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Old 01-14-2012, 10:58 AM
 
4 posts, read 2,053 times
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Default Splitting up term and perm life insurance

First off I am not well versed in finances. I have recently begun speaking with a Financial Rep through Northwestern Mutual here in MA. Background: I make about 100K/yr and my wife is working as a long term sub teacher (so no perm job yet) and making around 30K/yr We have no home yet and no real investments and no children. I am 38 she is 32. Our rep has suggested that based on these factors that we split it up so there is 1.4 million of insurance on me since I make the main portion of our income. Then there would be 750K on my wife and 250K of this would be allocated as permanent coverage. So 2 terms and one perm. Broken down per month that is about $200 to permanent $25 to one term, and $130 to the second term insurance. Of course I do have a 401K going and planning on getting into a Roth IRA since we are still below the curve to get one. Wow - after all that...Is this allocation of Permanent Life insurance a wise move taking everything else into consideration? I am reading so many negative aspects to it.
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Old 01-14-2012, 11:37 AM
 
29,378 posts, read 25,528,711 times
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its rare a permanent life insurance policy will be kept long enough to pay off in old age. its far to expensive compared to term and investing on your own.

while some older policies turned out okay i think if you do some homework you will find most of them are terrible values.

you have to understand how whole life works to really see if its much use to you. ill simplify it greatly so you can follow along.

basically you send in a much larger premium than term ,maybe 5 to 20x as much.

they then take out fees , cost of insurance and commissions and start to save that extra cash left over for you.

if you die they will pay you the difference between your cash value and the policy value.

as an example if you saved 25k and died and had a 100k policy the insurance company pays out 75k from their pocket and 25k from your cash value . the more you save the less your on the insurance companies dime.

the idea is as you pay your premiums year after year you are becoming closer and closer to self insuring.

once you have 100k in cash value saved if its a 100k policy basically your self insured from that point on and off the insurance companies dime..

if you die its your money thats paid out and not the insurance company.

keep in mind now your still paying fees and cost of insurance even though the insurance company no longer even is covering you on their dime . they are providing far less coverage or no coverage on their dime but still charging you fees year after year like they were. afterall if you die its your own money that will be paid out.

it can be an expensive way to self insure .

a better way is usually term insurance and invest the difference you would have been spending on the whole life . eventually you will have enough from the investments to self insure or get darn close anyway but no longer pay fees and cost of insurance .

Last edited by mathjak107; 01-14-2012 at 12:14 PM..
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Old 01-14-2012, 12:06 PM
 
29,378 posts, read 25,528,711 times
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whole life is the exact opposit of an annuity.

in annuity you give the insurance company money, say 100k.. they then give it back to you over the next decade or so at the rate of a little each year.

basically you are drawing off your own money in the early years. thats the opposite of whole life where the early years you are on the insurance companies dime.

after you reach the point you got all your money back with the annuity now your on the insurance companies dime many years down the road. just the opposite of whole life where years down the road your pretty much off the insurance companies dime and running on your dough ...

with the annuity if you die early you lose as they keep any money you didnt already get back. with life insurance the earlier you die the better the deal pays off as your on the companies money .

an annuity is a bet you will live, life insurance is a bet you will die.

dont mix up the 2 products as they are opposite each other. trying to accumulate a cash value in a life insurance policy as a bet you will you live isnt a good deal compared to using the right product like an annuity as a bet you will live. but folks being what they are usually use the wrong product for the wrong purpose.

Last edited by mathjak107; 01-14-2012 at 12:54 PM..
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Old 01-14-2012, 01:17 PM
 
4 posts, read 2,053 times
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Thank you for the quick replies. These answers follow along the lines of what I have been reading and reasoning behind being hesitant to follow along the lines of what the rep has suggested. I understand the commission and fees and this is why I posted to get an unbiased opinion and not be lead around. As I said, I am not very well versed in finances and of course the rep knows that as well. I will continue to read through the forum here as well as other sources and seek out alternative methods of investment in addition to the ROTH IRA I am planning on. Thanks again.
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Old 01-14-2012, 01:35 PM
 
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There is no reason whatever for you to have permanent insurance. Buy all term and buy 5 year renewable term. Not 10 year or 20 year term. If you need an explanation, I'll be happy to provide one. Buy why.
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Old 01-14-2012, 02:23 PM
 
2,201 posts, read 2,242,240 times
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In my opinion insurance is insurance, not an investment. Get term insurance its cheap if you're relatively healthy. We have one 15yr term and one 30yr term.

ETA - $130 a month for 750K? Did I read that right? That's really expensive. We pay around $400 a year for our 1mil 15yr term. DH is 35 in good health.
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Old 01-14-2012, 02:32 PM
 
8,481 posts, read 11,869,319 times
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OK, someone has 15 year term (and God forbid a 30 year term policy). Better explain.

When you buy renewable term, the 1 yr 5 yr 15 year 20 year feature refers to how long the payment remains the same. Not how long you have the insurance. Since the insurance company has the same risk for 15 consecutive 1 yr renewable term policies as one 15 year term policy there is no cost savings. And, since term insurance gets cheaper every year due to increasing life expectancy, a person with a 5 yr term policy who is still insurable at standard rates at year 5 can dump the old policy and get the newer cheaper policy. Or, if his health changes and he becomes rated, e can keep the policy and just renew it continuously.

So, a 15 year policy with a level premium, the policyholder grossly overpays in the first 5-6 years and then gradually recovers his advance premiums if he keeps the same old policy in place. He can't get out and get a new policy since he will lose all that early overpayment.

And, to add insult to injury, the 15 year level premium is counterintuitive since a younger policy holder will want the cheaper premium in the early years when he has less spendable income. Only a crooked insurance person sells a 15 year level premium policy.

Of course, I am an open minded person so if some insurance person has a good reason why they would sell a 15 year policy, I am open to hearing about it.

OK?

Last edited by Wilson513; 01-14-2012 at 02:46 PM..
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Old 01-14-2012, 03:05 PM
 
29,378 posts, read 25,528,711 times
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life insurance rates have been dropping for a few years but it looks like that trend is just about over. you may do better locking in term rates for long periods of time now if you need it that long.


many term policies require exams at various ages when the level terms are up. an un forseen medical issue along the way could bump up the rates when going for your next term policy later on.


im not so sure i would play a game here. i would take the level term for the years needed and call it a day. in the past shorter policies were a good strategy but as they say the past may not be an indicator of the future.

http://www.termlifeinsurancequotes.c...-the-rise.html

Last edited by mathjak107; 01-14-2012 at 03:29 PM..
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Old 01-14-2012, 05:02 PM
 
8,481 posts, read 11,869,319 times
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Quote:
Originally Posted by mathjak107 View Post
life insurance rates have been dropping for a few years but it looks like that trend is just about over. you may do better locking in term rates for long periods of time now if you need it that long.


many term policies require exams at various ages when the level terms are up. an un forseen medical issue along the way could bump up the rates when going for your next term policy later on.


im not so sure i would play a game here. i would take the level term for the years needed and call it a day. in the past shorter policies were a good strategy but as they say the past may not be an indicator of the future.

Why Life Insurance Costs May Be On The Rise - TermLifeInsuranceQuotes.com

I don't think you understand how term rates work. Surprising since I know you are a skilled investor. Go back to the books and try again.
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Old 01-14-2012, 05:28 PM
 
2,201 posts, read 2,242,240 times
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Ok, what about the added risk? At 35 I'm healthy with low risk, at 45 I might have developed high blood pressure that makes it more expensive to insure me, why not lock in a low rate now while I'm healthy?
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