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#1 May 02 2012 at 12:21 PM Rating: Decent
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How many of you have it? If you don't have it, are you planning to get some in the near future?

As many of the older posters here know, I adopted my kid sister several years ago. She's 18 now, but due to her epilepsy, she's still unable to perform many normal tasks on a consistent basis, and therefore has trouble landing a decent job. I've got no problem taking care of her ad infinitum, but in the unlikely event that something tragic should happen to me, she'd be left all alone. We're in the process of trying to get her disability benefits, but the process is lengthy and there are no guarantees.

As such, I've recently begun evaluating my current life insurance policy and my future options. When I was a young 20 something, I added a $15k policy to my car policy for the multi-line discount, but I no longer feel that is enough to help her get started on her own if I should ever pass. I just talked to my State Farm agent and as far as I can tell, there are 3 basic options:

1. Whole life - keep paying til you die, the full policy amount is awarded to the beneficiary upon death, regardless of age
2. Term life - Pay a set amount for a set term. If you die during the term, the full amount is awarded. Otherwise, the policy expires and the money is gone.
3. Term life w/ return of premium - I've never heard of this until today when I talked to my agent, but apparently this is the same as #2, with the exception that at the end of the term, all of the premiums you have paid in are returned in full. For example, if I took out a 100k 30yr term life policy at my current rates, I'd get $33k back at the end of the term.

Option 3 seems like the most attractive one, especially since monthly premiums for a term life policy are (at least in my case) about 60% of the whole life policy for a much larger policy amount (50k whole, 100k term). Am I missing anything? Anything else I should look for?

Incidentally, the whole life policy I started ~10 yrs ago has a cash payout upon cancellation which is currently valued at $800. Assuming I go with a new (much larger) policy, I'd probably cash out the current one and pad my savings a little. Spiffy, that.
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#2 May 02 2012 at 12:33 PM Rating: Good
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The military has an obligatory policy (SGLI: Servicemembers Group Life Insurance) for all soldiers that pays out like 400k . Also added Traumatic Injury Protection recently, should I survive something that should kill. It pretty much covers anything from being shot and losing a lung to falling down the stairs and shattering my knee. It's pretty much active as long as I'm in the military, and it can be converted to a civilian policy once I'm out should I choose to continue it when I eventually get out.

If you're going to look for anything, I'd say look into injury coverage as well. A lot of people seem to forget that when looking into stuff like this. After all, being injured can be just as bad as dying for your finances.
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#3 May 02 2012 at 1:43 PM Rating: Decent
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20 year term for 250k. Pays off the house and gives a couple years salary for my family to get back on their feet. I won't renew it when it expires.

Lifetime policies are a rip off and generally unnecessary. You could take the policy money you'd be paying for the lifetime, remove the 20 year term policy cost from it, invest the remaining and end up with a ton of cash in 20 years when you probably have a paid off house thereby removing the need for life insurance. Only buy enough insurance to cover what needs to be covered, you're not replacing yourself you're providing a cushion. Insurance is not a savings plan.
#4 May 02 2012 at 2:46 PM Rating: Excellent
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One is part of my benifits package. It's nothing huge though.
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#5 May 02 2012 at 3:08 PM Rating: Excellent
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I have a couple.

There's one through my work that's like 5 years salary, that's active as long as I'm here with the option to take over a modified version on it when I leave or something. That's the bulk of the insurance. There's also the life-long plan I have through State Farm that I've had since I was born. It's a relatively small amount with equally low premiums, not amazing or anything, but nice to have a little something if I go unemployed. I also have one through my bank, which was something like get $10,000 in free life-insurance for having an active account or some kind of promotion like that. Figured no harm in having that, hopefully...
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#6 May 02 2012 at 3:18 PM Rating: Good
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BrownDuck wrote:
1. Whole life - keep paying til you die, the full policy amount is awarded to the beneficiary upon death, regardless of age
2. Term life - Pay a set amount for a set term. If you die during the term, the full amount is awarded. Otherwise, the policy expires and the money is gone.
3. Term life w/ return of premium - I've never heard of this until today when I talked to my agent, but apparently this is the same as #2, with the exception that at the end of the term, all of the premiums you have paid in are returned in full. For example, if I took out a 100k 30yr term life policy at my current rates, I'd get $33k back at the end of the term.

Option 3 seems like the most attractive one, especially since monthly premiums for a term life policy are (at least in my case) about 60% of the whole life policy for a much larger policy amount (50k whole, 100k term). Am I missing anything? Anything else I should look for?


You have to remember that you're basically gambling that you'll die within a relatively short period of time. Don't ever forget that the insurance company is going to make more money on average than they pay out, so statistically you'll pay them more than you'll get. You're banking on the assumption that you'll die soon enough that you (well, your beneficiary) will get more money than you paid into the policy. The odds are against you here, but your doing this because it's a possibility and you want to be covered for it.

That said, each policy type has its pluses and minuses. Term life policies are great *if* you die early within the term. The problem is that if you don't, you either get nothing back or a relatively small amount (don't forget the inflation and loss of interest effect that 30 years of them holding your money has). Whole life seems like a poor choice, however the terms are set when you first start the policy. So starting a whole life policy when you're young and healthy means you're paying a lower premium but for a longer time. Lower is relative in this case. With a term policy, once it expires if you want to get another one for another term, you're going to be paying a higher premium because you are older and thus a higher risk.

Ideally, you should have both a long and short term plan. Figure out what you can afford to pay for something like this. I'd then put about half into a term life policy with the assumption that you will die during that term (so do the math on the premium cost versus payout between 2 and 3, remembering that 3's clause assumes you *wont* die during the term). Take the other half and put it into some kind of annuity for your sister. That way, if you do live to a ripe old age, you can support her while you're living and then if you die before she does (or if you just feel like giving it to her earlier), she's got that investment money there for her. You'll have to look at tax implications and figure out the best way to manage this, but I know there are investment types that act as gifts to another person which avoid most or all taxes on the back end.

And if you do die during the term she'll get the term insurance payout. This way you cover your bases. IMO, you should always think in term of near term unexpected death when buying life insurance. If you're thinking long term, you're probably better off investing the money directly with a will/trust set up to manage it when you die.
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#7 May 02 2012 at 4:59 PM Rating: Good
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someproteinguy wrote:
IThere's one through my work that's like 5 years salary, that's active as long as I'm here with the option to take over a modified version on it when I leave or something.


I have one through my work insurance... but it's only 1/2 of my years salary.

Other than that, there are some very small ones through my credit union. Real basic stuff, and some basic injury covers. I think if I lose a finger I get 100 dollars, if I lose a thumb I get 500. Pretty much AFLAC stuff as far as I'm aware. So if I'm ever strapped for cash I can just bust out the butcher knife and start lopping off body parts.
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#8 May 03 2012 at 1:43 AM Rating: Decent
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When I was young my dad had a 2 million accidental death policy on me. After I started work at the company the workers would kid me about it. "Your dad would make out really well if you died." I was told many times. Dad also used my policy for other things like collateral for buying things. When I turned 18 he could no longer use it for such things. Finally years later in an attempt to save my home in Austin I cashed it in for what I could get to pay on my home. Of course Dad was **** but Meh! His bet on me dying didn't pay off.
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#9 May 03 2012 at 5:04 AM Rating: Good
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I would create a trust for your sister. Everything that goes into the trust belongs to the trust, and the trustee says how the assets are used. The trust could be set up for the sole benefit of your sister during her lifetime. For now, you would be the trustee. You would have a responsible, honest person named as the next trustee for when you die. If it was in Australia, nothing within the trust (like interest on savings) would be taxed, unless they were doled out of the trust TO someone (such as your sister) as income. The doled out money would be taxed according to the whole of her income for that year.

Life insurance is a gamble wagered by people who are not organised enough to save, or who have reason to think they'll die REALLY soon, while being able to bamboozle the insurers that everything is fine.

I'd take everything you are currently paying on life insurance, and put it into at least one savings account in the trust. One account should be something that accrues interest at least monthly, with a meaningful interest rate, with a government guarantee on the principle, and with a reputable institution. For instance I am getting 5.75% pa paid monthly, with an online institution that is backed by the NAB (very established, huge bank) and that the Australian government guarantees the first $150,00 in the savings account. Oh, and it has no fees on it.

The benefit of a trust for a disabled person is that it can put a chain of assets for the person over their lifetime, without tax being paid in between. For instance the trust could buy a house/apartment and medical equipment for the person, and then sell and upgrade the house, or downgrade the house so it takes less to take care of it without taxes being paid on any profits. Any house or money in the trust wouldn't count as assets when the person is being assessed for government benefits or nursing home qualifications. And the trust could sell any houses without paying taxes on the profits, and hold the money to dole out to nursing home fees. Additionally, money can be accrued and held in the trust before being doled out in small amounts for home nursing, house and garden care and what-not.

You want to make sure she's looked after after you die. Life insurance will give her money, but a trust will give her continuity of care. No matter when you go, you must have someone else lined up as willing to take over as her financial carer.

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#10 May 03 2012 at 6:50 AM Rating: Good
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Term Insurance is robbery. If you want to go that route, just give me your money.
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#11 May 03 2012 at 7:59 AM Rating: Decent
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If I were to die tomorrow without insurance my family would be screwed. 20 years from now that won't be the case, house will be paid off, investments will be built up.

Term insurance is the cheapest way to ensure that my family can manage if I get hit by a bus in the next 20 years. Life Term insurance is a robbery, you don't need insurance at the end of your life expectancy, you need it early on when your children are young(er) and you don't have savings for your wife to live on.
#12 May 03 2012 at 8:57 AM Rating: Decent
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Yodabunny wrote:
If I were to die tomorrow without insurance my family would be screwed. 20 years from now that won't be the case, house will be paid off, investments will be built up.

Term insurance is the cheapest way to ensure that my family can manage if I get hit by a bus in the next 20 years. Life Term insurance is a robbery, you don't need insurance at the end of your life expectancy, you need it early on when your children are young(er) and you don't have savings for your wife to live on.


This is kind of where I'm at. The only reason I'm considering term life at this point is because I'm still fairly young and while I have a decent 401k and some small savings, it simply wouldn't be enough for my sister to take care of her self long term if I should suddenly meet my end.

Yes, I could just put the insurance payment in savings instead, but if I die in 5 years, that savings account will have nowhere near the value of a $100k life insurance payout. When people say term life is a rip off or that the money is better spent elsewhere, I think they assume the goal is long term security, which is not the case here.
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#13 May 03 2012 at 11:55 AM Rating: Good
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BrownDuck wrote:
When people say term life is a rip off or that the money is better spent elsewhere, I think they assume the goal is long term security, which is not the case here.
Nope, not what I assumed at all. It's just plain old robbery.

However, in your situation, you need Whole Life Insurance and you need it now while you're younger and can impact the premiums. Your assuming you're going to better off in the future, but you have no idea of knowing that and by the sounds of what you're saying, your sister is most likely always going to need support from you, not just for the next 20 years.


Edited, May 3rd 2012 2:56pm by Uglysasquatch
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#14 May 03 2012 at 12:00 PM Rating: Decent
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BrownDuck wrote:
Yes, I could just put the insurance payment in savings instead, but if I die in 5 years, that savings account will have nowhere near the value of a $100k life insurance payout. When people say term life is a rip off or that the money is better spent elsewhere, I think they assume the goal is long term security, which is not the case here.


Then get a 20 year term policy, term life lasts till you die but has much higher premiums.

Invest the difference and if you die in 21 years you should have a decent amount of cash but you're still covering the interim while you save up.

Only insure what you can't plan for, you can plan for 20 years from now.

Critical Illness insurance might be something to check out. I don't really need it since we have disability benefits up here for just such situations. If you end up a vegetable or get cancer you generally don't get your life insurance, it's actually a worse situation than if you die since your family now has to care for you as well as themselves.

Edited for quote fail


Edited, May 3rd 2012 2:15pm by Yodabunny
#15 May 03 2012 at 1:36 PM Rating: Good
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Life insurance is a funny thing. When I told them I was immortal, they actually increased my premium.
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#16 May 03 2012 at 1:48 PM Rating: Excellent
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#17 May 03 2012 at 2:31 PM Rating: Excellent
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I know I have one, I don't know what it is worth on payout, all I know is anytime I pick up a powertool my wife watches me with dollar signs in her eyes.
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