Term Life Insurance as an inheritance?

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ved
Posts: 653
Joined: Sat Jan 18, 2014 6:56 pm

Term Life Insurance as an inheritance?

Post by ved » Wed Oct 11, 2017 2:57 pm

Hi,

I was wondering if anyone continues their term-life insurance, even after they are financially independent and/or have retired?
I was looking at term4sale.com, and for a 50-year-old male, a $1 million, 30-year term life costs about $2,500 to $3,000 per year.
So, at the worst (or best?) case, he will live to be over 80 years old, and the life insurance will lapse without any payout (at a total cost of $75k to $90k).
But, if he dies before 80, then his heirs can get $1 million, tax free. So, a return of more than 10 times the "investment" ($1 million for $90k, or less).

Obviously, many do not continue their insurance after they have accumulated enough for their retirement. So, where is my thinking wrong?

Dottie57
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Joined: Thu May 19, 2016 5:43 pm

Re: Term Life Insurance as an inheritance?

Post by Dottie57 » Wed Oct 11, 2017 3:20 pm

ved wrote:
Wed Oct 11, 2017 2:57 pm
Hi,

I was wondering if anyone continues their term-life insurance, even after they are financially independent and/or have retired?
I was looking at term4sale.com, and for a 50-year-old male, a $1 million, 30-year term life costs about $2,500 to $3,000 per year.
So, at the worst (or best?) case, he will live to be over 80 years old, and the life insurance will lapse without any payout (at a total cost of $75k to $90k).
But, if he dies before 80, then his heirs can get $1 million, tax free. So, a return of more than 10 times the "investment" ($1 million for $90k, or less).

Obviously, many do not continue their insurance after they have accumulated enough for their retirement. So, where is my thinking wrong?

I think the rates will go up a lot as age increases. You didn't specify a flat rate.

TravelforFun
Posts: 899
Joined: Tue Dec 04, 2012 11:05 pm

Re: Term Life Insurance as an inheritance?

Post by TravelforFun » Wed Oct 11, 2017 3:26 pm

I stopped buying term life when I felt I had reached FI.

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Taylor Larimore
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Re: Term Life Insurance as an inheritance?

Post by Taylor Larimore » Wed Oct 11, 2017 3:28 pm

Obviously, many do not continue their insurance after they have accumulated enough for their retirement. So, where is my thinking wrong?
Ved:

Answer: It is foolish to pay for insurance you don't need.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

Silk McCue
Posts: 385
Joined: Thu Feb 25, 2016 7:11 pm

Re: Term Life Insurance as an inheritance?

Post by Silk McCue » Wed Oct 11, 2017 3:29 pm

Dottie57 wrote:
Wed Oct 11, 2017 3:20 pm
ved wrote:
Wed Oct 11, 2017 2:57 pm
Hi,

I was wondering if anyone continues their term-life insurance, even after they are financially independent and/or have retired?
I was looking at term4sale.com, and for a 50-year-old male, a $1 million, 30-year term life costs about $2,500 to $3,000 per year.
So, at the worst (or best?) case, he will live to be over 80 years old, and the life insurance will lapse without any payout (at a total cost of $75k to $90k).
But, if he dies before 80, then his heirs can get $1 million, tax free. So, a return of more than 10 times the "investment" ($1 million for $90k, or less).

Obviously, many do not continue their insurance after they have accumulated enough for their retirement. So, where is my thinking wrong?

I think the rates will go up a lot as age increases. You didn't specify a flat rate.
The OP specified it was a 30 Year Term policy. The rate does not go up on multi year term policies.

Grt2bOutdoors
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Location: New York

Re: Term Life Insurance as an inheritance?

Post by Grt2bOutdoors » Wed Oct 11, 2017 3:31 pm

OP, you fail to account for your "opportunity cost" and impact of inflation over 30 years.
$3K per year for 30 years at 6% is $238K. If somehow, they managed to eke out a 9% return, then it becomes $412K (what a coincidence!)
Corrosive effect of 3% inflation on $1mm received 30 years from now ~ is now worth $412K.

Essentially, your net present value of your 'investment" is zero. You could have just kept your premiums and invested it yourself, leaving the principal intact for your own family instead of permanently transferring it to insurance company. In any event, even if insurance company pays out earlier, chances are they underwrite enough of these policies that they make more than they ever payout.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

Dottie57
Posts: 2389
Joined: Thu May 19, 2016 5:43 pm

Re: Term Life Insurance as an inheritance?

Post by Dottie57 » Wed Oct 11, 2017 3:40 pm

Silk McCue wrote:
Wed Oct 11, 2017 3:29 pm
Dottie57 wrote:
Wed Oct 11, 2017 3:20 pm
ved wrote:
Wed Oct 11, 2017 2:57 pm
Hi,

I was wondering if anyone continues their term-life insurance, even after they are financially independent and/or have retired?
I was looking at term4sale.com, and for a 50-year-old male, a $1 million, 30-year term life costs about $2,500 to $3,000 per year.
So, at the worst (or best?) case, he will live to be over 80 years old, and the life insurance will lapse without any payout (at a total cost of $75k to $90k).
But, if he dies before 80, then his heirs can get $1 million, tax free. So, a return of more than 10 times the "investment" ($1 million for $90k, or less).

Obviously, many do not continue their insurance after they have accumulated enough for their retirement. So, where is my thinking wrong?

I think the rates will go up a lot as age increases. You didn't specify a flat rate.
The OP specified it was a 30 Year Term policy. The rate does not go up on multi year term policies.
I think it needs to be specfied as level term. The dollars OP specified look really low for his age and term. I did go out to term4life.com.

BruDude
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Location: Las Vegas

Re: Term Life Insurance as an inheritance?

Post by BruDude » Wed Oct 11, 2017 3:53 pm

Dottie57 wrote:
Wed Oct 11, 2017 3:40 pm
Silk McCue wrote:
Wed Oct 11, 2017 3:29 pm
Dottie57 wrote:
Wed Oct 11, 2017 3:20 pm
ved wrote:
Wed Oct 11, 2017 2:57 pm
Hi,

I was wondering if anyone continues their term-life insurance, even after they are financially independent and/or have retired?
I was looking at term4sale.com, and for a 50-year-old male, a $1 million, 30-year term life costs about $2,500 to $3,000 per year.
So, at the worst (or best?) case, he will live to be over 80 years old, and the life insurance will lapse without any payout (at a total cost of $75k to $90k).
But, if he dies before 80, then his heirs can get $1 million, tax free. So, a return of more than 10 times the "investment" ($1 million for $90k, or less).

Obviously, many do not continue their insurance after they have accumulated enough for their retirement. So, where is my thinking wrong?

I think the rates will go up a lot as age increases. You didn't specify a flat rate.
The OP specified it was a 30 Year Term policy. The rate does not go up on multi year term policies.
I think it needs to be specfied as level term. The dollars OP specified look really low for his age and term. I did go out to term4life.com.
Most people don't qualify for Preferred Plus rates at age 50. Also, the lowest priced policy is $2954 annually. A Standard health rating would be ~$5700-7000/year.

If we all knew when we were going to die, making these decisions would be pretty easy!

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flamesabers
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Location: Rochester, MN

Re: Term Life Insurance as an inheritance?

Post by flamesabers » Wed Oct 11, 2017 3:58 pm

ved wrote:
Wed Oct 11, 2017 2:57 pm
Hi,

I was wondering if anyone continues their term-life insurance, even after they are financially independent and/or have retired?
I was looking at term4sale.com, and for a 50-year-old male, a $1 million, 30-year term life costs about $2,500 to $3,000 per year.
So, at the worst (or best?) case, he will live to be over 80 years old, and the life insurance will lapse without any payout (at a total cost of $75k to $90k).
But, if he dies before 80, then his heirs can get $1 million, tax free. So, a return of more than 10 times the "investment" ($1 million for $90k, or less).

Obviously, many do not continue their insurance after they have accumulated enough for their retirement. So, where is my thinking wrong?
Your thinking goes wrong in regards to the purpose of holding insurance. The reason to have insurance is to make one (or in the case of life insurance, your dependents) whole after a loss has occurred. Insurance shouldn't be used as a means to enrich yourself or your heirs. When a breadwinner dies, the loss of income can be a financial hardship for the family. On the other hand, adult heirs not getting an extra tax-free $1 million in inheritance isn't a financial hardship I think.

Rupert
Posts: 2729
Joined: Fri Aug 17, 2012 12:01 pm

Re: Term Life Insurance as an inheritance?

Post by Rupert » Wed Oct 11, 2017 4:05 pm

BruDude wrote:
Wed Oct 11, 2017 3:53 pm


Most people don't qualify for Preferred Plus rates at age 50. Also, the lowest priced policy is $2954 annually. A Standard health rating would be ~$5700-7000/year.

If we all knew when we were going to die, making these decisions would be pretty easy!
+1. It's a rare 50-year-old man who has no medical history, and you basically have to have no medical history to qualify for preferred plus rates. So, OP, your estimate of annual cost is likely far too low. That plus, as a previous poster noted, your failure to account for opportunity costs (what the 3K/year would earn if invested elsewhere) and inflation (what the $1 million would be worth in 30 years) is where your thinking is wrong.

Smorgasbord
Posts: 159
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Re: Term Life Insurance as an inheritance?

Post by Smorgasbord » Wed Oct 11, 2017 4:19 pm

From what I understand, the one (possibly only) really good use for whole life insurance is as an estate planning tool for high net-worth individuals wanting to reduce their estate taxes. Using term instead of whole would add in the risk of outliving the policy, so that might explain why whole is favored.

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