What's the right kind of life insurance for my situation?

Question

I'm a 22 year-old, healthy male(don't smoke or do anything considered dangerous), who lives with my Dad. My Dad's employer only pays $10,000 to him if something happened to me. I'd like to get a life insurance plan where I can make my Dad the beneficary. I've been told Term Life would be my best, but was hoping other answers. Thanks for the help.

Answer 1

I bought a 30 year term insurance when I was 23 years old and I lived with my parents. Why I got term? Its because all the other types of life insurance are ripoffs. The other types of life insurance builds cash value, which makes no sense since you lose it all when you die. And if you ever wanted to take money from the cash value, you have to borrow it and pay loan interest on it. If you don't pay this loan back and you die someday, the amount you borrowed and the interest being charged will be deducted from the face amount. If the cash value is invested in the stock market, you are paying lots of expenses that eats away the returns.

For example, lets say the cash value is invested in a mutual fund. The mutual fund itself does 12%, but in a life insurance policy, you may only get 8%. Why? There is surrender charges, administrative fees, operation costs, research expenses, policy fees, and so on. This is another reason why savings and life insurance should be kept separate.

So I got a 30 year term insurance. Its simple plan and it gives me the choice of where I want to save my money. It doesn't cost much to buy large amounts of coverage. I only got $150,000 coverage and it cost me about $20/month. If I got $500,000 coverage, it may cost me about $45/month. But I didn't need that much since I was single and no one is really dependent on my income. In case I do die, it would be a nice source of retirement income for them. If I do get married in the future, I can exchange my term policy for another term policy or increase the coverage.

At the same time, I opened my Roth IRA and invest $100/month. I have 3 mutual funds in it (all from Legg Mason Partners). So far, they have an average rate of return of around 14%. Is it going to stay at 14% in the future? Maybe or maybe not. Some years, it may perform poorly. Other years it may perform very good. But in the long run, it may average out at 14%. Lets say my portfolio only does 12% in the next 30 years. If I continue to invest $100/month, in 30 years I can potentially have $353,000 in my Roth IRA. In 35 years, I can potentially have $650,000.

Answer 2

Term life insurance would be the best type of insurance for your situation. Just remember this is how you should look at insurance:

There are 3 main reasons for life insurance.

1. A life insurance need due to debt or dependency: If you currently have debt that will be passed along to loved ones if something were to happen to you (e.g. Mortgage, Credit card debt, car notes, etc..) Also, if you are the sole person that produces income and you have other people that are dependent on that income (children, or other individuals that do not work) then life insurance will be needed to sustain their lifestyle if something were to happen to you

2. Business interests: If you own a business along with another partner, life insurance is needed in order to "buy" the deceased partner’s family share of the business. This is called "buy/sell" insurance. There are other reasons you need life insurance in a business venture but this is the most basic concept.

3. Legacy / estate tax protection: Some people feel they should buy life insurance to pass an amount of money on to their loved ones when they pass away. On the other hand, the highly wealthy need life insurance in order to protect their estate from possible liquidation if they do not have enough liquid assets to pay the estate tax upon death.

Since I do not think you fall into either 2 or 3 I believe your best bet is to go with term insurance. This is because a) you will not be in the same situation 5, 10, 15 years from now and b) term life insurance will be the least expensive life insurance. If you want, you can even add a Return of Premium Rider (if you state allows this rider) to a term life insurance policy. At the end of the policy term, if nothing has happen to you, you will receive all premiums back in the form of a check with this type of rider.

Talk to a financial professional to run a life insurance needs analysis and talk to you more in-depth about your situation. This will reduce the risk that you will have to little or too much life insurance for your current situation. PM me if you have additional questions.

Theodore G. Blado

Answer 3

There are still other things to consider here. You didn't mention why you are living with you dad, why you would want him to have that money, or how long that need might last.

People who only take one approach all the time aren't listening to you. If they think their opinion is more important than yours, they don't deserve your business.

I was having new tires put on my car the other day and they came to tell me that my alignment was a little off, although within spec. They gave me the choice of fixing it now or later. If I was putting on tires just to get a good price when I sell it, this isn't a big deal. If I wanted to wear that set out and get the most miles out of them, re-aligning now makes more sense. At least I had the choice. Wheel alignment is less complicated than insurance.

Answer 4

What have you heard about Term that, appears, to turn you off? What appeals to you about other insurances that you have heard about?

Cash value- Whole, Universal, Variable and Variable Universal. All are basically the same except VUL, which can only be sold by a securities licensed agent. They all work the same. You pay premiums each month, your payment is split in two directions- 1) to cost of insurance, only in the case of whole life does cost of insurance NOT go up. U,V and VUL all are annually renewable term - meaning each year that the policy gets older, the part that is taken out for insurance always is going up. At some point, cost of insurance will equal the premium payment. Beginning the following year, when it goes up, the difference is taken out of your savings. Thus beginning the steady loss of your savings until there is nothing left. 2) The other part goes to savings. But there are some funny rules about this savings plan: a) no money in the first two years is in the account; b) the money earns interest at a 1-4% rate; c) if you take a loan out, on your money, the company charges you 6-8%; d) you better have planned an emergency in advance- it could take up to 6 months to receive your money; e) lastly, you pay for two- insurance and savings but if you die your survivors get to choose only one, typically the insurance amount. The company keeps everything in your savings, unless you have paid more for them to pay both.

In order for anyone to be paid with the above, you have to make payments each month, same as term. Money goes into a savings acct with these others; you set one up with term- ROTH IRA, money market with a mutual fund company.
Earn interest,albeit very small with these others; earn highest rate with mutual funds with term. Gotta pay the company to take your money out; may have to or may not with mutual fund. You wouldn't have to if it was a money market. Wait up to six months to take money out, others; as soon as you want when investing elsewhere with term.

You die with the others, survivors choose between face amount of insurance OR cash value. Cash value is usually less so they will choose insurance meaning that the cash value stays with the company. Or you have paid higher premiums to allow your survivors to get both. With term they get the insurance face amount AND everything in the savings. There is no choosing.

To me, it appears that buying term and investing the difference makes the most sense.

Answer 5

Term life is the choice to make. If you purchase 'whole life' or 'universal life', you are combining some sort of savings plan with a life insurance policy and the rate of return paid on the savings plan portion is generally paltry. Go for the cheapest term life program you can find with a solid firm and go from there.

Answer 6

Well, what you you WANT the money to do for your dad?

Term insurance, well, you could buy about $150,000 for $100 A YEAR. Whole life costs about 10X that much. It's PROBABLY not the best deal, as so far you don't even have any clearly defined GOALS of what you want the money to do.

I'd push you to term, also.

Answer 7

I am an insurance agent with Farmers Insurance and will be happy to provide you with a free, no obligation coverage comparison. Farmers offers 30 year level term and I think it would suit you well since the price will be affordable and you can get a limit of $500,000, for instance. Send me anote and I'll be glad to discuss this further with you. Thank you in advance for your interest.