Term Life Insurance Help

[Deadhead]

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So in a routine lunch and learn an agent of a life insurance company came in and gave a presentation about term insurance. I spoke with him afterwards and he tried to assure me that i could get a million in coverage for a premium of around $20 for preferential treatment. This seems almost too go to be true. What do you guys out in internet world think?

 

[The White Coat Investor]

So in a routine lunch and learn an agent of a life insurance company came in and gave a presentation about term insurance. I spoke with him afterwards and he tried to assure me that i could get a million in coverage for a premium of around $20 for preferential treatment. This seems almost too go to be true. What do you guys out in internet world think?

$20 a month? That's getting close to the going rate. Take a look at this (and term4sale.com) and you'll figure out if that's realistic or not.

http://whitecoatinvestor.com/how-to-buy-life-insurance/

Hint: $1 Million for a healthy 25 year old female is $305 a year, and that's for 5 year level term. You're probably looking at twice that for what you should buy, which is 30 year level term. $20 a month is probably 1 year level term insurance, which pretty much sucks.

 

[DocProtector]

Term life for any young professional is going to run anywhere from $20-$30 per month per million assuming perfect health and labs. However please note that the cheapest isn't always the best or the correct choice. You must take a look at the conversion privileges and the different choices they have to covert to in case you are stuck with that company forever due to health conditions that pop up after the policy is issued... Buyers beware.

 

[Deadhead]

Conversion?

 

[The White Coat Investor]

Conversion?

Insurance agents who think buying cash value life insurance like whole life, variable life, or universal life insurance is a good idea like to suggest that you should buy "convertible" term life insurance. That way after a few years you can "convert" the policy to a cash value policy. The concern is that because of declining health (or the adoption of risky hobbies) that you won't be able to buy a cash value policy later.

The problem with that advice is that almost no one should actually buy cash value insurance.

Term insurance is a commodity, and really should be shopped by price. Buying the cheapest policy is almost always a good idea. That doesn't mean you have to buy the very cheapest, but you certainly shouldn't think you get what you pay for with term insurance. It's a very straight forward commodity. You die, your heirs get the moola. That's it.

The way to get around the issue of not being insurable later is to buy all the insurance you'll ever need as soon as you can. For most doctors, that means buying some in residency, then buying a lot more as soon as you get out. Perhaps $500K of 30 year level term insurance as a resident and then buying $2M more of 20-30 year level term insurance upon completion of residency.

Life insurance isn't complicated. Don't make it that way.

http://whitecoatinvestor.com/how-to-buy-life-insurance/

 

[thesauce]

Got $1 million 20yr term from Minnesota Life for around $50/mo

 

[somemom]

Most of the top competitive term insurance companies are going to offer a convertible policy. It certainly does not hurt you to have a convertible plan, you are generally not paying more for that feature as it is so common.

When might someone want to convert that term? Many people want a lifetime smaller amount of coverage, to cover 'final' expenses; others want a lifetime plan to provide liquidity, for example some one who buys many rental homes might want the liquidity no matter what age they are at death; another possibility is estate planning- many people with high value estates do need the insurance and don't want to outlive it.

Yes, term is the most common choice, but you can out live term plans; in some situations there is value to a lifetime plan.

Full disclosure, I work in a life insurance office, most policies purchased are term, but there are valid reasons for lifetime plans (be that cash value or no cash value) in both high and low income situations.

 

[TexasPhysician]

Term life insurance can be relatively cheap as insurance companies do not expect you to pass-away by the policy end date.

My policy is about $30/month for 1.25 million over 15 years. I came to this decision by estimating my family's need and salary potential of my spouse. I then compared that to the rate at which we save money. In 15 years, I plan to have saved enough money that I will not repurchase life insurance. This is just my reasoning for my decision.

 

[The White Coat Investor]

Most of the top competitive term insurance companies are going to offer a convertible policy. It certainly does not hurt you to have a convertible plan, you are generally not paying more for that feature as it is so common.

When might someone want to convert that term? Many people want a lifetime smaller amount of coverage, to cover 'final' expenses; others want a lifetime plan to provide liquidity, for example some one who buys many rental homes might want the liquidity no matter what age they are at death; another possibility is estate planning- many people with high value estates do need the insurance and don't want to outlive it.

Yes, term is the most common choice, but you can out live term plans; in some situations there is value to a lifetime plan.

Full disclosure, I work in a life insurance office, most policies purchased are term, but there are valid reasons for lifetime plans (be that cash value or no cash value) in both high and low income situations.

I'd like to hear your "valid" reason for a low income person to own a permanent life insurance policy.

I also think the "valid" reasons for a high net worth (not high income) person to own a permanent policy are extremely rare. High net worth is not sufficient. You need an illiquid estate such as a family owned business or a single piece of high value property etc. for it to be worth the low returns inherent in a cash value contract.

 

[somemom]

I suppose the validity could be up for discussion, but there are a great many people who want some amount of coverage from $5,000-$50,000 for 'final expenses.' There are many seniors who wait too long and are either uninsurable or have a health history causing them to be charged premiums that are uncomfortably high. If you are a person who wants to have some cash available at your death, great, convert that preferred best issued policy no matter the health changes in between.

Personally, I am not in favor of expensive funerals, but given some people's inability to put aside money for the future, it can be very helpful to have some cash at the death of a SO, to ease the paying of final bills and making life changes.

Yes, many a physician can set aside their own cash safety net, but then it also depends on one's investment preferences, as you said, a small business is illiquid, so to, can real estate investments be illiquid. Even the stock market can be unattractive to liquidate, for example in fall of 2008 it would not have been an ideal time to require a large chunk of money. Few people are going to put aside 5 figures in a money market to sit there just in case.

No, not everyone needs lifetime insurance (there are plenty of plans now without cash value build up if that is not desired, they are essentially a term guaranteed for life), but some people do need it or want it.

Hopefully many physicians here will be so wise that they have estate tax issues and want coverage for that 😉

I am not disagreeing with most of your premises, it just isn't always cut & dried. I see the checks go out, rarely does the beneficiary feel the insured wasted their money.

 

[The White Coat Investor]

I suppose the validity could be up for discussion, but there are a great many people who want some amount of coverage from $5,000-$50,000 for 'final expenses.' There are many seniors who wait too long and are either uninsurable or have a health history causing them to be charged premiums that are uncomfortably high. If you are a person who wants to have some cash available at your death, great, convert that preferred best issued policy no matter the health changes in between.

I hear this from time to time, but it really doesn't make sense when you think about it. If you want to have $5-50K available for your eventual death in your 60s-90s, doesn't it make sense that it would be a whole heck of a lot easier to just save it up and let it sit there. I mean, at $50 a month earning 8% a year, it would only take you about a decade to save up $10K. That money would just keep on growing. Seems a lot easier than buying life insurance.

But wait, says the agent. What about those folks who can't save money. We'll sell those undisciplined idiots a life insurance policy that forces them to save money so they're forced to do the right thing. The problem with that reasoning is that the people who can't manage to save up $10K to pay for their coffin are the exact same people who let their life insurance policies lapse (and an overwhelming majority of whole life purchasers let them lapse).

 

[somemom]

Oh, WCI, I absolutely agree with you, I don't at all like to see low income people wasting (in my opinion) money on a funeral and I agree, one ought to be able to save. On the other hand, we get regular inquiries from people over 70 who want small plans. Often by then it is too expensive.

I do not disagree with you that in most cases a good solid term plan is best, but the old marketing adage, "Buy term and Invest the difference", yeah, too many people seem not to have invested the difference. My point is not to disagree with you, just to remind people to keep an open mind, there are situations where life time life insurance (cash value or not) can be a useful estate planning tool.

 

[MR Insurance]

The ability to convert a term policy is often made into some BIG issue that it is not. Just about all cheap term life insurance policies allow for conversion to a permanent product within the guaranteed level-premium period of the Term policy. As Somemom indicated, this feature will often come free with policies from the majority of cheap term life insurance carriers. Mutual companies generally charge extra and stress convertibility because of converting to their Whole Life product, but most cheap term companies don't even offer Whole Life.

As my user name clearly indicates, I too am in the insurance industry. I have personally handled a fairly low number of conversion cases but have a completely different perspective and experience than that discussed thus far. In each case the client converted to a no-lapse Universal Life policy designed to extend a few years beyond the level term period but NOT for lifetime. We did this exclusively for individuals who could not medically qualify for a new policy but still needed the coverage for a few additional years.

For example, a client who had cancer, survived it (although he wasn't expected to) and decided to extend his 15-year Term policy in the 15th-year because he had not accumulated quite as much savings as he had original expected by that point (perhaps understandable with three daughters). Given the health experience he had just gone through, he wanted to be sure his family was covered. The typical, moderately healthy individual would simply buy a new Term policy - however this was not an option given his recent medical history. Instead we converted the Term policy to a no-lapse universal life policy which we designed to extend 10 more years on a guaranteed level premium and death benefit basis. Without a conversion option, this client would have been in an unfortunate position: he would either have to pay the prohibitively expensive annually increasing premium of the term policy (it increases every year after the level-premium period), or let it go and not have the coverage that he very much still needed.

Thankfully, this isn't something that many individuals will have to deal with, but the number is large enough that it still makes sense for consumers to understand their options. If Company X's policy costs $5 more than Company Y and X allows you to convert for the entire life of the policy but Y only allows you to convert for the first 5 years, I think it makes a great deal of sense to spend the extra $5. The difference could literally be $5 too, we aren't talking large dollar differences. The conversion option does not have to be to a Mutual company's Whole Life, but just simply a permanent product in case of a rainy day.

 

[somemom]

Excellent point, Mr Insurance. Many people are "preferred plus" risks until they are not. Everything can change in one day- Dx with Hep C, ovarian cancer, atrial fib, etc. and all of a sudden you lose that preferred rate forever or even the ability to be insurable at all.

As Mr Insurance said, it is a small percentage of people who need this option, but you just never know, so you might as well check the convertability options, some companies may limit convertability to a shorter number of years or simply not carry a lifetime product (at last check Primerica did not offer any convertible plans)

It probably won't happen to you, but go ahead and get a convertible policy when you buy term, it shouldn't cost you any/much more as most top companies offer the feature.

 

[deleted126335]

Valid points about the change in medical status affecting underwriting. Another way to deal with it for the 30 yo fresh residency grad newly married is to buy staggered policies. Maybe $2 million 20 year level term and $1 million 30 year level term, on the assumption that you will be partailly self insured at age 50 when the first policy lapses. This allows for the change in insurbility.

 

[ferning]

So lame, investing in insurance for an inevitable event, death. One in the hand is worth 2 in the bush. Why not invest productively?

Instead of supporting these worthless industries based on scamming you out of it later, or you have a worthless dollar

How hum people