Should I Stick with Term Insurance?

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Jonbuck
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Should I Stick with Term Insurance?

Post by Jonbuck » Mon Jun 01, 2020 12:32 pm

I am new to the forum and have gleaned much from perusing many of the posts submitted. My question is one regarding life insurance. I will give a simple overview and would love your feedback as well as the feedback in general from the boglehead philosophy regarding life insurance.

I am 38 years old; my wife is 40. We are both in excellent health.

We have two sons, 15 yrs. & 12 yrs. old. (Both in excellent health)

Current life insurance holdings:

Me: 9 years into a 20 year term with a death benefit of $750,000, additionally I have a $100,000 Variable Life Policy with a cash fable of $16,000 invested in an S&P 500 fund which I have had for 18 years as permanent insurance.

Wife: 9 years into a 20 year term with a death benefit of $500,000

Both children have a $25,000 whole life insurance policy they have had since birth.

Our current Life Policies seem to be sufficient, however we are desiring to get another 20 year term policy because our health is good and the insurance is inexpensive. Initially I was thinking of replacing my wife and I's term policies with new 20 year Term policies as I can get more coverage for basically the same rate (me a 1 million dollar policy & my wife a $750,000 policy).

My 2 questions are:

1. Should I keep my current Term Policies and purchase New Term's or Replace my old Policies?

2. Does it make sense to purchase permanent life insurance in our situation or should we stick with term and focus on building our investment portfolio?

WhenI have spoken to our insurance agent he is strongly discouraging me from cancelling my current policies to replace them. While our current policies are inexpensive overall, I do not know if it makes sense to have two term policies for what would end up being almost 1.85 million dollars of coverage on me and my wife with 1.25 million of coverage. All would be term policies with our initially policies running out in the next 11 years when our children will both be in their 20's and well on their way to building their careers.

We are debt free besides our house and based on paying our monthly mortgage will have that paid off within the next 10 years if we choose to not pay it off earlier.

SS Rambo
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Re: Should I Stick with Term Insurance?

Post by SS Rambo » Mon Jun 01, 2020 1:15 pm

To answer the title of your thread: yes, stick with Term. To answer your two questions:

1) I think it will come down to some simple math on your end. Since you didn't mention anything about your current/future premiums, there would have to be some assuming (I assume these are 20 year level term policies? not 20 year increasing term policies?).

Your agent will probably want you to purchase through his company, and if the quality of service is worth it, maybe you choose to buy term from his in-house company for a few bucks more. Regardless, you should start by shopping around online (will take less than an hour in total). And remember, licensed brokers can generally sell any other company's policies and will be paid according to that company's commission schedule regardless of if they are an employee (I think with the only exception being Northwestern Mutual policies, which are sold exclusively through their agents, but those agents are able to also sell any other company's insurance if they wish). So feel free to go back to your agent at company ABC and tell him you picked out a policy at company XYZ; he will either say the extra paperwork on his end is worth the commission, or he will say it is not, and that you should just apply online/over the phone at company XYZ.

Use term4sale.com or Zander and search for the policy amount/term you would buy to replace-and-increase, and then search for the policy amount/term you would buy to supplement-and-increase. It really just comes down to what is cheapest of two clear-cut options for you, and two clear-cut options for your wife. Layering two policies is extremely common because it really does not add much work (policies don't need annual upkeep without a change in life circumstances).

2) I don't see any information in your post that makes me think you should consider anything other than Term insurance (hint #1: you're looking for a term of coverage, not an estate planning tool).
Last edited by SS Rambo on Mon Jun 01, 2020 2:03 pm, edited 1 time in total.

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Stinky
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Re: Should I Stick with Term Insurance?

Post by Stinky » Mon Jun 01, 2020 1:35 pm

Welcome to the Forum! Glad that you posted your question.

You give no indication in your post as to how much life insurance you need. You say that your life insurance now seems to be sufficient; but you want to increase the amount of life insurance significantly. In order to assess your life insurance needs, you could post some additional financial information here, such as annual earnings, assets, etc. Maybe you need more life insurance, maybe you don’t.

If you do need to increase your life insurance, it’s likely that you should keep the current policies and add new policies. After nine years of a 20 year term policy, you have pre-paid for a lot of future insurance. It would come down to running the numbers to see what makes the most sense, but I am pretty strongly suspect that you’ll be well served to keep the current policies.

I definitely would not buy new permanent life insurance on you. Enough said about that.

It looks like you have three current permanent policies in your family. While I would not have advised you to purchase a variable life policy, you are far enough into it now that it might make sense to keep that as an investment. You could post more details on that policy if you wanted to get more feedback.

I would not have bought permanent policies on your children, and I would cancel the current policies that you have. I trust that you have enough assets to bury your children if they were to pass away before they are out of the house, and no one is relying upon your children for their income. Cancel those policies, and apply the premiums to any new insurance that you buy.
It's a GREAT day to be alive - Travis Tritt

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Jonbuck
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Re: Should I Stick with Term Insurance?

Post by Jonbuck » Mon Jun 01, 2020 2:05 pm

Thanks for the info.....

My Insurance Agent has pushed for me to try to convert my current Term Policies into Universal Policies with Long Term Care Riders, which to me is just very expensive. While I realize Long Term Care could be a real factor down the road, we are in a wealth accumulation stage of life with about a 20-25 year time horizon still in our careers.

As you mentioned regarding the Variable Life Policy, I have had it a long time. I did ask my agent to give me a re-illustration and let me see how the policy looks. It is very inexpensive overall because I purchased it at a young age, but I have considered in the past withdrawing the cash within the policy and investing it in a qualified Index fund. I will see what it looks like when I get a re-illustration on the policy.

Regarding our current situation:

We are debt free besides $87,000 left on our mortgage. House current value according to Zillow is in the $230,000 range.

Household income is approximately $115,000 gross. This combines me and my spouse's income. We both have retirement plans through work where we contribute, as well as an HSA where we contribute.

We have 7 months of savings in cash and savings account.

Additional money we place into a non qualified account in an asset allocation of 70% VTI ,25% BND, & 5% VNQ.

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Stinky
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Re: Should I Stick with Term Insurance?

Post by Stinky » Mon Jun 01, 2020 2:11 pm

Jonbuck wrote:
Mon Jun 01, 2020 2:05 pm
Thanks for the info.....

My Insurance Agent has pushed for me to try to convert my current Term Policies into Universal Policies with Long Term Care Riders, which to me is just very expensive. While I realize Long Term Care could be a real factor down the road, we are in a wealth accumulation stage of life with about a 20-25 year time horizon still in our careers.

As you mentioned regarding the Variable Life Policy, I have had it a long time. I did ask my agent to give me a re-illustration and let me see how the policy looks. It is very inexpensive overall because I purchased it at a young age, but I have considered in the past withdrawing the cash within the policy and investing it in a qualified Index fund. I will see what it looks like when I get a re-illustration on the policy.
As a general rule, it’s not wise to mix insurance and investing. That’s why Bogleheads typically don’t recommend permanent insurance such as whole life, variable life, universal life, etc.

Your agent wants you to convert because he will make a large commission. Don’t fall for his line.

Feel free to post details in your VUL policy when available.
It's a GREAT day to be alive - Travis Tritt

SS Rambo
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Re: Should I Stick with Term Insurance?

Post by SS Rambo » Mon Jun 01, 2020 2:21 pm

Jonbuck wrote:
Mon Jun 01, 2020 2:05 pm
Thanks for the info.....

My Insurance Agent has pushed for me to try to convert my current Term Policies into Universal Policies with Long Term Care Riders, which to me is just very expensive. While I realize Long Term Care could be a real factor down the road, we are in a wealth accumulation stage of life with about a 20-25 year time horizon still in our careers.

As you mentioned regarding the Variable Life Policy, I have had it a long time. I did ask my agent to give me a re-illustration and let me see how the policy looks. It is very inexpensive overall because I purchased it at a young age, but I have considered in the past withdrawing the cash within the policy and investing it in a qualified Index fund. I will see what it looks like when I get a re-illustration on the policy.
Your agent is right that everyone needs a long term care plan, but remember that not everyone needs long term care insurance. If you think a long term care event in your later years could decimate your finances, then insurance might be a consideration, but you sound a little early in life to have that foresight. Moderate to well off couples can largely mitigate a long term care event for one spouse with self-insurance and the ability to scale down your lifestyle with acute changes in health.

In addition, mixing a life insurance product (death benefit) with LTC insurance (living benefit) is almost always not cost efficient, and an aggressive cross-selling/up-selling tactic.

The policies on your children will garner plenty of differing opinions. The nice thing they do is preserve insurability (I assume those policies come with additional purchase benefits regardless of health) until they qualify for Term at age 18+ in a few short years (if they have some insurance need right at the start of adulthood). Can they be switched to 'paid up' until then? Or dividends used to decrease premiums? Or is the purpose not to preserve insurability, and only final expenses (which you can likely cover out of pocket now)? Either way, there's a preview of your agents' selling points for keeping them if you try to cancel.

Yes, your latest variable policy illustration can be assessed if you choose to share it in another thread here. First rule of thumb you will hear is that maximizing all tax qualified investment accounts is almost always a higher priority than funding a tax-deferred vehicle like variable insurance. But as a sunk cost, sometimes it is a better option to just keep it as-is than cancel. Would have to know the numbers.

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Nate79
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Re: Should I Stick with Term Insurance?

Post by Nate79 » Mon Jun 01, 2020 4:21 pm

Jonbuck wrote:
Mon Jun 01, 2020 2:05 pm
Thanks for the info.....

My Insurance Agent has pushed for me to try to convert my current Term Policies into Universal Policies with Long Term Care Riders, which to me is just very expensive. While I realize Long Term Care could be a real factor down the road, we are in a wealth accumulation stage of life with about a 20-25 year time horizon still in our careers.

As you mentioned regarding the Variable Life Policy, I have had it a long time. I did ask my agent to give me a re-illustration and let me see how the policy looks. It is very inexpensive overall because I purchased it at a young age, but I have considered in the past withdrawing the cash within the policy and investing it in a qualified Index fund. I will see what it looks like when I get a re-illustration on the policy.

Regarding our current situation:

We are debt free besides $87,000 left on our mortgage. House current value according to Zillow is in the $230,000 range.

Household income is approximately $115,000 gross. This combines me and my spouse's income. We both have retirement plans through work where we contribute, as well as an HSA where we contribute.

We have 7 months of savings in cash and savings account.

Additional money we place into a non qualified account in an asset allocation of 70% VTI ,25% BND, & 5% VNQ.
Of course your agent is pushing these scammy products. He probably has a boat payment due. :oops:

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Re: Should I Stick with Term Insurance?

Post by Broken Man 1999 » Mon Jun 01, 2020 5:21 pm

What about LTD (long-term disability)?

Dead people don't have ongoing expenses, a disabled person might not only lose an income stream, but could add ongoing expenses.

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven then I shall not go. " -Mark Twain

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gr7070
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Re: Should I Stick with Term Insurance?

Post by gr7070 » Mon Jun 01, 2020 5:34 pm

Do you actually have a need for more life insurance? I can throw $5 bills out the car window "because they're cheap" but that doesn't make it a good idea. That's your reasoning for getting more insurance???

Why do you have life insurance on your kids? Kids, essentially, don't die. You're also not reliant on their income. Lastly, never ever get anything but term life insurance. So, if your child was Cory Feldman and you were their agent *term* life insurance on them might make sense.

Dump all your whole/cash-value life insurance policies. Look into their terms before doing so you'll fully understand; but ultimately you'll learn dumping the current while life policies the sooner the better.

You can start threads on here to look deeply into those while life policies. Lot of smart folks here.

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gr7070
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Re: Should I Stick with Term Insurance?

Post by gr7070 » Mon Jun 01, 2020 5:42 pm

Jonbuck wrote:
Mon Jun 01, 2020 2:05 pm
My Insurance Agent has pushed for me to try to convert my current Term Policies into Universal Policies
Dump your agent when you dump your universal policies.
Jonbuck wrote:
Mon Jun 01, 2020 2:05 pm
I will see what it looks like when I get a re-illustration on the policy.
You are nearly guaranteed to get an incredibly fautly view of your universal policies from an insurance agent.

There's a very real chance they don't understand the policies themselves, and even if they did they don't want you to fully understand them as you'd dump both the policy and the person who sold them to you.

Having further discussions with your salesperson is only detrimental to your financial well-being. That's not hyperbole or a joke.

neverpanic
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Re: Should I Stick with Term Insurance?

Post by neverpanic » Mon Jun 01, 2020 6:33 pm

I chose to get term when I had a kid in case of my early passing. It was enough to pay off the house, provide medical insurance, cover college and 1-2 years of grad school, and maybe have a little left over to help with the down payment of a future home. The rationale was that if all those things were taken care of, she'd be able to start her adult life with a clean slate and very little debt.

Pick the term that makes sense for you. If it's super-cheap and gets you to ages 58-60 as a "what if" policy, it feels like a small hedge vs your future earning potential. Term life can always be cancelled if no longer needed for estate protection.
I am not a financial professional or guru. I'm a schmuck who got lucky 10 times. Such is the life of the trader.

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anon_investor
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Re: Should I Stick with Term Insurance?

Post by anon_investor » Mon Jun 01, 2020 6:42 pm

Nate79 wrote:
Mon Jun 01, 2020 4:21 pm
Jonbuck wrote:
Mon Jun 01, 2020 2:05 pm
Thanks for the info.....

My Insurance Agent has pushed for me to try to convert my current Term Policies into Universal Policies with Long Term Care Riders, which to me is just very expensive. While I realize Long Term Care could be a real factor down the road, we are in a wealth accumulation stage of life with about a 20-25 year time horizon still in our careers.

As you mentioned regarding the Variable Life Policy, I have had it a long time. I did ask my agent to give me a re-illustration and let me see how the policy looks. It is very inexpensive overall because I purchased it at a young age, but I have considered in the past withdrawing the cash within the policy and investing it in a qualified Index fund. I will see what it looks like when I get a re-illustration on the policy.

Regarding our current situation:

We are debt free besides $87,000 left on our mortgage. House current value according to Zillow is in the $230,000 range.

Household income is approximately $115,000 gross. This combines me and my spouse's income. We both have retirement plans through work where we contribute, as well as an HSA where we contribute.

We have 7 months of savings in cash and savings account.

Additional money we place into a non qualified account in an asset allocation of 70% VTI ,25% BND, & 5% VNQ.
Of course your agent is pushing these scammy products. He probably has a boat payment due. :oops:
+1. You should run the numbers on the variable life policy, probably better to cash out and buy index funds in a taxable account. We did that with my spouse's universal life policy that a "family friend" sold her when she was 18... Somethings to look for on the variable life policy to determine whether to cash out:
-premiums paid vs cash value
-expense ratios for the "index funds" you can invest in within the variable life policy, guarantee they are egregiously high for index funds
-factor in that any growth of the "investments" inside the variable life policy will be taxed at ordinary income rates vs. lower cap gains rates that investments in normal taxable accounts are

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Re: Should I Stick with Term Insurance?

Post by Tal- » Mon Jun 01, 2020 8:25 pm

I'd echo the comments above - you should stick with term.

Term life is a wonderful product - it's readily available protection against a clearly definable, unlikely, but major scenario. It's simple, cheap, and wonderfully effective. For 98% - 99% of us, it's the right call for your life insurance needs.

More complicated insurance options, such as whole life, universal, investment grade, variable, etc. each have their place in unique, complex, and exceptionally rare situations - but they are vastly oversold to the point of being unethical. They are incredibly expensive compared to more simple options (and are so complicated that you often have a hard time understanding just how expensive) meaning you need to have a pretty compelling need for them to be the right call.

I haven't heard a good reason why you should use one of these. And frankly, based on your income and general situation - I can't imagine that you have one (and no - long term care rider is not sufficient).

Barring extenuating circumstances that you haven't mentioned, stick with term.
Debt is to personal finance as a knife is to cooking.

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Re: Should I Stick with Term Insurance?

Post by willthrill81 » Mon Jun 01, 2020 9:29 pm

Nate79 wrote:
Mon Jun 01, 2020 4:21 pm
Jonbuck wrote:
Mon Jun 01, 2020 2:05 pm
Thanks for the info.....

My Insurance Agent has pushed for me to try to convert my current Term Policies into Universal Policies with Long Term Care Riders, which to me is just very expensive. While I realize Long Term Care could be a real factor down the road, we are in a wealth accumulation stage of life with about a 20-25 year time horizon still in our careers.

As you mentioned regarding the Variable Life Policy, I have had it a long time. I did ask my agent to give me a re-illustration and let me see how the policy looks. It is very inexpensive overall because I purchased it at a young age, but I have considered in the past withdrawing the cash within the policy and investing it in a qualified Index fund. I will see what it looks like when I get a re-illustration on the policy.

Regarding our current situation:

We are debt free besides $87,000 left on our mortgage. House current value according to Zillow is in the $230,000 range.

Household income is approximately $115,000 gross. This combines me and my spouse's income. We both have retirement plans through work where we contribute, as well as an HSA where we contribute.

We have 7 months of savings in cash and savings account.

Additional money we place into a non qualified account in an asset allocation of 70% VTI ,25% BND, & 5% VNQ.
Of course your agent is pushing these scammy products. He probably has a boat payment due. :oops:
And probably a mortgage payment on a vacation home.

Seriously, variable universal life is one of worst legal insurance products scams ever created.

Buy term and invest the difference. It was true when it was coined back in the 1970s by Arthur Williams, and it's still true today.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

Topic Author
Jonbuck
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Re: Should I Stick with Term Insurance?

Post by Jonbuck » Tue Jun 02, 2020 7:02 am

Wow!!!! Thank you all for the incredible feedback and affirming my gut inclinations.

Update:

I will be most likely keeping my and my wife's current term policies that have 11 years left and I am getting quotes for additional 20 year term policies to supplement these mostly for the purpose of making sure we have insurance that will cover us until the age of 58 & 60.

My children's whole life policies were taken out at birth and they are policies that will be paid up when they reach 20 years old, so will most likely keep them at this point as we are only 5 & 8 years out on them.

I am going to research my Variable Life Policy in much more detail as I have basically had this policy a long time and have just been making consistent premiums on it for almost 20 years with little thought as I was not educated on financial matters when I initially took this policy.

Thanks for the value add and recommendations! :happy

InvestingGeek
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Re: Should I Stick with Term Insurance?

Post by InvestingGeek » Tue Jun 02, 2020 7:45 am

Your need for additional life insurance is unclear. When you're 58, your kids will be in their 30s. Who would the life insurance policy serve?

Even more baffling are the life insurance policies on the kids. I just don't get that one. :confused

Makes me think you don't really understand the point of life insurance. Apologies for the bluntness.

deltaneutral83
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Re: Should I Stick with Term Insurance?

Post by deltaneutral83 » Tue Jun 02, 2020 7:51 am

Jonbuck wrote:
Tue Jun 02, 2020 7:02 am
Wow!!!! Thank you all for the incredible feedback and affirming my gut inclinations.

Update:

I will be most likely keeping my and my wife's current term policies that have 11 years left and I am getting quotes for additional 20 year term policies to supplement these mostly for the purpose of making sure we have insurance that will cover us until the age of 58 & 60.

My children's whole life policies were taken out at birth and they are policies that will be paid up when they reach 20 years old, so will most likely keep them at this point as we are only 5 & 8 years out on them.

I am going to research my Variable Life Policy in much more detail as I have basically had this policy a long time and have just been making consistent premiums on it for almost 20 years with little thought as I was not educated on financial matters when I initially took this policy.

Thanks for the value add and recommendations! :happy
Can you share some details on why you need 20 additional years with dependents at 15 and 12 currently? I think disability insurance might be more of a priority. If you work for the next 11 years (which is what's remaining on your current policies?) you should have increased your net worth significantly and negated the need for life ins by a lot. To the extent that your dependents will need additional resources, that is what I would go with additionally if needed at all, however, they will be 26 and 23 years of age. Perhaps a small 15 year policy to supplement what you have. The term policies are front loaded as far as costs so I'd keep the current ones rather than getting a 15 year large policy and then cancelling the current term policies although rates seem to come down every 5 years for term in these situations.

The permanent policies on your children are most likely garbage and the monies invested over their lives for 40/50/60 years will probably crush the policy RoR and that's with having flushed the premium payments of 12 and 15 years down the toilets and starting investing today by cashing out. You will know how bad those policies were when you cash out and realize the RoR was less than 2% over the last 12 and 15 years respectively and you report a very small gain on your taxes. Your analysis of your children's policies didn't include mathematics, but struck me more of a wish/hope as to why you have come to the conclusion of keeping them. Your own permanent policy is probably too far down the river to salvage and sticking with it is probably the best course of action, but I'd look into it mathematically, but not with an insurance salesmen.

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Stinky
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Re: Should I Stick with Term Insurance?

Post by Stinky » Tue Jun 02, 2020 7:59 am

Jonbuck wrote:
Tue Jun 02, 2020 7:02 am
My children's whole life policies were taken out at birth and they are policies that will be paid up when they reach 20 years old, so will most likely keep them at this point as we are only 5 & 8 years out on them.
Please post some details on your children’s policies. Especially annual premium and total surrender value last year and this year.

I think that you’ll find that they’re not as attractive as you seem to believe.
It's a GREAT day to be alive - Travis Tritt

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climber2020
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Re: Should I Stick with Term Insurance?

Post by climber2020 » Tue Jun 02, 2020 8:02 am

Jonbuck wrote:
Tue Jun 02, 2020 7:02 am
My children's whole life policies were taken out at birth and they are policies that will be paid up when they reach 20 years old, so will most likely keep them at this point as we are only 5 & 8 years out on them.
Why does a child need a life insurance policy?

duffyinvestor
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Re: Should I Stick with Term Insurance?

Post by duffyinvestor » Tue Jun 02, 2020 9:01 am

I'd keep your current term policies, they were a good decision. Even if you replaced it with another term policy there would be some disadvantages. It would likely cost more and some of the time clauses would be reset. For instance, most policies have a 2 year suicide clause. You don't want to discover that the hard way.

InvestingGeek
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Re: Should I Stick with Term Insurance?

Post by InvestingGeek » Tue Jun 02, 2020 2:51 pm

There's something called the sunk cost fallacy. You think because you've flushed so much money down the drain with your kids policies, it's worth keeping doing so given the payout in a few years. It will help to see the math on the payout: it's quite possible that putting the money into something even as deadbeat as CDs instead of these policies will return more money.

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BL
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Re: Should I Stick with Term Insurance?

Post by BL » Thu Jun 04, 2020 12:58 pm

One thing to consider for children's policies is the long time frame over a child's life. There can be multiple turnovers of company ownership, as well as companies going broke. We experienced several turnovers, they lost our mailing address and did not send premium/loan notices, and other not so great happenings. I would never advise purchasing a child's policy.

Even with low inflation, the policy amount will seem insignificant after a child's normal lifetime.

inbox788
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Re: Should I Stick with Term Insurance?

Post by inbox788 » Thu Jun 04, 2020 8:48 pm

Jonbuck wrote:
Mon Jun 01, 2020 12:32 pm
Me: 9 years into a 20 year term with a death benefit of $750,000, additionally I have a $100,000 Variable Life Policy with a cash fable of $16,000 invested in an S&P 500 fund which I have had for 18 years as permanent insurance.

Wife: 9 years into a 20 year term with a death benefit of $500,000
Can you cash out the $16k and keep just the $750k term? What's the annual premium? And for the wife $500k?
Both children have a $25,000 whole life insurance policy they have had since birth.
Why? You should probably just cash it out. How much do you pay each child each year and what would you get today if you cashed out? Just put all that cash into VTSMX (tax advantaged preferred).
Our current Life Policies seem to be sufficient, however we are desiring to get another 20 year term policy because our health is good and the insurance is inexpensive. Initially I was thinking of replacing my wife and I's term policies with new 20 year Term policies as I can get more coverage for basically the same rate (me a 1 million dollar policy & my wife a $750,000 policy).
Seems like adequate coverage. How much are the premiums for more coverage? If it's more coverage and more years for same premium, it's a no brainer. If it's going to cost more, what's the cost/benefit? Need info for premium, coverage, terms, etc..
2. Does it make sense to purchase permanent life insurance in our situation or should we stick with term and focus on building our investment portfolio?
Again, why? Most people have not need and don't benefit from permanent insurance.

If you have extra cash, paying off mortgage earlier isn't a bad idea, depending on what other options you have available. Buying unneeded or unnecessarily expensive insurance is a bad idea, and it appears you have some or several to clean up.

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Re: Should I Stick with Term Insurance?

Post by Bfwolf » Thu Jun 04, 2020 9:40 pm

If you got a good deal on the term life insurance the first time (which I don't know if you did or not), then you should call it quits on buying life insurance. You have enough given where you guys are in life. You and your wife both work. Once the kids are out of the house, the other will be fine if one of you passes away.

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Re: Should I Stick with Term Insurance?

Post by reln » Thu Jun 04, 2020 9:51 pm

Jonbuck wrote:
Mon Jun 01, 2020 12:32 pm
I am new to the forum and have gleaned much from perusing many of the posts submitted. My question is one regarding life insurance. I will give a simple overview and would love your feedback as well as the feedback in general from the boglehead philosophy regarding life insurance.

I am 38 years old; my wife is 40. We are both in excellent health.

We have two sons, 15 yrs. & 12 yrs. old. (Both in excellent health)

Current life insurance holdings:

Me: 9 years into a 20 year term with a death benefit of $750,000, additionally I have a $100,000 Variable Life Policy with a cash fable of $16,000 invested in an S&P 500 fund which I have had for 18 years as permanent insurance.

Wife: 9 years into a 20 year term with a death benefit of $500,000

Both children have a $25,000 whole life insurance policy they have had since birth.

Our current Life Policies seem to be sufficient, however we are desiring to get another 20 year term policy because our health is good and the insurance is inexpensive. Initially I was thinking of replacing my wife and I's term policies with new 20 year Term policies as I can get more coverage for basically the same rate (me a 1 million dollar policy & my wife a $750,000 policy).

My 2 questions are:

1. Should I keep my current Term Policies and purchase New Term's or Replace my old Policies?

2. Does it make sense to purchase permanent life insurance in our situation or should we stick with term and focus on building our investment portfolio?

WhenI have spoken to our insurance agent he is strongly discouraging me from cancelling my current policies to replace them. While our current policies are inexpensive overall, I do not know if it makes sense to have two term policies for what would end up being almost 1.85 million dollars of coverage on me and my wife with 1.25 million of coverage. All would be term policies with our initially policies running out in the next 11 years when our children will both be in their 20's and well on their way to building their careers.

We are debt free besides our house and based on paying our monthly mortgage will have that paid off within the next 10 years if we choose to not pay it off earlier.
I would replace the terms. Get confirmed coverage before cancellation.

reln
Posts: 307
Joined: Fri Apr 19, 2019 4:01 pm

Re: Should I Stick with Term Insurance?

Post by reln » Thu Jun 04, 2020 9:55 pm

inbox788 wrote:
Thu Jun 04, 2020 8:48 pm
Jonbuck wrote:
Mon Jun 01, 2020 12:32 pm
Me: 9 years into a 20 year term with a death benefit of $750,000, additionally I have a $100,000 Variable Life Policy with a cash fable of $16,000 invested in an S&P 500 fund which I have had for 18 years as permanent insurance.

Wife: 9 years into a 20 year term with a death benefit of $500,000
Can you cash out the $16k and keep just the $750k term? What's the annual premium? And for the wife $500k?
Both children have a $25,000 whole life insurance policy they have had since birth.
Why? You should probably just cash it out. How much do you pay each child each year and what would you get today if you cashed out? Just put all that cash into VTSMX (tax advantaged preferred).
Our current Life Policies seem to be sufficient, however we are desiring to get another 20 year term policy because our health is good and the insurance is inexpensive. Initially I was thinking of replacing my wife and I's term policies with new 20 year Term policies as I can get more coverage for basically the same rate (me a 1 million dollar policy & my wife a $750,000 policy).
Seems like adequate coverage. How much are the premiums for more coverage? If it's more coverage and more years for same premium, it's a no brainer. If it's going to cost more, what's the cost/benefit? Need info for premium, coverage, terms, etc..
2. Does it make sense to purchase permanent life insurance in our situation or should we stick with term and focus on building our investment portfolio?
Again, why? Most people have not need and don't benefit from permanent insurance.

If you have extra cash, paying off mortgage earlier isn't a bad idea, depending on what other options you have available. Buying unneeded or unnecessarily expensive insurance is a bad idea, and it appears you have some or several to clean up.
I agree avoid WL or VL, but OP already in at the point where the benefits outweigh the costs.

Keep them at this point.

LittleMaggieMae
Posts: 219
Joined: Mon Aug 12, 2019 9:06 pm

Re: Should I Stick with Term Insurance?

Post by LittleMaggieMae » Thu Jun 04, 2020 10:23 pm

FWIW: I have a life insurance policy from the 1960's that was purchased for me as a baby. It's for $3,000.00 I'm sure back then that seemed like alot of money. It's now 2020 and it's still worth $3,000.00 Every year I go "I'm just ending that silly thing" and every year I go "it's too much trouble to get rid of it". Will cashing it in gonna mess with my income taxes?? (I have been flirting with the higher tax bracket for years... I would totally want that 3K to be taxed in the 24% income bracket - NOT. If it even works that way). And so I have a life insurance policy for 3K. :)

I'm sure in 20 years your kids 25K policies will look and feel like the chump change annoying thing that's mostly worthless that my 3K policy feels like. :)

I would end the policies and invest the money some other way.

inbox788
Posts: 7113
Joined: Thu Mar 15, 2012 5:24 pm

Re: Should I Stick with Term Insurance?

Post by inbox788 » Fri Jun 05, 2020 2:22 pm

reln wrote:
Thu Jun 04, 2020 9:55 pm
I agree avoid WL or VL, but OP already in at the point where the benefits outweigh the costs.

Keep them at this point.
I didn't see enough information to come to that conclusion. Did I miss something relevant? Even if it's fully paid up (which it's not), there are probably considerations for cashing out vs. keeping some duration vs. keeping for rest of life.
https://www.investopedia.com/articles/p ... urance.asp

If you had a vanilla WL paid up that simply paid out $25k on a healthy child that had a current cash out value of $1k, $2k, or $4k, wouldn't OP be better off investing the cash?

Unnecessary insurance is still costs, even if it's a good value (and to me, that's yet to be determined).
climber2020 wrote:
Tue Jun 02, 2020 8:02 am
Jonbuck wrote:
Tue Jun 02, 2020 7:02 am
My children's whole life policies were taken out at birth and they are policies that will be paid up when they reach 20 years old, so will most likely keep them at this point as we are only 5 & 8 years out on them.
Why does a child need a life insurance policy?

reln
Posts: 307
Joined: Fri Apr 19, 2019 4:01 pm

Re: Should I Stick with Term Insurance?

Post by reln » Fri Jun 05, 2020 2:39 pm

inbox788 wrote:
Fri Jun 05, 2020 2:22 pm
reln wrote:
Thu Jun 04, 2020 9:55 pm
I agree avoid WL or VL, but OP already in at the point where the benefits outweigh the costs.

Keep them at this point.
I didn't see enough information to come to that conclusion. Did I miss something relevant? Even if it's fully paid up (which it's not), there are probably considerations for cashing out vs. keeping some duration vs. keeping for rest of life.
https://www.investopedia.com/articles/p ... urance.asp

If you had a vanilla WL paid up that simply paid out $25k on a healthy child that had a current cash out value of $1k, $2k, or $4k, wouldn't OP be better off investing the cash?

Unnecessary insurance is still costs, even if it's a good value (and to me, that's yet to be determined).
climber2020 wrote:
Tue Jun 02, 2020 8:02 am
Jonbuck wrote:
Tue Jun 02, 2020 7:02 am
My children's whole life policies were taken out at birth and they are policies that will be paid up when they reach 20 years old, so will most likely keep them at this point as we are only 5 & 8 years out on them.
Why does a child need a life insurance policy?
Small potatoes.

Mackster
Posts: 27
Joined: Sun Jun 07, 2020 7:13 pm

Re: Should I Stick with Term Insurance?

Post by Mackster » Tue Jun 09, 2020 1:42 pm

reln wrote:
Thu Jun 04, 2020 9:51 pm
Jonbuck wrote:
Mon Jun 01, 2020 12:32 pm
I am new to the forum and have gleaned much from perusing many of the posts submitted. My question is one regarding life insurance. I will give a simple overview and would love your feedback as well as the feedback in general from the boglehead philosophy regarding life insurance.

I am 38 years old; my wife is 40. We are both in excellent health.

We have two sons, 15 yrs. & 12 yrs. old. (Both in excellent health)

Current life insurance holdings:

Me: 9 years into a 20 year term with a death benefit of $750,000, additionally I have a $100,000 Variable Life Policy with a cash fable of $16,000 invested in an S&P 500 fund which I have had for 18 years as permanent insurance.

Wife: 9 years into a 20 year term with a death benefit of $500,000

Both children have a $25,000 whole life insurance policy they have had since birth.

Our current Life Policies seem to be sufficient, however we are desiring to get another 20 year term policy because our health is good and the insurance is inexpensive. Initially I was thinking of replacing my wife and I's term policies with new 20 year Term policies as I can get more coverage for basically the same rate (me a 1 million dollar policy & my wife a $750,000 policy).

My 2 questions are:

1. Should I keep my current Term Policies and purchase New Term's or Replace my old Policies?

2. Does it make sense to purchase permanent life insurance in our situation or should we stick with term and focus on building our investment portfolio?

WhenI have spoken to our insurance agent he is strongly discouraging me from cancelling my current policies to replace them. While our current policies are inexpensive overall, I do not know if it makes sense to have two term policies for what would end up being almost 1.85 million dollars of coverage on me and my wife with 1.25 million of coverage. All would be term policies with our initially policies running out in the next 11 years when our children will both be in their 20's and well on their way to building their careers.

We are debt free besides our house and based on paying our monthly mortgage will have that paid off within the next 10 years if we choose to not pay it off earlier.
I would replace the terms. Get confirmed coverage before cancellation.
The only way to determine whether to keep your current term plans and purchase new ones or replace the old policies is to look at the premiums on your current term plans and compare them to the cost of new ones. If you provide some premium information, I can quickly figure that out for you. The bigger questions are 1) How much of this stuff do you want? and 2) For what duration should you have it?
You've provided a combined income figure but how that breaks out between you and your spouse is critical to determining appropriate amounts of coverage if you desire the life insurance to provide replacement income.
You also need to decide what you want to have money for at the time of a death. Replacing income to maintain current standard of living? Liquidating debts? Paying medical expenses? Funding education for survivors? Providing a bequest to a charitable organization? Providing a lump sum legacy or income stream to survivors? The list goes on only limited by your personal objectives. There's no right or wrong here.
Regarding duration of the term plan, what you have expires at ages 49/51. Some have suggested that since your kids will be in their mid-20's at that time that no coverage is warranted. I'd urge you not to try predicting the future. Your kids may or may not be established at that time. I can think of many situations where children were still living at home into their mid 30's. Your mortgage of $87k will probably also be gone by then. But will you stay in your $230k house forever or will you want to be in a $500k (or more) house? Will you eventually purchase a vacation home or rental property? Will you have a substantially larger mortgage? Will your income be higher or lower in 11 years? Will you be with the same employer or somewhere else? Will you start or buy a business? After you answer all of those questions for yourself you'll have a better idea of how much life insurance may be appropriate and how long you may want it to be in place.
Accordingly, I'm not a fan of using a succession of 20 yr term plans. As you'll see when you price term plans at your currrent age and compare to what you paid 9 years ago, term rates escalate with age. In 11 years at ages 49/51 they'll be considerably higher. But there's a more important factor to consider: No one gets healthier with age! When you started your plans 9 years ago chances are you were in a 'preferred' underwriting class...maybe even a 'preferred best' class. Your underwriting classes at ages 38/40 are yet to be determined. At ages 49/51 they may not be what they are today...stuff happens. So my advice is to bite off the longest duration you can today--30 or 35 years and eliminate successive underwriting risk. At your ages all durations are still very cheap.
Regarding your $100k variable life plan, what is the premium? What is the current cash value? Are there any surrender charges? What premium loads and policy expenses are being incurred? What has been the performance of the investment bucket being used (they don't necessarily mirror the performance of the actual index). That info will enable you to determine whether to retain this policy or not.
On the $25k 20 pay life policies for the kids, what's the premium? What is the cash value? Is there a guaranteed purchase option on the plan? Are the kids healthy? That info will allow a determination on retention or surrender.

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