Help Choosing The Right Life Insurance For Me

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RedDragon277
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Help Choosing The Right Life Insurance For Me

Post by RedDragon277 »

As a completely clueless individual looking for advice from someone OTHER THAN an insurance agent, I was wondering if anyone could give me some sound advice as to what type, and how much, life insurance I should have.

I own my own business in the auto repair industry and have recently gotten married and had a son. I live in the Upstate NY area. I'm 34 years old and take home, after taxes, around 40k. My wife generates around 30k.

I was thinking about a Term policy of around 500k in a 30 year term, as between our home and current debt, would require around 140k to clear all debt (including funeral) if I died. Are they honestly a good or bad idea?

Some "friends" suggest whole life as it pays you back. But they're far from financial advisors. lol. Now I know NOTHING about investing and have absolutely NO retirement yet for myself (one main reason I found, and joined, your wonderful forum) so I was thinking if this did in fact pay me back with Whole, I could use some of that toward retirement.

But retirement is a separate issue. So what type, how much, how long, and any good companies to go through? Any help is much appreciated. Thank you so much, and I look forward to spending quite a bit of time on your forums!
TylerS
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Post by TylerS »

Here is a recent thread on the topic - http://www.bogleheads.org/forum/viewtop ... 1297871272

Most posters would advise you to purchase Term and invest the rest.
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kenyan
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Post by kenyan »

You'll find the same general trend in the whole life threads that pop up around here - most Bogleheads will tell you to buy term and invest the rest, especially in your situation. Two or three (who are insurance agents) will defend the product and state that while it's not right for most people, it has its place.

Buy term - *especially* since you're not currently taking advantage of all of your options for retirement accounts. More importantly, start taking advantage of your retirement accounts :D .
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kenyan
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Post by kenyan »

In regards to your specific questions about amount/length - I'd suggest a long duration, level term (monthly payment does not increase with age). If you're planning to retire around 65, 30 years sounds just right. Policies are cheap when you're young and in good health, and they *are* a good idea when you have a family depending upon your income stream. As a matter of fact, I have a physical tomorrow for a term policy I'm buying, and I'm in a similar life situation as you.

$500k sounds fine to me given the numbers you cited, but I'm no expert.
Oneanddone
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Re: Help Choosing The Right Life Insurance For Me

Post by Oneanddone »

RedDragon277 wrote:As a completely clueless individual looking for advice from someone OTHER THAN an insurance agent, I was wondering if anyone could give me some sound advice as to what type, and how much, life insurance I should have.

I own my own business in the auto repair industry and have recently gotten married and had a son. I live in the Upstate NY area. I'm 34 years old and take home, after taxes, around 40k. My wife generates around 30k.

I was thinking about a Term policy of around 500k in a 30 year term, as between our home and current debt, would require around 140k to clear all debt (including funeral) if I died. Are they honestly a good or bad idea?

Some "friends" suggest whole life as it pays you back. But they're far from financial advisors. lol. Now I know NOTHING about investing and have absolutely NO retirement yet for myself (one main reason I found, and joined, your wonderful forum) so I was thinking if this did in fact pay me back with Whole, I could use some of that toward retirement.

But retirement is a separate issue. So what type, how much, how long, and any good companies to go through? Any help is much appreciated. Thank you so much, and I look forward to spending quite a bit of time on your forums!
The only coverage that you should be buying right now is term coverage. Type of coverage is always secondary to amount of coverage. I'll give you the same advice that I give to everybody:

How can you make a decision on the amount of coverage and the time period of coverage without knowing the cost? You can't. Apply for coverage first. You will then know the exact cost and can make a decision.

You don't go through a "good" company. You need to find a good insurance broker who has the ability to find the best company for you.
insurancerenegade
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Post by insurancerenegade »

RedDragon-

Kenyan and Tyler are right about term being the right choice. 20 year term annual premiums are usually about 30-35% cheaper than 30 year term for someone your age, but you have a young child and haven't saved much yet for retirement, you will probably need some life insurance into your 60's, so I'd agree you probably should buy some 30 year term.

As to the amount-here is a way you might think about it. After paying off your debts, your wife would be left with about $360k. If she bought a 20 year certain annuity with that money (that's not a recommendation, it is just a way to think about how much money a lump sum will provide in annual income over a fixed period) she would receive $26-27k in income over the next 20 years. The amount will drop to around $20k if she has to make the money last 30 years.

If that feels a little low to you since you take home 40k, you might consider keeping the 500 k 30-year term in your plan, but adding a $250k or $500k 20 year-term policy to make up the difference. By the time you are 54 and the 20 year policy drops off, your child will (hopefully) be nearly done with school and you will have some retirement savings in place.

Hope this helps,
Ren
BruDude
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Post by BruDude »

Let's assume you're in perfect health at 34. $500k 30 years = $435/year. $1 million 30 years = $765/year. For $300/year, would you want to make sure your wife and kids are taken care of, or buy a few extra toys for the kids or dinners on the town? Your income may very well increase as the years go by, so take that into consideration when you are thinking about income replacement after paying off debts. Don't forget the cost of college for the kids if you want to provide that. Could be $250k each for public schools by the time they get to be 18.

The difference in cost at your age is so minimal that even if you don't think you "need" more coverage, maybe just pony up and buy it just in case. If your situation changes later on, it would cost you a lot more money to make any changes at that point.
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RedDragon277
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Post by RedDragon277 »

First thank you all for the advice. Are there any sites that list reputable insurance brokers? I'm not sure where to go.

@Kenyan: I should note my shop doesn't offer any type of retirement options. Ive never looked into them as my employees are most interested in maxing their weekly pay. As for my personal retirement options, I'm not currently taking advantage of any since I thought I should be paying off my debt first. Is this wise or should I be talking to a financial advisor now? Again, I'm so clueless as to my options which is why I came here for help. I was thinking Roth IRA's sounded good and wanted to, once debt free, max it out annually. Aside from my mortgage I'm only about 30k in debt. I apologize for my ignorance but you gotta spell things out for me. Lol. I come from a family whose idea of retirement savings is keeping it in a savings account. Lol. So noone has ever explained how to save for retirement to me. And as I've gotten older as a business owner I feel embarrassed at my age to ask for options and explanations as to how it all works. Which is why I'm here, to change all that. Thanks again!
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kenyan
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Post by kenyan »

A Roth IRA is likely a wonderful option for you. However, depending on your debts, those may take precedence over the Roth. I can't speak with much authority about your other options, though there certainly are some. I'm sure some of the knowledgeable people on this board will help you out when the time comes to ask about that.

The next step toward retirement is to educate yourself a little bit, so that you can properly frame your financial situation and ask for detailed advice here. Read some of the Wiki if you can, and go through http://www.bogleheads.org/forum/viewtopic.php?t=6211.

Once you're ready to ask specific questions about retirement, follow the guidelines of http://www.bogleheads.org/forum/viewtopic.php?t=6212.

Don't feel like you have to understand everything before you can ask...but you'll get better answers if you give the right information.
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RedDragon277
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Post by RedDragon277 »

Thank you Kenyan and Brudude. Those links are perfect, and very helpful. Thanks too Brian, but the 2 options they gave me from your site weren't anything I'm interested in.

When looking for term though let me get this straight, ask for a 500k, 30 year guaranteed rate, renewable policy, correct? I placed a call to a friend of mine that sells insurance, and that's what I told her to quote me on. She deals with a company here in NY called William Penn. I tried a couple websites that did give rate quotes online so I'll see where she comes in comparatively. On average it seems to run around 435 annually, but if I can get a personal agent it may be worth a little extra to me.

I look forward to getting my finances in order with help from folks like you all, whom I feel like I can trust. Thanks again everyone!
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hand
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Post by hand »

For comparison purposes, you ought to take a look at http://www.term4sale.com/

If nothing else, it should give you an idea of whether or not the pricing your friend provides is competitive.

You should also research the financial stability of the insurer offering the insurance.

I am by no means an expert, but my understanding is that if you are young and healthy, term life is mostly a commodity subject to two variables: 1) Price and 2) financial stability (or rating) of the insurer.

If you have health issues, there may be value to having a good agent on your side to find the insurer who is the best fit.
Oneanddone
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Post by Oneanddone »

RedDragon277 wrote:Thank you Kenyan and Brudude. Those links are perfect, and very helpful. Thanks too Brian, but the 2 options they gave me from your site weren't anything I'm interested in.

When looking for term though let me get this straight, ask for a 500k, 30 year guaranteed rate, renewable policy, correct? I placed a call to a friend of mine that sells insurance, and that's what I told her to quote me on. She deals with a company here in NY called William Penn. I tried a couple websites that did give rate quotes online so I'll see where she comes in comparatively. On average it seems to run around 435 annually, but if I can get a personal agent it may be worth a little extra to me.

I look forward to getting my finances in order with help from folks like you all, whom I feel like I can trust. Thanks again everyone!
Give the business to your friend.
Don't shop around for the cheapest quote!

Here's why:
Agent A gives a quote of $435
Agent B gives a quote of $515

So, you being the smart and frugal person go with Agent B. The problem is that the only difference is that Agent A quoted the cheapest rate from the cheapest company while Agent B quoted the 2nd cheapest rate. Whether you go with Agent A or Agent B, the price will be identical.

William Penn is bascially the same company as Banner Life. They do business as William Penn in NY and Banner everywhere else.

If you can get the best rates, they are the ones who will be the least expensive. That being said, be prepared to not get the best rates. Most people don't.

The idea is to get the best possible rates that are available to you. If it is a possibility to get William Penn's best rates, apply with them. At the same time, your friend, if she is good, will have you sign a HIPAA authorization allowing for her brokerage firm to share information. This is important because if William Penn doesn't give you the best rates, she'll be able to find the company that will give you the best rates without you having to do anything.

The idea is always to get the best rate and to keep in mind that quotes are relatively meaningless.

Personally, I think that she made a mistake giving you that quote. I'm talking as a salesman. She quoted you the absolute best rate that exists. Now, if you get any rate other than this, you will be disappointed.

I wish more people would quote like this:

"The best rate that exist is $435. What is most likely is $515-$635. We won't know for sure until after the policy is approved. In fact, we won't even know for sure which company we should use until after a policy is approved."
Oneanddone
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Post by Oneanddone »

If you have health issues, there may be value to having a good agent on your side to find the insurer who is the best fit.
One doesn't even have to have something that we would consider a health issue. A good agent is valuable any time that a person can't get the best rates from the cheapest company. This is most of the time.

It can be the smallest of things that makes a difference. It could be being a pound overweight, yet having 5% body fat. It could be that a parent had heart disease at age 59. It could be trip planned to a foreign country.

A good agent is needed most of the time if one is trying to get the least expensive rate as opposed to the least expensive quote.
BruDude
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Post by BruDude »

x2 on everything Oneanddone said. A good agent will be able to quote 10+ competitive companies and have a general agent/brokerage that can shop the case for the best offer if something comes back other than applied for. A quote is meaningless without an offer.
Topic Author
RedDragon277
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Post by RedDragon277 »

What you said One is exactly true, as I found out from a customer of mine, who owns an insurance agency, that stopped into my shop yesterday. Perfect timing. I've been working on his family's cars for years and he was very honest and upfront and said pretty much verbatim what you did: don't get excited until we put your paperwok through and even then, they'll want to do a health screening and bloodwork, which I had no idea of. It's not a problem b/c my family and I are very healthy, but the slightest thing can set these companies off, as you said.

I've decided I wanna go with this guy regardless. I've known him for years AND he owns the company so I should be in good hands. He's looking into prices and options as we speak. For the sake of knowing, I'll post when I get some results.

Again, you guys are the best. Thank you so much for the help. All I can offer in return is car advice. lol.
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kenyan
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Post by kenyan »

Car advice is valuable!

If you want to get a ballpark comparison on term life insurance rates, try out term4sale.com. Just keep in mind that the rates quoted on the website are rock bottom rates and you might well not actually be eligible for them once you get through the underwriting phase.

Just had my health assessment yesterday for my level term policy...here's hopin'.
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RedDragon277
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Post by RedDragon277 »

Just wanted to post a reply for anyone curious, my agent/customer was really helpful and came through for me. My health assessment is scheduled soon, but if I qualify for the best rate, which my agent thinks I should, he knows I work out at the gym a lot and my immediate family is all alive and well and on NO prescriptions either, so I SHOULD get it at 435/yr for 500k. If NOT, it's 515/yr for the next tier of health. Either way I'll have term insurance, thanks to you all. Once this is in place and I finish reading my new copies of The Bogleheads Guide To Retirement, and the one for Investing, my new rounds of questions will be posted! :D Again, thank you all SO much!
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White Coat Investor
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Re: Help Choosing The Right Life Insurance For Me

Post by White Coat Investor »

RedDragon277 wrote:As a completely clueless individual looking for advice from someone OTHER THAN an insurance agent, I was wondering if anyone could give me some sound advice as to what type, and how much, life insurance I should have.

I own my own business in the auto repair industry and have recently gotten married and had a son. I live in the Upstate NY area. I'm 34 years old and take home, after taxes, around 40k. My wife generates around 30k.

I was thinking about a Term policy of around 500k in a 30 year term, as between our home and current debt, would require around 140k to clear all debt (including funeral) if I died. Are they honestly a good or bad idea?

Some "friends" suggest whole life as it pays you back. But they're far from financial advisors. lol. Now I know NOTHING about investing and have absolutely NO retirement yet for myself (one main reason I found, and joined, your wonderful forum) so I was thinking if this did in fact pay me back with Whole, I could use some of that toward retirement.

But retirement is a separate issue. So what type, how much, how long, and any good companies to go through? Any help is much appreciated. Thank you so much, and I look forward to spending quite a bit of time on your forums!
Are there any business specific issues that require whole life insurance? How much is the business worth? What is the business plan if you die?

Assuming you don't need it for business, I'd buy a $1 Million dollar 30 year level term life insurance policy through a salesman I found here:
http://term4sale.com/

$500K doesn't seem like very much to me. If $1 Million is just too much money, then go ahead and get the $500K. You can always add more later (although for a higher price.) Or split the difference for $750K, which is around the 10X salary amount, which I think is a good rule of thumb for someone your age. That should cost you ~ $650 a year. You could cut costs by buying less or by buying a shorter term if necessary, but at 34 I think 30 years is about right.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course
grberry
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Post by grberry »

I agree with others who have said to buy term.

I don't think we know enough to say how much. That it would take $140K to pay off debt is a good start - buy more than that. How much more depends on more of the family & expense situation.

You say there is a son. Are more children planned?

Then look at the expense situation after the debts are paid off. What will childcare & education through college cost? What other expenses is your income paying for that the insurance should provide for?

I recommend building a spreadsheet of expense by year. Plan that the life insurance proceeds will be conservatively invested, and then used up as if in retirement. Calculate how much the initial investment needs to be for conservative (low) real returns to cover the expenses as they become due. Get insurance for that initial investment amount plus the debt to be paid off. That probably won't be a round number, so round it up.

Last time I looked for term insurance, the provider I went with offered changes in the price per dollar of benefit at $250K, $500K, and $1M. Check the insurers you are getting offers from to see if there are price breaks near your selected amount such that you could get more insurance for no or very little more cost.
BruDude
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Post by BruDude »

Some companies have price breaks at $1M. That same William Penn policy at $1M is $765 per year versus $435 for $500k. For $330/year, I'd go with the $1M for peace of mind. There is a policy fee regardless of the death benefit, so the higher the benefit, the lower the cost per thousand of coverage.

I had a guy call me today, 31 years old, looking for $100k of 10-year term on him and his wife. They have two kids. I explained why he might want to consider more coverage and a longer term period. The 20-year term was $15/year more than the 10-year. He thought I was just trying to sell him something to make a bigger commission and hung up on me. See ya buddy...you can lead a horse to water, but can't make them drink.
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