Term Life Insurance Dilemma

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills.
Post Reply
Topic Author
codenwood
Posts: 4
Joined: Sat Jan 31, 2015 2:42 pm

Term Life Insurance Dilemma

Post by codenwood »

Hello everyone,
This is my first post here but I've been reading the forum on and off for a while now. I'm 32 years old and my wife is 31. We currently have 30 year term life insurance through Voya which is of the ROP type. I set this up for us when we got married at 28 and we now have two children, one is 3 years old and the other is 3 months old. I'm starting a new job on Monday and going through everything in my finances (401k rollover, SEP IRA, money market account, etc) I'm realizing that I haven't had my money in the best investment vehicles to date to get the greatest returns. As for the financial portion I'll be making a post separately in an appropriate thread but when re-evaluating our life insurance I realized a couple of issues and have decided to terminate the plan and start over (I know, I'm a sucker for the ROP portion and now it's gone, such is life, luckily only 4 years wasted).

I've come to the conclusion (and tell me if this is not a good conclusion) to go with New York Life. It came down to them and Northwestern Mutual and from the ratings and other research I've done it seems like they are very similar so the last thing to go off of is the premium which is slightly lower for us (non-smokers, healthy, in our early 30s, etc). I was an athlete all my life up until the second baby was born at which point I've currently stopped playing basketball and am not super active. I plan to play again in the future as time permits but such is life right now.

So, my question is this. I wanted to take a 30 year term but neither of these companies provides one. This leads me to the point of this post: Should I take a 10 year term and when I turn 42 take a 20 year term (same for my wife, minus one year) or should we just take a 20 year term and call it done after that?

My line of thinking is that by then our house will be paid off, kids will JUST be going to college, and hopefully smart investments in 401ks, index funds, and the likes (mostly through Vanguard, of course) will be able to carry us through the rest of the way, so I was going to do the 20 year. But I got to thinking today and maybe the 10 + 20 combo is better to protect us through the college years for the kids and give us a bit more leeway if we move (which we are intending to do in the next few years) even though I'm a 15 year mortgage kind of guy (but, again, you never know what happens along the way in life). We're a single family income at the moment while the kids are young and I make roughly $125K a year.

Which of these options (and even companies) do you think is best for us? I really appreciate any advice anyone can offer.
dhodson
Posts: 4117
Joined: Mon May 24, 2010 3:03 pm

Re: Term Life Insurance Dilemma

Post by dhodson »

You will be paying too much again with those companies and for no benefit IMO.

Both in my view will also sucker you into whole life IMO. That's also why IMO they don't sell 30 year term.
Topic Author
codenwood
Posts: 4
Joined: Sat Jan 31, 2015 2:42 pm

Re: Term Life Insurance Dilemma

Post by codenwood »

I don't plan on entering whole life at any point no matter how hard they push it (and trust me, they already have, especially NY Life with their CWL).

Given my position then, which company would you be more likely to trust with this? And would you then go for a 30 year term if that company offered it?
dhodson
Posts: 4117
Joined: Mon May 24, 2010 3:03 pm

Re: Term Life Insurance Dilemma

Post by dhodson »

What you do is find an independent agent.

Not a captive one. They will always pretend their product is best.

He or she shops your case around and shows you a variety of company offers and the ratings from those companies.

I'd go with any A personally. Ratings are just like stocks and don't predict far into the future. You will save a lot of money.
BruDude
Posts: 4203
Joined: Wed Dec 29, 2010 11:28 pm
Location: Las Vegas

Re: Term Life Insurance Dilemma

Post by BruDude »

Why those two specific companies? There are plenty of reputable companies selling 30-year term. Buying a 10-year term and then waiting 10 years to buy a 20-year term will cost you a lot more money and who knows what your health will be like 10 years from now. Keep it simple and get a 30-year term policy from a company like SBLI/Banner/Prudential/Transamerica/Lincoln National/etc.
Topic Author
codenwood
Posts: 4
Joined: Sat Jan 31, 2015 2:42 pm

Re: Term Life Insurance Dilemma

Post by codenwood »

That makes sense, thank you.

I was leaning towards those two companies just because from my research they have seemed the best ones but then again my research is just the past few days and only what is readily available on the internet which is why I figured I'd pose this question here. This is exactly the type of information I wanted/needed to hear so thank you very much.

Please, keep the insight coming as much as possible, I'm in no giant rush and would love to hear as many opinions as I can before making an informed decision.
HIinvestor
Posts: 1877
Joined: Tue Apr 08, 2014 3:23 am

Re: Term Life Insurance Dilemma

Post by HIinvestor »

Also, if you don't get a guaranteed 30 year term policy, you (or W) may not be renewed (or only at very high premiums) if health issues pop up that make you an unattractive risk.

One other issue is that some employers offer subsidized group life insurance as part of their employment package. Of course there are risks with insurance tied to your job, but it may reduce the coverage you need to have in your policy.

Many folks do opt to self-insure once their kids are out of college & their house is paid off, especially as the premiums rise sharply as they age. Some of my relatives opted to stop life insurance as they reached their 50s because they had enough assets to cover kids' college, grad school, and any eventuality, including generous defined benefit pensions for themselves.
Valuethinker
Posts: 48947
Joined: Fri May 11, 2007 11:07 am

Re: Term Life Insurance Dilemma

Post by Valuethinker »

codenwood wrote:
So, my question is this. I wanted to take a 30 year term but neither of these companies provides one. This leads me to the point of this post: Should I take a 10 year term and when I turn 42 take a 20 year term (same for my wife, minus one year) or should we just take a 20 year term and call it done after that?
.
This would be the worst of all possible worlds: 10 years and then 20.

If something significant happens to your health, then you would be uninsurable or only so at a much higher premium. This can happen even with something that is not life threatening.

Employer provided insurance is nice but it doesn't move with the job. Again you might then find you were uninsurable.

The reality is your life insurance needs start at zero, grow almost exponentially until your kids are in college, and then should drop off quite rapidly. So when your kids are 4 and 6 say, 10x the primary breadwinner's salary is not necessarily excessive (depending on spousal income).

You are best, probably, to go with a 20 year policy. But do price a 30 year policy as it may be affordable.
Atilla
Posts: 1612
Joined: Tue Feb 09, 2010 6:44 pm

Re: Term Life Insurance Dilemma

Post by Atilla »

Get a 20 year term policy for both of you. It will be super cheap, and by then - 1. your kids will be in their 20's and fully capable of taking care of themselves - and 2. if you have your act together you will be self-insured due to a sizable estate which you can pass along, God forbid something happens after the insurance policies lapse.
harrychan
Posts: 2046
Joined: Sun Nov 14, 2010 8:37 pm
Location: Pasadena

Re: Term Life Insurance Dilemma

Post by harrychan »

Do yourself a favor and go to sites like select quote and get a quote and get a better comparison. Very little pressure and I was able to find the best rate with the term I wanted through Transamerica. It was a very easy process.
This is not legal or certified financial advice but you know that already.
travelnut11
Posts: 392
Joined: Wed Dec 02, 2009 8:13 pm

Re: Term Life Insurance Dilemma

Post by travelnut11 »

We went through term4sale.com when we were looking at life insurance last year. Type in your information and see what kind of quotes come up. Then you can choose an agent to contact. Ours was helpful and knew which were the best companies and with the best rates for our personal situation. We're mid-late 30s and ended up with two 20 year policies as I expect we'll have plenty of assets to self-insure at the point the term runs out.
Travel is fatal to prejudice, bigotry and narrowmindedness ...and many of our people need it solely on these accounts. - Mark Twain | | Life is either a daring adventure or it is nothing. - Helen Keller
Grt2bOutdoors
Posts: 25617
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Term Life Insurance Dilemma

Post by Grt2bOutdoors »

As the others have stated, purchasing a 10 year, followed by a 20 year is a bad deal. Your greatest need for life insurance is during the first 20 years of your childs life, therefore at a minimum your first policy should be for a 20 year term, 30 years if you want the certainty of protection through your mid 50's. The thing about life insurance is the insurance companies have teams of actuaries who've analyzed the numbers thoroughly, term insurance is priced cheaper in one's early years because statistically claims are low, as you get older or develop health issues costs rise dramatically if you are able to be insured at all. Why subject yourself to that type of risk 10 years from now? Head over to either in an independent life insurance agent or use www.term4sale.com to price 20 and 30 year term, the insurance companies on there are reputable and in very good shape to meet their obligations. Don't be bamboozled by NY Life and NWM into believing they are the safest or best option - they don't want to sell you term, they ARE going to sell you Whole Life Insurance along with other very pricey vehicles like Variable Annuities.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
RMD3819
Posts: 99
Joined: Wed Mar 27, 2013 3:40 pm

Re: Term Life Insurance Dilemma

Post by RMD3819 »

I am not a fan of whole life but just bought one last year from Northwestern when I was 52.

In my case wife and I bought 20 year term when in our 20s which now expired and because of our situation if I die first her lifestyle would be severely compromised. I didn't want another 20 year term as that would take me to my 70s and no one would renew me at that age.

I initially bought a UL from Allstate because I was 49 and trying to get in before turning 50. I ended up canceling that policy after I dissected it and figured it was not right for me.

I wanted something that would stay in force forever if I kept paying level premiums and whole life was the only choice. I don't intend to use it as an investment vehicle.

Something to think about.
bluemarlin08
Posts: 1561
Joined: Wed Aug 29, 2007 12:18 pm

Re: Term Life Insurance Dilemma

Post by bluemarlin08 »

If you are looking for a policy that will be in force forever, whole life is the most expensive choice. You can buy a policy that has little if any cash value, guranteed level premium and guranteed level death benefit much less expensive than WL. Northwestern doesn't offer a policy like this.
RMD3819
Posts: 99
Joined: Wed Mar 27, 2013 3:40 pm

Re: Term Life Insurance Dilemma

Post by RMD3819 »

What are those policies called?
dhodson
Posts: 4117
Joined: Mon May 24, 2010 3:03 pm

Re: Term Life Insurance Dilemma

Post by dhodson »

its called a gUL. Guaranteed no lapse universal life. You dont want that either. It likely would wind up being super expensive term. If you are even late on a payment, you lose the guarantee.

The truth is that gUL isnt definitely cheaper than whole life for the same death benefit. It probably will be but not necessarily. It depends on dividends and how long you live. If you look at the guaranteed collumns only then yes it will be cheaper.
bluemarlin08
Posts: 1561
Joined: Wed Aug 29, 2007 12:18 pm

Re: Term Life Insurance Dilemma

Post by bluemarlin08 »

The difference in premiums of WL and GUL are substantial, dividends are projections that are always wrong, sometimes higher sometimes lower. Most WL dividends are trending down and are projected to continue as long as we are in these low interest rate periods. Have an agent explain the differences.
Independent
Posts: 551
Joined: Tue Sep 22, 2009 1:09 pm

Re: Term Life Insurance Dilemma

Post by Independent »

As others have said, buying a ten year level premium policy now, with the thought of replacing it in ten years, incurs too much risk that your health will change in those ten years.

Note that the "20 year term" you're looking at is probably "20 years of level premium, followed by substantially higher annual premiums, and convertible through age ___ "

So, you could buy the 20, knowing that if you were in very poor health at the end of 20 years you could extend the policy for a couple more years.

But, that said, I'd shop for a 30 year level premium policy at one of the online sites.
User avatar
rpike
Posts: 476
Joined: Mon Mar 19, 2007 10:14 pm
Contact:

Re: Term Life Insurance Dilemma

Post by rpike »

I think first you need to understand the way term insurance works.
My "20 year term" policy is actually annually renewable term (up to age 80?) with a guaranteed level premium for the first 20 years. After the first 20 years, the premium guarantee expires and it automatically renews annually at increasingly higher premiums until I either hit the age cap or I cancel it. In this regard it is much like getting something like 7/1 ARM when you do not anticipate being in your house much longer than 7 years.

The insurance is intended to be a substitute for the income I would have earned in the event that I am not around to provide it. When I hit the guarenteed premium expiration, I expect my insurance need at that point to be mostly gone since my 20 years of income will have been used to pay down the mortgage and build up retirement and college savings funds.
dhodson
Posts: 4117
Joined: Mon May 24, 2010 3:03 pm

Re: Term Life Insurance Dilemma

Post by dhodson »

bluemarlin08 wrote:The difference in premiums of WL and GUL are substantial, dividends are projections that are always wrong, sometimes higher sometimes lower. Most WL dividends are trending down and are projected to continue as long as we are in these low interest rate periods. Have an agent explain the differences.

The difference between gUL and term is also substantial. He doesnt need permanent insurance. I know you like gUL but frankly there isnt a good reason for this or 99% of people to purchase it. You had written that WL is the most expensive choice. That isnt a fact. Its likely to be true but it isnt guaranteed. If i were guessing, id say over our lifetimes WL will be more expensive for the same death benefit but i dont know that for a fact. I also dont get how you try to say ask an agent to explain the difference when you are an agent.....
bluemarlin08
Posts: 1561
Joined: Wed Aug 29, 2007 12:18 pm

Re: Term Life Insurance Dilemma

Post by bluemarlin08 »

My posts were directed for RMD trying to give him a less expensive option than WL. I am an agent and haven't recommended a WL product in 25 years, too expensive.
User avatar
Wildebeest
Posts: 1204
Joined: Fri Dec 27, 2013 1:36 pm

Re: Term Life Insurance Dilemma

Post by Wildebeest »

My suggestion to the OP would be to get term insurance for the least amount of time for the worst case scenario. If he would die before his time, there is a fair to good chance that his wife will remarry. 30 year term seems to extraordinary for 32 year old. IMHO that would mean you are not saving enough to be financially secure.

If you are a good saver 10 or 15 years is reasonable. If you are not, 20 years should do it. IMO you buy term from independent agents/internet.

Insurance is good, if you need it. It is however sold to you on emotional grounds and you typically end up paying too much for too long for the wrong product.

A very happy day in my life was, when I could drop disability insurance and life term insurance.

I felt rich that day.
The Golden Rule: One should treat others as one would like others to treat oneself.
fundseeker
Posts: 1076
Joined: Mon Dec 24, 2007 8:02 am

Re: Term Life Insurance Dilemma

Post by fundseeker »

I second using a one stop shop on the internet for the best quote with the highly rated companies. Also, I agree with others that you buy all you that you will ever need, term only of course, while you are young and healthy.

And finally, it does not have to be all or nothing. Years ago, I bought half of what we needed with one company for 20 years, and half with another for 30 years. That way, all of our eggs were not in one basket in case one company had issues. Also, if I decide years from now that I want to continue a policy, I believe I can convert it to whole life (but I don't anticipate doing that).

Oh, and as I recall, Protective Life in Birmingham, Alabama, was and may still be highly rated. Good luck.
RMD3819
Posts: 99
Joined: Wed Mar 27, 2013 3:40 pm

Re: Term Life Insurance Dilemma

Post by RMD3819 »

I appreciate the thoughts and didn't mean to hijack the thread.

I looked at gUL and actually that is why I contacted NW. They offer these but found out only in the $1M and up and that is out of my reach.

I didn't care for the online policies I saw so ultimately I went with whole life as a component of our overall plan.
fundseeker
Posts: 1076
Joined: Mon Dec 24, 2007 8:02 am

Re: Term Life Insurance Dilemma

Post by fundseeker »

What do you mean by online policies? Real insurance companies sell term (if that is what you meant)
RMD3819 wrote:I didn't care for the online policies I saw so ultimately I went with whole life as a component of our overall plan.
Anyway, not sure what why anyone would, but if you have an overall plan and need something to cover you forever then you should buy it. However, according to U.S. NEWS:

"Whole life/universal life. Life insurance is a tool, not an investment. With whole life/universal life insurance, you will pay a higher premium with the promise that the company will take those extra dollars and invest them for you. The problem is that this type of insurance is very expensive. The investments don’t grow because the expenses eat up your interest.

In 29 years as a financial planner, I’ve yet to see whole life or universal life pay off for any client. Often, people have little to show for such policies other than the money they paid in. Whole life and universal life policies are the reasons why life insurance companies can afford big buildings and Super Bowl ads. The only time these policies make sense if you have an estate-tax problem but this is a subject beyond the scope of this post."
RMD3819
Posts: 99
Joined: Wed Mar 27, 2013 3:40 pm

Re: Term Life Insurance Dilemma

Post by RMD3819 »

The online policies I was talking about were gUL.

I wanted a policy that was forever with level premiums-permanent term which doesn't exist apparently.
Topic Author
codenwood
Posts: 4
Joined: Sat Jan 31, 2015 2:42 pm

Re: Term Life Insurance Dilemma

Post by codenwood »

Thanks for the feedback everyone, really appreciate it. I'm going to try to find a 30 year term through one of the online sites mentioned here with a reputable company.
BruDude
Posts: 4203
Joined: Wed Dec 29, 2010 11:28 pm
Location: Las Vegas

Re: Term Life Insurance Dilemma

Post by BruDude »

RMD3819 wrote:The online policies I was talking about were gUL.

I wanted a policy that was forever with level premiums-permanent term which doesn't exist apparently.
GUL is "forever term" at price that's usually 50-60% lower than whole life. NWM doesn't do GUL because their company philosophy is selling whole life and GUL is seen as an inferior product. If they are selling GUL for policies over $1M, I'll bet it's much more expensive than what companies like Banner/Prudential/Lincoln National are offering.
Valuethinker
Posts: 48947
Joined: Fri May 11, 2007 11:07 am

Re: Term Life Insurance Dilemma

Post by Valuethinker »

codenwood wrote:Thanks for the feedback everyone, really appreciate it. I'm going to try to find a 30 year term through one of the online sites mentioned here with a reputable company.
As per the other poster consider splitting: a 20 year and a 30 year policy. It's quite likely your insurance needs will decline significantly once your kids reach about 20. And you will have built up significant savings by then as well, ideally.

What you *do* have to think about is what happens if you drop dead in say 5 years (maximum disaster scenarios) and say for some reason employer provided cover doesn't work (perhaps there was a disallowance due to an earlier disease, or a waiting period post joining a new employer, self employed etc.).

It's the collision of under 18 kids and loss of primary breadwinner that you need to catastrophize about in your thinking. Or even just the additional costs of losing one of you and having to make up the childcare etc. Term is quite cheap at your age assuming no preexisting conditions, and your goal is to get that low premium per $1000 of cover, and lock it in for at least 20 years.

There is no substitute for a proper needs analysis, but as a rule of thumb a MINIMUM of 5x salary of primary breadwinner. If spouse is not working, 2 or more kids, then 10x is quite possible.

The same sort of thinking re catastrophe should drive your thoughts about disability cover.

Term insurance is so cheap that I plan to keep mine to 60-- seen too many friends go in their 50s-- even though my spouse could probably survive without a significant payout.
Post Reply