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For people with young children at home, yes, they need life insurance. When my kids are grown, though I won't see as much of a need for it. We have life insurance on me and my spouse. Although I'm a SAHM, I have life insurance because my kids are young and it would cost 40K a year to hire a full time nanny if I died.
you should never , ever buy life insurance for the cash value . it is a horrible deal .
whole life insurance has no investment component . it is 100% premium . that is the price you pay for a policy that has a 100% chance of pay off . unlike term which has high in the 90's odds of never paying off .
in fact whole life's cash value is just a agreed upon refund after expenses and commissions for the unused life insurance , like cancelling a gym membership you paid for .
all the interest , which over decades can be more than the premiums , plus your premiums and dividends gets reinvested in to the policy so by age 100-105 usually you are 100% self insuring .
many insurers just mail you back a check of your own money and call the policy endowed , dead or alive .
I'd say that if either the OP or the spouse can support their current lifestyle (paying the mortgage, car payments, discretionary expenditures) on their own - you could possibly skip it. I got life insurance when I was 32 and it runs until I'm 52. I think my total costs for that timeframe is a little over 1% the cost of the "payout." That can play out in three ways:
- Best case: I don't die before the term. They got to keep (for example) $10k for a 1M policy.
- Worst case: I die at 52 - 1 day and my spouse gets $1M for $10k
- Less worst case(?): I die today and my spouse gets $1M for about $3k in policy payments
Of course, the true "cost" isn't really $10k over 20 years in the example I gave. I could have been investing that money instead. Let's say that over a 20-year life insurance term, the market gained, on average 7%. That $10k would become about $23k. It pretty much boils down to a $33k financial swing. You could wind up $33k in the whole (10k spent on insurance plus 23k total if it had been invested). But in trade, you might have a $1M policy if one of you did die.
Then again, if one of you is 40+, you'll probably pay more than $45/mo for a policy like that.
FYI: There are some companies that offer Return of Premium so that if you don't use your disability or life insurance at term's end you can get either all of your premiums back or a percentage. Almost like having a little savings account. The premiums are usually pretty low (under $100) if you are young, healthy and not in a dangerous profession like a lineman. Most offer COLA's or Benefit Increases every few years. If I was younger I would get disability insurance for myself.
those life policies with return of premium are far more costly than you think . the interest alone you don't get is usually more than the premiums you pay in over decades . they are a very expensive way of trying to generate a savings . never never buy whole life for anything but dying . it is a poor product for living.
the negatives of a return of premium policy is :
Premiums for an ROP policy are more expensive than a normal term policy; the price hike will vary depending on number of factors.
Canceling the policy before the term expires will result in a much smaller refund or none at all.
You may be able to make more money investing the price difference between a normal term policy and a return of premium policy.
Policy details can vary between insurers, so read the details carefully.
You don’t earn any interest on your money; only your premiums are returned to you.
Last edited by mathjak107; 08-11-2018 at 09:19 AM..
we are likely adding life insurance now that i retired . it is a good way to make forever taxable ira money with rmd's never taxable money for my spouse with no rmd's .
since whole life policies are usually cashed out they end up being cheap for what you get if you keep it until death .
i can leave my wife a million dollar tax infested ira with a tax due on it so she does not even know how much she will get to live on .
but i can take some of that ira money, pay the taxes and leverage it for a lot more tax free money with life insurance .
my kids can inherit what is left in the ira's and pay the tax over their lifetimes . my spouse gets a clean predictable 1 million tax free dollars .
so you are using IRA money to buy a whole life policy? but its not like you can take the IRA money and not pay tax on it, you seem to be saying you pay the tax and then use the money for life insurance. so how is that different than just using any after tax savings for the life policy?
of course you pay tax on the ira money used to buy the policy . i said that above .
but single premium policies unless you are quite old do not cost anywhere near what they pay .
so you leverage the ira money ,and get rid of quite a bit of rmd money in exchange . whatever is left in the ira's can go to the kids and not my spouse since she will get the full value of the ira's and the kids get to pay any taxes on the ira's over their lifetime
of course you pay tax on the ira money used to buy the policy . i said that above .
but single premium policies unless you are quite old do not cost anywhere near what they pay .
so you leverage the ira money ,and get rid of quite a bit of rmd money in exchange . whatever is left in the ira's can go to the kids and not my spouse since she will get the full value of the ira's and the kids get to pay any taxes on the ira's over their lifetime
im confused. where is the tax savings?
im doing a little reading. is the life insurance benefit tax free for children? that seems to be a way to avoid estate taxes. however, i believe assets transfer to spouses tax free so if the wife is the beneficiary there wouldnt be a tax benefit since there is no tax anyway.
i shouldnt speak so soon, now i see it may be included in the estate (probably not an issue for most people though)
life insurance is not taxable to the beneficiary regardless if the kids or spouse but in my case it is only for the spouse ..
if i have a 1 million dollars ira left and spend 600k or 700k in premium for a 1 million dollar policy my wife gets 1 million tax free . that is 300-400k in tax free dollars . the rest of what is left in the ira goes to our kids .
they can pay whatever remaining taxes are due on it over their lifetime .
but now my wife knows exactly what she has to live on . if she got that 1 million dollar ira and now filing single she has no idea what tax rates will be on those future rmd's and worse she has no idea what she ultimately gets to keep . so in effect you are buying out uncle sam at a discount and guaranteeing an amount to your spouse that she can count on .
it can make it so much easier on a spouse not to be 100% dependent on market outcomes and tax rates . especially since 80% of all married men die married while 80% of all married women die single. those rmd's at todays low rates can be killer for a single and a sizable ira , off in the future who knows where those rates will be
Last edited by mathjak107; 08-11-2018 at 09:41 AM..
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