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Thread: Term to 100 - 20 pay

  1. #11
    Senior Member MoneyGal's Avatar
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    Quote Originally Posted by OptsyEagle View Post
    You cannot compare pricing on a temporary term policy (term 10 or term 20) to a permanent policy (term 100) and end up with any useful comparison. They are apples and oranges. The term policy you have is money that the insurance company will eventually pay out. With the other term policies, it is only in very rare circumstances that money is ever paid out to beneficiaries. Those policies usually expire or are cancelled before the insured dies.

    If you want to ensure some money is there "whenever" you die, you could probably not achieve it in any more tax efficient methods, then from buying Term 100 insurance. Not only are your premiums being invested for you in a tax free method, but your returns are significantly boosted by something known as a "lapse subsidy". That is an insurance industry term, but what it means is the insurance company estimates how many people will cancel their Term 100 policies, before they die. When they do, the insurance company gets to keep the reserve money they were saving up to pay that inevitable claim. In their perfect world this would have been a very profitable day (when they receive the cancelation notice from the policy owner). In our competitive world, however, they use that money to reduce the premiums required. So in other words, other morons, who bought permanent insurance, but let it lapse or cancelled it, are significantly boosting the returns to the permanent policy owners, who maintain their coverage to the end.

    The only caveat. Someone else (benficiaries) gets the money. In your case, since you are not expected to die vey soon, someone, who probably hasn't been born yet, is in line for all that benefit. So, if you think that is a good idea, then fine, if not, then fine.
    I have no disagreement with even one word of this. The OP has (in my view) no legitimate need for insurance. And the OP is the one who made the comparison to term life insurance. If your goal is to "save $x to be available when you die," there are other ways to do this that are as tax-efficient (I said I don't disagree with you, and I do not. You said he wants the money to be there "whenever" he dies - life insurance is the way to do that. I would and did counter that the $200K face value is going to change inherently over time and economically it the actuarial PV is not $200K).


  2. #12
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    Tiered savings is in NO WAY a substitute for insurance. Even with 12-months of emergency savings, how will that help if the primary income earner has passed away, or if they become permanently disabled and unable to work for the next 5-10 years.

    Insurance is insurance - in most cases you need to have a lot of capital saved up to self-insure. I don't fully agree that one needs to replace all their income so that dependents do not have to change their lifestyle - over insurance can be a waste of money - but don't mix the two things up. Emergency savings is short term.

  3. #13
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    @ OP, regarding what is the best or suitable insurance product.

    M_Gal lists a tonne of reasons why Term-100 is often not in the buyer's best interest.

  4. #14
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    Quote Originally Posted by MoneyGal View Post
    I have no disagreement with even one word of this. The OP has (in my view) no legitimate need for insurance. And the OP is the one who made the comparison to term life insurance. If your goal is to "save $x to be available when you die," there are other ways to do this that are as tax-efficient (I said I don't disagree with you, and I do not. You said he wants the money to be there "whenever" he dies - life insurance is the way to do that. I would and did counter that the $200K face value is going to change inherently over time and economically it the actuarial PV is not $200K).
    Hey, I am not arguing with anyone here. There really is no right or wrong answer to this question. I just wanted to point out that although they call the two products, term insurance, there is a sigificant difference between temporary term and permanent term.

    In my personal opinion, he is nuts to buy the term 100 policy, at this stage. Sure his future kids will get some money, but as you said, it won't feel like $200,000, but with inflation it will probably be about as good as about $40,000 is today. When you consider that each child doesn't get all that, but in fact it is divided by all the brothers and sisters, and they won't even get it until they are about 45 to 55 years old.

    So, would the OP's future children prefer $15,000 to $20,000 when they are about 50 years old .... OR....$20,000 more house now ($107 a month can increase the mortgage a lot) to allow for a nice backyard with a swing set ...OR...all the ice cream they can eat while they are kids ...OR... all the best cartoon and movie channels their cable company offers .... OR... birthday presents every month for 20 years ... OR ... I could go on, but I think you get my point.

    I highly suspect that if the OP buys that term 100 policy, he will indeed be the guy cancelling it and subsidizing someone else's estate returns as opposed to the other way around, that I discribed above. That of course, would be up to him as is this decision.

  5. #15
    Senior Member MoneyGal's Avatar
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    Good on ya. I don't have the brain cells to rub together to do this right now, but the actuarial present value of a $200K life insurance payment at the OP's age of (what was it? 30's?) would be closer to $20K than $40k. The value will go up as the date of expected death nears, and it will also go down if/as inflation wears away the face value. I do think people need to understand both moving parts:

    - the date of the payout is random [but can still be calculated as an expected value]
    - the amount of the payout *when it is received* is not the same as the face value

    The OP doesn't seem to need any particular amount of money now or in the future. I think he should understand that although the policy is described as being worth $200K, unless it is paid out in the near future it won't actually be worth that.

  6. #16
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    This is all making me a bit queasy. Need to have a discussion with the wife about all this!

  7. #17
    Senior Member the-royal-mail's Avatar
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    I wasn't aware this was disability insurance. Reading the OP's description, it sounded like he was trying to protect the spouse or non-existent children from debts and funeral costs? That sounds to me like life insurance.

    Disability insurance is a whole other game.

    I just don't see a strong enough case here for this type of insurance. There are no kids and the surviving spouse works. If you're worried about debt, don't operate with debt. What's a funeral cost, maybe $20K? The latter can be saved in cash and the former is easily addressed. Not sure spending $1200 a year for this makes financial sense.

    When considering insurance, ask yourself what you're trying to protect yourself against and then ask yourself if it's really worth the hassle of trying to collect later on and the short term expense. Never focus on the monthly payment. Focus on the overall cost.


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