Lets talk life insurance

[Frank Rizzo]

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Well, I've spent that past week or so researching life insurance, and quite frankly, I'm more confused now than I was before. Seems that whole life offers the advantage of being fixed for life, an 'investment', and somewhat of a tax shelter, but is more expensive, and your premiums line the pocket of the agent. Term on the other hand is much cheaper, but can't be borrowed against, and the money disappears once the term is up. Whats everyone else doing?

 

[Disse]

If you have no insurance do Term.

It's cheap for the coverage provided.

Be very very wary of whole life, run away from VUL--someone will come on here and say how great "whole" life is or how a "VUL" is much better for sophisticated people but they are generally insurance sales scum bags who make lots of money selling junk (and your insurance premium keeps paying them over and over and over again.....).

My wife & I got completely taken advantage of by a so-called Certified Financial Planners who was just an insurance salesman. Yes I'm still pissed.


Away from my rant & summary:

Get 20 year Term life insurance. It's cheap. You can always add another policy later if things change (I've got 2).

Make sure you've got good Disability insurance--this is actually key as you're 6x more likely to be disabled than die. Disability insurance used to be easy to get as a Doc. Not so much now.

 

[Pilot Doc]

Well, I've spent that past week or so researching life insurance, and quite frankly, I'm more confused now than I was before. Seems that whole life offers the advantage of being fixed for life, an 'investment', and somewhat of a tax shelter, but is more expensive, and your premiums line the pocket of the agent. Term on the other hand is much cheaper, but can't be borrowed against, and the money disappears once the term is up. Whats everyone else doing?

Attending or Resident?

If resident, term life no question
If attending, making over $300K with tax deferred options maxed out, CONSIDER whole life. There are some very, very narrow circumstances where people with high income and a high desire to shield assets from liability may benefit from the otherwise onerous fees/restrictions of whole life.

 

[jwk]

Term.

 

[deleted126335]

Well, I've spent that past week or so researching life insurance, and quite frankly, I'm more confused now than I was before. Seems that whole life offers the advantage of being fixed for life, an 'investment', and somewhat of a tax shelter, but is more expensive, and your premiums line the pocket of the agent. Term on the other hand is much cheaper, but can't be borrowed against, and the money disappears once the term is up. Whats everyone else doing?

Assuming you need life insurance, The overwhelming majority of thirtyish graduating residents would be best served by a 20, 25 or 30 year level term policy.

I bought a 20 year level term policy a year after finishing residency. Still have it. Expect to be nearly self insured when the 20 years are up two years from now. With the benefit of hindsight, 25 years might have been a better choice in my case.

 

[Frank Rizzo]

I'm a newly-minted attending. I currently have minimal life insurance and minimal disability insurance, so I really need both. Term-life does seem like the right-way to go, at least for now. Disability is a whole other problem.

As Disse said, a lot of the people that hock this stuff definitely have a huge secondary gain.

 

[ProRealDoc]

If you have no insurance do Term.

It's cheap for the coverage provided.

Be very very wary of whole life, run away from VUL--someone will come on here and say how great "whole" life is or how a "VUL" is much better for sophisticated people but they are generally insurance sales scum bags who make lots of money selling junk (and your insurance premium keeps paying them over and over and over again.....).

My wife & I got completely taken advantage of by a so-called Certified Financial Planners who was just an insurance salesman. Yes I'm still pissed.


Away from my rant & summary:

Get 20 year Term life insurance. It's cheap. You can always add another policy later if things change (I've got 2).

Make sure you've got good Disability insurance--this is actually key as you're 6x more likely to be disabled than die. Disability insurance used to be easy to get as a Doc. Not so much now.

I completely agree. We had a couple of "financial planners" visit our residency program and give us a generic presentation a la "amway" where they promised riches beyond belief to many unsuspecting residents myself included.

Before they could tell you what their secret to riches was, they required one to come to their office and bring all your income and financial statements.

I made an appt but brought nothing and they were pissed. I was like "what the...". One of the two salesman I spoke with quickly lost interest but I was able to convince the dumber one of the two to tell me what their secret was... whole life insurance.

This was after I told the dude I had 50 thousand ....(his eyes lit up).... mexican pesos to invest.

 

[Shadowfax8]

Term.
I took out a sizable policy as soon as I finished residency (while I am still young and healthy to get the lowest monthly payment possible). I went with a 30 year term which is convertible to a permanent plan at the end of the 30 year term for only $108 more per month. I set it up in an irrevocable trust to avoid probate and pay it with POST-tax income to avoid future taxes on my family, and it will subsequently become part of my estate once it converts to permanent.

 

[lfesiam]

Term.
I took out a sizable policy as soon as I finished residency (while I am still young and healthy to get the lowest monthly payment possible). I went with a 30 year term which is convertible to a permanent plan at the end of the 30 year term for only $108 more per month. I set it up in an irrevocable trust to avoid probate and pay it with POST-tax income to avoid future taxes on my family, and it will subsequently become part of my estate once it converts to permanent.

Which company shadow??

OP this is a great disscussion. Thanks for posting!

 

[Shadowfax8]

The policy is through Farmer's Ins. Not to be confused with State Farm.

 

[Pilot Doc]

I'm a newly-minted attending. I currently have minimal life insurance and minimal disability insurance, so I really need both. Term-life does seem like the right-way to go, at least for now. Disability is a whole other problem.

As Disse said, a lot of the people that hock this stuff definitely have a huge secondary gain.

Are you married?
Does your spouse work?
Do you have / plan to have dependents?


Agree with above that disability is more important to get than life insurance. Life insurance isn't that hard to come by and a death at least allows a clean break and a certain set of conditions for the survivors to move on. Disability is far more insidious and insurance is essentially impossible to obtain once you get any health history.

 

[Masseter Spasm]

I have both. You need term insurance. The earlier you start the easier/cheaper it may be to buy it. Once you reach 35 or 40 you may need a physician exam to identify any medical issues. If you start when you are younger (healthier) you may only need to see a nurse and have some screening labs sent.

Medical Economics & Modern Medicine has a nice web site targeted at physicians. They have useful articles to read before you talk to a financial advisor/planner. Here are links related to life insurance:

http://search.modernmedicine.com/search?qgeneral=life+Insurance&searchtype=defLink

 

[johncunningham]

I have 2 kids that are still in diapers and a wife that works part time. Full time she would probably earn about 2/3 my salary. I purchased a 30 year term 2MM level premium policy when I started my first job. It seemed like a lot then, but already seems like it might only be just enough. Start to figure in college education, paying off the mortgage, and giving my family some breathing room and it gets spent pretty quickly. I pay ~1350/year for this.

I also have disability... own occ, COLA rider... all the bells and whistles... It is also level premium and runs almost 6500/year. Money well spent as far as I'm concerned.

Another thing to consider is how much to insure your spouse for.

I was 31 when I purchased both of these policies and in "great" shape. I got the best rates available. Be forewarned that the physical is rather rudimentary, but they do make you stand on a scale, measure your height and vital signs, draw blood and make you pee in a cup. We're all smart guys. I'm sure you can figure out what they are looking for, but I didn't realize that they check for beta blockers as well as nicotine derivatives.

Good Times

John

 

[Frank Rizzo]

Pretty good discussion so far! For those interested, I'm in my low 30's, don't smoke, not too overweight( 6ft 205lbs), fairly healthy( I would guess that my chol is not the greatest, but have not checked in years). Married, spouse works a normal job, no kids for a year or so.

Still think Term is the way to go. Have seen some talk of 'blended' policies that incorporate a portion in Term and permanent policy... don't know what to make of these.

Masseter, thanks for the good link!

John, would have guessed looking for illicits and nic. derivs, but would not have guessed b-blockers!

 

[IceDoc]

Pretty good discussion so far! For those interested, I'm in my low 30's, don't smoke, not too overweight( 6ft 205lbs), fairly healthy( I would guess that my chol is not the greatest, but have not checked in years). Married, spouse works a normal job, no kids for a year or so.

Still think Term is the way to go. Have seen some talk of 'blended' policies that incorporate a portion in Term and permanent policy... don't know what to make of these.

At the risk of repeating the above; as well as numerous internet sites:

Term: straight forward; provides a sizable death benefit for relatively cheap annual payments. Once the policy term is up, or you stop paying, you have nothing to show for it. My experience was that these are fairly consistent across companies. There's really nothing complicated: you give them money, they give your beneficiaries money if you die. My personal bias is to choose a company you know is going to be around for awhile (AIG not withstanding).

Whole Life: much more complicated and therefore open to both legitimate and predatory businesses. The generic concept is that you're paying a whole lot more (i.e. maybe 10x the amount of your term) for the exact same benefit. However, the difference is that your contributions magically become an investment with the insurance company that grows over time, and has a value that can be withdrawn later in life (presuming you don't use the death benefit😉). I do believe that Whole Life can be a valuable addition to one's financial planning; but the terms really have to be researched to avoid being duped into paying for a salesman's Lexus.

To quickly and efficiently obtain a significant amount of coverage for your family: consider some term. Then consider Whole if you still have money left over every month that you just don't know what to do with.
There's no rule that says you can't have some of both👍

 

[chaucer]

http://www.nytimes.com/2010/02/06/your-money/life-and-disability-insurance/06money.html?8dpc


"Doctors, who buy more than their fair share of disability coverage, have historically made more claims than other white-collar professionals. In fact, doctors claim so much more that the odds for all other white-collar workers improve a few percentage points when physicians aren’t included.

This was particularly pronounced in the 1990s, when health maintenance organizations became more influential. The doctors’ resulting frustration and loss of income led some of them to suddenly become less tolerant of nagging health problems. They then used their generous disability policies as a sort of early retirement plan, according to Jack Luff, experience studies actuary with the Society of Actuaries."

 

[Pilot Doc]

Then consider Whole if you still have money left over every month that you just don't know what to do with.

Many people can help should you have the problem. Most do it cheaper and better than than life insurance salesmen.

 

[Dirtball]

I agree with most everybody above. Get term and Disability now, in 20 yrs if you havent paid off your house and put 1M in the bank you're living too large( unless a new govnmt healthcare plan makes us all work fo $18/unit) . Get covered NOW because you are more likely to get sick and uninsurable as you age. I bought 20 yr term at age 30+ . PS1 , totally healthy and fit outdoorsman. Cholesterol was 202. Their cutoff was 200, penalty = +$500/yr on the premium annually.. Whole life / variable annuity insurance dont give you your max benefit NOW , which is when you need it. 3 years into your mortgage with 55k in the bank and 2 kids with a nonworking spouse is when you need your 1M benefit when that Peterbilt semi creams your Subaru on the way to work. 20 years later with your house paid off and 1M in your IRA , the wife and kids wont need it so bad. You can drop the insurance at that point. Dont forget to insure your spouse - to pay for the nanny so you can still go earn the bucks at work. I know wealthier folks that have all kinds of crazy benefits , like an extra 3M term to pay the inherietnce tax on the 6M they'll leave their kids. Buy what fits your needs.

 

[BDanes]

Buy term life insurance that is renewable. Make sure you also get maximal rates fixed so they can't up it when you renew. Take the difference between term and whole and invest it.

By the time your term runs out hopefully you'll have enough money to be self insured so you can cancel. Definitely get a policy for your spouse. If you have no dependents do not buy life insurance (this should be obvious, just sayin').

You need to factor in the amount to pay off all your debt and funeral costs. Possible education funds and amount your spouse would need including inflation. Remember that if you die before your kids are 18 your spouse will get social security for them up until 18 I believe. Check into that as it would decrease your amount needed to cover. Also factor in whether your spouse would be able to work again. They would likely not need nearly as much to live on once the mortgage and all debts are paid.

Don't get sucked into a lot of complicated sounding stuff. Keep it simple.

 

[Pilot Doc]

Buy term life insurance that is renewable. Make sure you also get maximal rates fixed so they can't up it when you renew..

Unless someone is marketing a new product, I don't think what you are describing really exists. All term policies have a level term for a set number of years - the longer the term the higher the rate. You don't have to renew it - you just pay. At least for my policies, you can continue the rate after the term, but for astronomically higher premiums (i.e. $500 a year in years 1-20 and $11,300 for year 31)

If someone is marketing extendable term that might be a good deal, but mostly you just need to pick the right term. For a typical 30 year old grad
with a spouse and kid, 20 years should be long enough to build a nest egg that will be adequate if you die 21 years later. Course if you know you're going to spend every dime you make, get as long a term as you can 🙂

 

[snizzle]

I think you should look at a Whole life policy as retirement investment vehicle with a death benefit. I agree it is expensive at first, but if you are maxing out your contribution to your 401K, you can afford a whole life policy. I argue that you should be contributing to a whole policy before a 401K.

I know that it takes 10 plus years before the cash value of the policy equals what you placed into it, but like a 401k, you shouldn't be thinking about withdrawing from the life policy before you plan on retiring. If you are in your 30’s, it is a great time to start and provides a nice little nest egg.

A 401k carries with it risk, i.e the volatility of the stock market and bond market. When you plan on retiring, hopefully not soon or in the last couple of years, it would be a bad time to pull money from a vehicle that invested in the stock market. A whole life policy provides a tax free vehicle to pull from when your other investments are down in a bad market.

I am able to place 12,000 a year into a whole life policy that will be worth (based on how my mutual insurance company paid dividends the past 50 plus years) around 1.5 million by the age of 65. I can pull that 1.5 million out tax free.
Ya, you can make more than 1.5 million in mutual funds in your 401k portfolio, but it is risky (as we all have seen the last 3 yrs).

There are a lot of additional great cash benefits for having a whole life policiey. I pay a little extra a year, where if I'm disabled, my policy will pay my premiums (lets see your 401k do that). I would like to see more negatives about a whole life policy besides that I’m buying my insurance saleman a Lexus.

 

[Frank Rizzo]

From quotes I've received and from talking to others, there doesn't seem to be all that much variability in both cost and terms or term life between different companies/policies. Whole life is a completely different beast.

 

[BLADEMDA]

1. Term Life Products- I advise several term product. A $1 mil policy for 30 years fixed, a $1mil for 20 years fixed and maybe another 500K fixed for 10-15 years. Ladder the term as you get older you should need less life insurance.

2. Whole/Variable- I have a policy to supplement item number 1 above. Consider Northwestern mutual for this type of insurance as it is one of the best in the uSA. Limit how much you spend on this type of policy. I chose a fixed/guaranteed % each year and have made money on this policy. This is a long term relationship and you should plan on holding this type of policy for at least ten years if not 30. The whole/variable portion of life should be a % of your total life insurance policies (10-30%).

IMHO, the advice above has worked well for me over the past 2 plus decades and I hope it works even better for you.

 

[G0S2]

I think you should look at a Whole life policy as retirement investment vehicle with a death benefit. I agree it is expensive at first, but if you are maxing out your contribution to your 401K, you can afford a whole life policy. I argue that you should be contributing to a whole policy before a 401K.

I know that it takes 10 plus years before the cash value of the policy equals what you placed into it, but like a 401k, you shouldn't be thinking about withdrawing from the life policy before you plan on retiring. If you are in your 30’s, it is a great time to start and provides a nice little nest egg.

A 401k carries with it risk, i.e the volatility of the stock market and bond market. When you plan on retiring, hopefully not soon or in the last couple of years, it would be a bad time to pull money from a vehicle that invested in the stock market. A whole life policy provides a tax free vehicle to pull from when your other investments are down in a bad market.

I am able to place 12,000 a year into a whole life policy that will be worth (based on how my mutual insurance company paid dividends the past 50 plus years) around 1.5 million by the age of 65. I can pull that 1.5 million out tax free.
Ya, you can make more than 1.5 million in mutual funds in your 401k portfolio, but it is risky (as we all have seen the last 3 yrs).

There are a lot of additional great cash benefits for having a whole life policiey. I pay a little extra a year, where if I'm disabled, my policy will pay my premiums (lets see your 401k do that). I would like to see more negatives about a whole life policy besides that I’m buying my insurance saleman a Lexus.

I agree. I went with whole with USAA. $1M policy at $90/month as resident and $500/month once I graduate.

 

[BLADEMDA]

I think you should look at a Whole life policy as retirement investment vehicle with a death benefit. I agree it is expensive at first, but if you are maxing out your contribution to your 401K, you can afford a whole life policy. I argue that you should be contributing to a whole policy before a 401K.

I know that it takes 10 plus years before the cash value of the policy equals what you placed into it, but like a 401k, you shouldn't be thinking about withdrawing from the life policy before you plan on retiring. If you are in your 30's, it is a great time to start and provides a nice little nest egg.

A 401k carries with it risk, i.e the volatility of the stock market and bond market. When you plan on retiring, hopefully not soon or in the last couple of years, it would be a bad time to pull money from a vehicle that invested in the stock market. A whole life policy provides a tax free vehicle to pull from when your other investments are down in a bad market.

I am able to place 12,000 a year into a whole life policy that will be worth (based on how my mutual insurance company paid dividends the past 50 plus years) around 1.5 million by the age of 65. I can pull that 1.5 million out tax free.
Ya, you can make more than 1.5 million in mutual funds in your 401k portfolio, but it is risky (as we all have seen the last 3 yrs).

There are a lot of additional great cash benefits for having a whole life policiey. I pay a little extra a year, where if I'm disabled, my policy will pay my premiums (lets see your 401k do that). I would like to see more negatives about a whole life policy besides that I'm buying my insurance saleman a Lexus.

Easy there slim. As part of a portfolio whole life/variable life can have a seat at the table. There are many opinions as to how much life insurance and what types one needs. I think Zippy doesn't believe in life insurance just Jack Daniels.

I am glad you are happy with your whole life; others may not feel the same way. The first year goes straight for commission and the second seems to get eaten up as well. If you have limited funds I would argue that a 401K is a better option with Term (30 year) for those under the age of 30. Once you get the cash stream flowing in then consider adding some whole/variable life into the mix. I would compare fees, strength of companies, likely interest earned, etc. before buying any variable or whole life.

As I have posted I think attendings can consider a portion of life insurance in these products; but, what about the rest? How much are you going to sink into one of these products? IMHO, a diversified, laddered insurance portfolio makes the most sense especially for life insurance which totals (all policies) more than $2 mil.

 

[BLADEMDA]

I agree. I went with whole with USAA. $1M policy at $90/month as resident and $500/month once I graduate.

USAA is a solid company. You are getting off to a good start at a young age.

 

[BLADEMDA]

Craig/FFB, just wrote a great article discussing the differences between Term and Permanent Life Insurance, and to my amazement he was very fair when it came to permanent life insurance. Most financial bloggers aren’t as partial, and spout (without ever running numbers) the standard “buy term and invest the difference” kool aid. So I asked FFB for the opportunity to actually run the numbers between term and permanent life insurance.

Since we need to start somewhere, lets start with our guy who needs life insurance:

• Male
• Born 7/1/1977 (Middle age between Craig and Myself)
• Good Health – Rated Second highest (above standard but below
  Superman)
• Non-Smoker
• $5,000/yr Budget

The illustration I am running is from a AAA Rated Company that is older than a lot States. Considering it is an industry leader, it is not the cheapest around. We are going to look at 20 Year Term + Investment Account Returning 4% net VS. Whole Life Product. [Craig: Remember we are considering that a lot of people say to buy a Term policy and invest the difference between the Term and Whole life product rather than buy the Whole life insurance policy.]
Buying 20 Year Term and Investing the Difference

Since the $5,000/year budget buys $495,495 of whole life insurance coverage (we will discuss those calculations below), we will buy that death benefit amount in 20 year term life insurance, and then invest the difference. To purchase that amount of term life insurance costs $450/yr and thus our difference is $4,500/yr.
YearEnd of Year InvestmentsDeath Benefit1$4,680$495,5955$25,348$495,59510$56,189$495,59515$93,710$495,59520$139,361$495,595YearCash ValueDeath Benefit1$0$495,5955$16,881$500,04910$50,696$511,95515$88,551$530,00620$142,979$573,411
So at year 20 you have a couple grand more, and your options
include:

• Cashing out the policy – taking the cash and walking
• Create a ‘paid up’ policy – Using the cash to buy some amount of
  death benefit that where you won’t have to pay anymore premium
• 1035 (a tax free exchange) into an annuity
• Use the Whole Life Policy as a personal Pension

What about a Higher Return? Different Gender? Different Insurance
Company?

A change in any of the variables will change the whole exercise. I just think people should actually run the numbers before quoting talking heads.
I will note that I only used a 4% return, because I consider the cash value in the policy safety money (the particular company I used to create the illustration has been well-established in the industry.) If however I were to use 8% Net the numbers would look very different. By Year 20 the End of Year investments would be worth about $220,000.
So you can see, choosing between a Term Life Insurance is not always the better option than a Whole Life Insurance policy. You need to run the numbers yourself for your particular goals.