Life Insurance - worth getting it?

[onetwo_threefour]

Originally Posted by Shazam

Read macker's link.

But here's why:

- Life insurance is underwritten when the policy starts. Mortgage insurance is underwritten when it is claimed. Underwriting is assessing the policyholder's level of risk. So, if your life insurance is approved, then chances are very good that if you do die, the beneficiaries will get their money (since whatever you're paying fairly reflects the risk that you are). For mortgage insurance, they do and say anything to prevent payouts, since they want to prove that what you paid didn't accurately reflect your riskiness.

- The mortgage insurance premium never goes down, even though your mortgage is (presumably) declining in balance. Hence, you could owe $10K on your mortgage but your premium is still the same. Contrast this to life insurance, which has a defined payout for the life of the term.

All true, but equally important, IMO, is that with life insurance you designate your beneficiaries, while with mortgage insurance the lender is the designated beneficiary. Being able to choose your beneficiary gives your estate many more options of what to do with an insurance payout which can be hugely beneficial with respect to estate and tax planning.

[Slava]

Originally Posted by Burninator

I did read macker's link. It was very helpful. It sounds like life insurance is the way to go.

So where does one go from here? A life insurance broker? What should I be looking for in a policy?

I would start with a licensed broker who quotes your link on CP

In any event you should make sure that the broker is independent and can get you quotes and policies through a lot of companies and not just a captive agent somewhere. Prices do vary a little, and you should make sure that you are getting a good deal on whatever you decide to buy. It is also worth noting that there are differences between the companies in some areas; an advisor will know who to avoid and who to consider based on their experiences.

[Slava]

Originally Posted by onetwo_threefour

All true, but equally important, IMO, is that with life insurance you designate your beneficiaries, while with mortgage insurance the lender is the designated beneficiary. Being able to choose your beneficiary gives your estate many more options of what to do with an insurance payout which can be hugely beneficial with respect to estate and tax planning.

I would say that not only is this applicable (and the other points made by Shazam), but there are other reasons:

1. If you want to move your mortgage from one lender to another at the end of the term you don't have to requalify for coverage.

2. If you die and your wife is still alive she doesn't lose her coverage (at least if you each buy a policy as opposed to the joint-first-to-die coverage that mortgage insurance generally is). I know some people will say she doesn't have the debt anymore, which is true. If you have kids though and dad dies, mom probably still wants to keep a policy around so that the kids have some money in the event that she dies later on.

3. Similarly to #1 your rates are locked in for longer than the term of your mortgage. By not having to re-apply every five years (or however long your term is) you have a set rate for the longer term which undoubtedly saves you money.

These are certainly not the most important reasons, but they are things to consider that just further stacks the case for not buying mortgage coverage if you can.

[yads]

Originally Posted by Burninator

I'm the same age as the OP with no dependents but I have a mortgage. Is it worth it to get life insurance that will cover my mortgage or should I just get mortgage insurance?

I may not even bother with the life insurance if I were you. Unless you want to leave the house to someone in your family. Presumably your house is worth more than your mortgage, so the executor of your estate can just sell it and pay off the mortgage. Having the insurance does make things easier though.

[Dentoman]

Originally Posted by macker

In reality, life insurance is purchased for more reasons than just paying a death benefit to a spouse or family members. Other parties may be interested in the economic value of your life.....and stand to lose out if that value is not replaced through life insurance, such as your business partner (or future bp), or the bank that holds the mortgage on your house, or taxes due upon death from your investments and assets. You likely don't need a million dollar policy but the rates on a 10 or 20 year term policy for $250,000 are incredibly cheap and most policies can be converted as your needs change. You don't need a wife and kids to start estate planning.

The OP should get the insurance when he has these instances, not now. The only possible reason I could see for the OP to get some sort of life insurance now would be to cover the taxes on his estate at death. If he has no significant estate, then IMO he has no need to carry any life insurance.

[Slava]

Originally Posted by yads

I may not even bother with the life insurance if I were you. Unless you want to leave the house to someone in your family. Presumably your house is worth more than your mortgage, so the executor of your estate can just sell it and pay off the mortgage. Having the insurance does make things easier though.

Sure, the executor can sell your house, but what if you die when the market is down and things would be better if your estate could hang-on to the house until things recovered for a while?

[Phanuthier]

Thanks for the replies. Now I do understand I have no dependents, the only reason I'm looking at this is to lock into a rate while I'm young/healthy.

The rate is $30 a month which isn't too crazy, death benefit starts at $25k and compounds as I pay (but nothing crazy; 5 years I'm at $25.5k, 10 years I'm at $26.877k, 20 years I'm at $31k, 30 years I'm at $37k) ... that doesn't seem that great.

[Slava]

Originally Posted by Phanuthier

Thanks for the replies. Now I do understand I have no dependents, the only reason I'm looking at this is to lock into a rate while I'm young/healthy.

The rate is $30 a month which isn't too crazy, death benefit starts at $25k and compounds as I pay (but nothing crazy; 5 years I'm at $25.5k, 10 years I'm at $26.877k, 20 years I'm at $31k, 30 years I'm at $37k) ... that doesn't seem that great.

This is a whole life policy then, not anything close to mortgage coverage. It must be building up a cash value as well?

[Phanuthier]

Originally Posted by Slava

This is a whole life policy then, not anything close to mortgage coverage. It must be building up a cash value as well?

time to go ask

(also gonna ask how much my costs go up each year; its not a lot of money, but something i'd rather not commit to until i have a full time job)

[Dentoman]

Originally Posted by Slava

Sure, the executor can sell your house, but what if you die when the market is down and things would be better if your estate could hang-on to the house until things recovered for a while?

Based on his info, he really has nobody who would absolutely require money from his estate .... he doesn't need the insurance.

[Slava]

Originally Posted by Dentoman

Based on his info, he really has nobody who would absolutely require money from his estate .... he doesn't need the insurance.

True enough. I guess that is just the cheap side of me showing through. If I were single and bought a home for $500k and the market would only allow for the sale at $450k (even though the mortgage was less) I would want my executor to have the ability to wait until this recovered before selling...but clearly that is a personal choice.

Maybe no one requires money, but it also doesn't hurt to leave money to someone either.

[macker]

Originally Posted by Dentoman

Based on his info, he really has nobody who would absolutely require money from his estate .... he doesn't need the insurance.

Failure to plan = Planning to fail. The only bad thing about insurance is that you can't get it when you need it. I guess if you can guarantee his insurability for the next 10-20 years your point is somewhat valid but that would also require that he has no assets and plans to leave some surprises in his estate. Not the most popular thing to do imo. Someone has to pay for it....I bought my first policy when I was 21/living in residence/with no dependents that I was aware of at the time. The policy was less than a case of beer every month and I have since converted it to a UL policy. For an extreme example of the effects taxes can have on ones estate look at Elvis Presley who died with an estate of $10,165,434 and after settlement, he lost $7,374,635 and his estate was left with $2,790,799, a 73 percent shrinkage and we all know that he was young and invincible....don't leave behind problems but rather solutions....

[Dentoman]

Originally Posted by macker

Failure to plan = Planning to fail. The only bad thing about insurance is that you can't get it when you need it. I guess if you can guarantee his insurability for the next 10-20 years your point is somewhat valid but that would also require that he has no assets and plans to leave some surprises in his estate. Not the most popular thing to do imo. Someone has to pay for it....I bought my first policy when I was 21/living in residence/with no dependents that I was aware of at the time. The policy was less than a case of beer every month and I have since converted it to a UL policy. For an extreme example of the effects taxes can have on ones estate look at Elvis Presley who died with an estate of $10,165,434 and after settlement, he lost $7,374,635 and his estate was left with $2,790,799, a 73 percent shrinkage and we all know that he was young and invincible....don't leave behind problems but rather solutions....

Elvis certainly failed to plan, no doubt. I agree, a person needs to have life insurance to ensure their estate is not decimated by taxes and pre-death debts. But you need to have an estate to do that.
I think you are missing my point. I am talking about the OP situation. He does not have an estate that absolutely requires life insurance at this point. He can if he wants.
From an actuarial point of view, based on his present health, the odds of him becoming a person not being able to get insured are very small. I have added life insurance throughout my career as my family has grown or my employment situation has changed. The costs have not really been that different from being 28 - 38.
What he actually should be looking at right now is disability insurance, not life insurance.
Interesting discussion ....

[yads]

Disability insurance is prohibitively expensive for most people unless you have a group plan.

[Slava]

Disability coverage is expensive, but the peemium is commensurate with the risk. If a carpenter who is 27 years old falls off a ladder and can't work for the remainder of his normal working life it is a multi-million dollar claim. There are a lot of reasons that someone could face these issues (illness or injury) so while the premium seems high it's based on the claims experience from the insurers point of view.

[Art Vandelay]

My agent keeps pushing us to get Critical Illness insurance. Anyone have this? It seems way too expensive for my liking.

[yads]

Originally Posted by Slava

Disability coverage is expensive, but the peemium is commensurate with the risk. If a carpenter who is 27 years old falls off a ladder and can't work for the remainder of his normal working life it is a multi-million dollar claim. There are a lot of reasons that someone could face these issues (illness or injury) so while the premium seems high it's based on the claims experience from the insurers point of view.

Not saying it's overpriced, just saying it's prohibitively expensive to get for most people, especially those that are self employed. Thankfully I have some coverage via my work.

[Shazam]

I have disability as well. $40/month for $60K of tax free coverage per year.

Doesn't cover diseases though.

[yads]

Originally Posted by Shazam

I have disability as well. $40/month for $60K of tax free coverage per year.

Doesn't cover diseases though.

That's pretty good, I've heard quotes in the 300s.

[FurnaceFace]

Full disclosure - I used to be in the insurance industry in a previous life.

There are lots of arguments for and against insurance and types of insurance. I bought a permanent insurance plan when I worked in the industry and am very glad I did*. I have a policy which has grown to fill my needs as I've gotten older. It's gained value over time, I have built up equity within it and can use it as a retirement vehicle assuming I make it that long. I used my permanent plan and company benefits against my mortgage instead of getting the silly mortgage insurance. I also have riders in place should I get a disease, I am still able to purchase insurance should I need it.

I guess when I was 25 and in the industry I got a wake up call from visiting the 40 something year old guy who had $20k to his name and was expecting the government to feed him when he was old. As I'm now approaching my 40s I pat myself on the back for what I did back then.


*There are opinions on whether buying permanent or less expensive term insurance and investing the difference is a better option and I think that discussion is another topic. My view is this is best discussed with your agent and between the two of you, you can determine what's best for your needs and goals. I really don't think term insurance is something that fits a 25 year old's needs but then every situation is different.

Originally Posted by Art Vandelay

My agent keeps pushing us to get Critical Illness insurance. Anyone have this? It seems way too expensive for my liking.

I have it, just got it this year. It's not cheap, but the benefits are there. I look at it as another savings vehicle since you get everything back if you don't use it. If you do need to use it, well, that's what it's there for. There are a number of benefits to it and it's best to go through it all with your agent (or Slava) and have them explain all the positives and negatives so you can decide if it fits into what you can afford. I'm not sure where I'd put it on the hierarchy of financial needs but some form of illness/disability insurance is valuable.

As I learned "your four corners to a solid financial foundation are liquidity, retirement, disability, and life/taking care of your dependents."