managment, and it is in place in case things happen that are beyond your control. It isn;tmeant to be a good long-terminvestment, which is why Whole Life isa really bad idea. The whole point of the exercise is to take care of your family in case you die before you’ve had a chance to accumulate wealth.
I probably could list over a dozen people who have died in their 30s. Try telling their families that the odds are bad. Of course they’re bad, but you’re transferring the risk for those odds.
AS an aside, many insurance companies do not actually make money on their policies. Themoney is made on the rather large quantities of cash that they carry, and the interest earned on them.
My work also provides a policy worth 2x my salary, obviously that’s not portable though!