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Posted: 2/3/2006 11:22:03 PM EDT
[Last Edit: 2/3/2006 11:23:01 PM EDT by PeteCO]
I am looking for a life insurance policy. Term only, nothing fancy, 20 or 30 year level term is what I'd prefer.

I want $1 million in coverage. My main question is whether I should split my coverage, and go with 2 separate companies for $500k each, or go with one company for $1 million. This way, if I die and someone decides to delay the payout for some reason, I hope that my wife would get at least $500k right away.

Is this a sound way of thinking about it? Do policies ever get cancelled because a company is going under or something?

Any other tips? I've got our first baby on the way, due in August, so I'd like to get this taken care of. Also, what is "permanent life insurance"?
Link Posted: 2/4/2006 12:27:29 AM EDT
The thing about life insurance is why should I buy it. When I am gone I will never see a penny of the money. If anything my family should buy life insurance on me they are the ones who are going get the cash when I die.
Link Posted: 2/4/2006 7:08:49 AM EDT

Originally Posted By Sixgun357:
The thing about life insurance is why should I buy it. When I am gone I will never see a penny of the money. If anything my family should buy life insurance on me they are the ones who are going get the cash when I die.



That's true to an extent, and my parents have a small one on me - $20,000 or so in case they had to bury me. Now I am married and have a kid on the way, so I need to think about what would happen if I died tomorrow.
Link Posted: 2/4/2006 7:19:07 AM EDT
I'm also thinking of doing something similiar. More for my son than my wife though. My mother in law will probably be introducing my wife to someone before I'm cold in the ground!! Bitch that she is
Link Posted: 2/4/2006 7:24:57 AM EDT
I think if you get your insurance from a quality company (there is a rating system for them), then I wouldn't worry about splitting the policies.

FWIW, I was a financial advisor and had my life insurance license. A decent agent will do an analysis of your goals/objectives to make sure you aren't over or under insured. Am I correct in assuming you want to pay for your kids college tuition, pay off the house iand provide for your wife f you're not around to be the primary provider?
Link Posted: 2/4/2006 7:25:25 AM EDT
You need to set a meeting up with a good Insurance co. I use State Farm for my Homeowners, Car and Life Insurance. By have all of my policies w/ the same company, I get price breaks in all my policies. The main important thing about meeting with the agent is they can tell you or inform you about the different types of policies and help you make the right choice of policy. By selecting a million dollar policy, you will most likely have to have a complete physical exam along other things that the Company will require. Choose your insurance company wisely. You need to make sure that they most likely will be around in the time of need.
Link Posted: 2/4/2006 7:38:05 AM EDT

Originally Posted By stony275:
I think if you get your insurance from a quality company (there is a rating system for them), then I wouldn't worry about splitting the policies.

FWIW, I was a financial advisor and had my life insurance license. A decent agent will do an analysis of your goals/objectives to make sure you aren't over or under insured. Am I correct in assuming you want to pay for your kids college tuition, pay off the house iand provide for your wife f you're not around to be the primary provider?



Yep.
Link Posted: 2/4/2006 7:39:47 AM EDT
Make sure you buy only from a highly rated insurer. Check the AM Best insurance rating on your carrier.

The insurance policy is worthless if the company that wrote it isn't around when you die.
Link Posted: 2/4/2006 7:41:18 AM EDT

Originally Posted By PeteCO:
I am looking for a life insurance policy. Term only, nothing fancy, 20 or 30 year level term is what I'd prefer.

I want $1 million in coverage. My main question is whether I should split my coverage, and go with 2 separate companies for $500k each, or go with one company for $1 million. This way, if I die and someone decides to delay the payout for some reason, I hope that my wife would get at least $500k right away.

Is this a sound way of thinking about it? Do policies ever get cancelled because a company is going under or something?

Any other tips? I've got our first baby on the way, due in August, so I'd like to get this taken care of. Also, what is "permanent life insurance"?



I used to sell life insurance, I have a CLU designation, etc.

If you go with one company, it will probably cost slightly less (though not enough to make a huge difference) and they will want more thorough medical histories and exams. You can avoid medical exams entirely if you just buy in chunks of 100K each or less, if that is an issue for you. It will cost more if you do that, but we aren't talking huge bucks.

Policies do not get cancelled if the company goes under. Insurance companies are tightly regulated and there are state insurance pools made up of all the companies that pick up the garbage and pay everything off if one company fails. Unless there is some real question about the death (like your wife is suspected of murdering you) payoff should happen fairly quickly after the death certificate is submitted, in any case. I never heard of any cases of unreasonable delays.

Term life insurance is where you pay a premium based on the risk of you dying in the current year. It is very much like car insurance. It accumulates no cash value. If you stop paying the premium, you don't have any more coverage.

Permanent life insurance is where you pay more (a lot more) and the excess over the term premium is put into a fund that accumulates cash value that is used to pay the death benefit. Theoretically, the cash value should equal the amount of the death benefit when you get to the expected age of death. (It never works out that way, but that's the idea.) At some point you can stop paying premiums and just rely on the cash value as the death benefit.

Which is better? That is a long story but, for the typical person, with kids, just starting out in this thing, go with the term insurance first. Lots of people will tell you that the permanent insurance is a bad investment. In terms of comparing it to the return you would get from the stock market or something similar, it is a bad investment. Part of the reason is that about half of the first year's premium goes to pay commissions.

People will tell you that you will do better if you "buy term and invest the difference". Assuming all things are equal, that is probably true. The insurance agents counter that very few people actually invest the difference and that most people need it as a kind of forced savings method (even if it results in a negative return for the first ten years or so). They also say that money in insurance policies is generally more secure than money invested elsewhere. For various reasons, that is true.

While you consider these arguments, please remember that the arguments from both sides of the table were originated by insurance agents seeking to sell their particular favorite product.

There are a whole nother set of arguments about permanent insurance if you have significant wealth. It can provide various tax advantages. If you have lots and lots of money, send me 100 grand or so and I will give you more detailed advice.
Link Posted: 2/4/2006 7:44:49 AM EDT

Originally Posted By Phil_A_Steen:
Make sure you buy only from a highly rated insurer. Check the AM Best insurance rating on your carrier.

The insurance policy is worthless if the company that wrote it isn't around when you die.



Wrong. If you buy an insurance policy, the claims will be paid by the state insurance pool, even if the company goes under. I have worked at a number of companies to which that happened. Everyone with a valid claim got paid in an orderly and timely manner. Typically, the insurance commissioner will put the company into conservatorship and take over its operations long before the situation gets too bad.

But, having said that, better rated companies are worth the additional premium, if only because of better service. We aren't talking huge dollars for term life for a "young" (less than 50) man, anyway.
Link Posted: 2/4/2006 8:02:07 AM EDT
I am in my early thirties. Is there some rule of thumb in determining how much to insure yourself for? I have equity in the house and a 401k, roth ira, etc. So I guess that makes me a "standard" example?

I figure I want my wife to have enough to raise the kid, pay off the house, have enough cash to live off of and grow through investments, not including the investments we have now.
Link Posted: 2/4/2006 8:06:51 AM EDT

Originally Posted By GlockSpeed31:
You need to set a meeting up with a good Insurance co. I use State Farm for my Homeowners, Car and Life Insurance. By have all of my policies w/ the same company, I get price breaks in all my policies. The main important thing about meeting with the agent is they can tell you or inform you about the different types of policies and help you make the right choice of policy. By selecting a million dollar policy, you will most likely have to have a complete physical exam along other things that the Company will require. Choose your insurance company wisely. You need to make sure that they most likely will be around in the time of need.



I don't mean to rain on your parade but, when it comes to life insurance, State Farm has never been among the market leaders for value. They are usually WAY above what you can get elsewhere from top-rated companies. For example, compare their rates with someone like US Life for term insurance.

When it comes to permanent insurance, Northwest Mutual generally has the best returns. You would not want to compare a State Farm permanent policy with NWM. If you do, your State Farm agent will probably give up before the sales game even starts.

My impression is that the only reason State Farm sells life insurance is because they have contact with the customers through the other lines and people don't shop.
Link Posted: 2/4/2006 8:13:30 AM EDT

Originally Posted By PeteCO:
I am in my early thirties. Is there some rule of thumb in determining how much to insure yourself for? I have equity in the house and a 401k, roth ira, etc. So I guess that makes me a "standard" example?

I figure I want my wife to have enough to raise the kid, pay off the house, have enough cash to live off of and grow through investments, not including the investments we have now.



If you call an agent, they will bring over a pretty computer program that will calculate it out for you.

But you can certainly do an adequate job of estimating it on your own.

How much money do you want your family to have per year?
How many years?
Do you want the house paid off entirely?
What do you want to put in extra for college, or whatever?

Add up those figures and see what it comes to. You can get fancier with assumptions about investments, etc., but that's the place to start. In all probability, $500,000 will do a good job for most families. But if you check the rates, $1,000,000 isn't much more. Remember these are tax free dollars to your wife/family.
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