Term vs. permanent life insurance decision (pay, million, taxes, rate)

[Wal23]

I am very conflicted on which direction to go. My wife and I both took out 20 year term life insurance policies in 2007. I am now 44, she is 40. Both of us are employed at good salaries. We now have two kids, ages 8 and 4. We also have term insurance through our employers. My life insurance company is aggressively trying to contact me to convert all or some of our term insurance to permanent. I have always heard permanent is a rip off. We are doing very well with regards to retirement savings for our ages with about $875,000 in IRA's and 401k's. We also have about $235,000 in home equity with no revolving debt. Under what circumstances would someone in our situation benefit from either converting all or some of our term to permanent? Without pulling my records I believe my total term insurance payout, with employer and additional through the major life insurance company, is about $1,000,000. My wife falls around $500,000, I believe. Any thoughts on this?

[rjm1cc]

Do you have enough term insurance to support your family? If not then you need more term.

Whole life would be used in estate planning. The money will pass estate tax free to your beneficiaries. (estates under 5.4 million currently are not taxed at the federal level and a couple can go to 10.8 million.) You might have state taxes at a lot lower levels. It can also be helpful if you expect to have estate taxes due at death.;

You may also want to use it for when one of you dies and an income stream ends that is needed by the other spouce. This would most likely be in retirement. You could use the insurance proceeds to buy an annuity.

Remember insurance is not really an investment.

You might be able to tie the life insurance with long term care insurance and this maybe beneficial.

If you need to defer taxes there could be a benefit there. You would first have to be maxing out all tax advantage retirement accounts and probably 529 plans for children.

My guess is you should stick with term.

[leastprime]

Stick with Term. There are really only two questions you need to ask Term vs WL.
1) If the insured dies, how much did you/insured pay for that insurance per thousand insurance?
2) If the insured lives, how much is the insured/you are going to get in the end.

Buy Term and Invest the Difference.

Notice that I didn't put a time frame on the questions. Because it doesn't matter. You can put a time frame, ie the 1st day and at 20 years from purchase of insurance.

[mathjak107]

if you have the money and want to think ahead whole life really shines as a retirement planning tool .

the ability to pass 100% tax free money to a spouse is a biggie . there are so many things in retirement linked to taxable income that the benefits of a spouse being passed tax free life insurance money vs a pile of tax infested retirement plan money can make a huge difference down the road .

an integrated strategy using a spia to set an income floor , your own investing for growth and inflation proofing and a permanent life policy to pass tax free money to a spouse beat buy term and invest the difference 67% out of 10,000 scenario's run .

100% of the time the integrated plan enabled a higher withdrawal rate day 1 then buy term and invest the difference and 67% of the time a bigger balance left over.

that is because insurance products have zero sequence risk and no powder has to be kept dry for poor sequencing . .

most study's looking at buy term and invest the difference only looked up until retirement where 100% of the time buy term and invest the difference was the winner..

but once you went beyond retirement age things quickly changed because of not only the tax free aspect of the money but rmd's , what you pay for medicare , getting your social security taxed , medicare surcharges , capital gain rates , etc are all tied to taxable income . for a surviving spouse that is a huge difference , especially because now they lost one social security check and have to file single to boot so a jump in taxes can be killer .

a side from the fact very few actually buy term and invest the difference .

the money always finds its way elsewhere while raising a family if it isn't actually a bill .

so just food for thought as to whether this is just a temporary thing , or whether you want to lay the ground work for an integrated strategy through retirement until death .

DO NOT BUY ANY PERMANENT INSURANCE unless you plan on keeping it until death . it is a product for dying not living . if you want a product designed for living you buy the opposite which are annuity's .

but you will over pay greatly using life insurance for its refund amount . it is no different then getting a refund from a store with a big restocking charge .

90% or more of all permanent insurance is never held until death . it should never have been bought if that is the case .

[ncole1]

Originally Posted by leastprime

Stick with Term. There are really only two questions you need to ask Term vs WL.
1) If the insured dies, how much did you/insured pay for that insurance per thousand insurance?
2) If the insured lives, how much is the insured/you are going to get in the end.

Buy Term and Invest the Difference.

Notice that I didn't put a time frame on the questions. Because it doesn't matter. You can put a time frame, ie the 1st day and at 20 years from purchase of insurance.

This is very sensitive to just what deals you can find. Also, unless you are buying a 30-year level term policy, you are at risk for becoming uninsurable for health reasons before your investments have grown enough to make up the difference.

[Caltovegas]

Look at a guaranteed universal life policy. Just make sure you understand what events can kill the guarantee. Get a GUL and just carry it until. Today you have 800k but markets go up and down. You just never know.

Something else to consider for the BTID crowd at some point your basically self insuring yourself. The true wealthy don't do it. Even Dave Ramsey keeps life insurance because his wife wants it and he is rich. So at some point even he will have to give up the term or convert it.

Just ask the wife how long she would feel comfortable with coverage. If she says lifetime look at permanent or a blend of term and whole life. If say to retirement buy some new term and consider converting at a later age.

Speak with an independent agent.

[mathjak107]

i don't recommend universal policy's . the cost of insurance is not fixed like whole life and while the premium stays the same the internal insurance costs sky rocket as you age .


once you have some value stored in the policy it is nice to be able to stop paying the premium and let it self support . but with giant insurance cost jumps at certain age milestones the policy's are really designed to self extinguish as you get older and older .

my universal policy has been self feeding for decades with no more money fed in . but now that i am 63 the cost of insurance will sky rocket over the up coming years likely burning out the policy in my 80's .

[calnbs]

Both Term and Permanent insurance have their places. Its up to you. I have both. I need short term and long term protection. Only you can decide that.

With that said, look into Life Insurance with Living Benefits. My wife and I were introduced to Living Benefits about 2 years ago from a local insurance agent. Companies such as AIG, National Life Group, and American National are examples of Insurance companies that offers Life Insurance with Living Benefits. Living Benefits that protects you from certain illness too, not just only in death.

I was surprise these Insurance rates where very competitive compare to my older Insurance policies that did not have Living Benefits. So, last year, my wife and I picked up additional Life Insurance for their Living Benefits through AIG. My guess is, we are going to be very ill before we die. We kept our old ING/Voya policies as well since it was cheap term policy.