by Guest » Tue Jun 29, 2010 06:40 pm
So, I am 19 and my husband is 28 and we want to buy life insurance. We have read up on the different types, but everywhere we look the descriptions of each are too wordy and not easily understandable for the common person like he and I. We simply want insurance that will last until each of our deaths that will benefit our child (or other future children). We do not want the payout to be small, but quite big like $500,000 or $1,000,000...I hope these types of policies are not too expensive are they? (Probably a dumb question) What is the best insurance in your opinion for our situation?
Posted: Wed Jun 30, 2010 03:58 am Post Subject:
Note - Make sure you have the help of an independent agent that sells products from many companies, not just one company.
Given your age, life insurance will be dirt cheap now compared to waiting to buy anything else as you get older. If you wanted to guarantee the benefits forever, you have two main choices without getting too deep into things:
1. Guaranteed Universal Life (GUL) - Lowest premiums, minimal cash value accumulation
2. Whole Life - Higher premiums, greater cash value accumulation
Given your young age and depending on the income that would need to be replaced, you may want to consider purchasing an even larger policy than mentioned for each of you. Maybe consider a combination of benefits with part term insurance and part permanent insurance. If you outlive the term insurance (e.g. 20 or 30 years), you will still have something left (the permanent insurance) instead of having to look for more coverage at a much higher price at that point.
Here's a helpful life insurance needs calculator that isn't perfect, but a good start: http://www.lifehappens.org/life-insurance/life-calculator
As an example, assuming you're in perfect health and a non-smoker, rates for a 19 year old female:
$1,000,000 guaranteed for 30 years - $36/month
$1,000,000 guaranteed forever (GUL) - $154/month
Whole life - figure 2-3 times the price of GUL
28 year old male:
$1,000,000 guaranteed for 30 years - $59/month
$1,000,000 guaranteed forever (GUL) - $285/month
Whole life - 2-3x GUL price
Posted: Wed Jun 30, 2010 04:09 am Post Subject: insurance
The Insurance amounts, that you say are "guaranteed for 30 years"...do THOSE have 'cash value' on them?
Posted: Wed Jun 30, 2010 04:26 am Post Subject:
No. Term insurance does not have cash value. Guaranteed Universal Life will have some minimal cash value, but you should not borrow from it or take a loan against it. If you do, you could change the guarantee and have a big problem on your hands. If you want cash value accumulation, whole life is the best way to get it. There's a price to pay for that though and I won't turn this into a 5-page post about whole life versus universal life.
Keeping it simple:
Guaranteed universal life - death benefit guaranteed forever, minimal cash value that shouldn't be touched, lowest price for permanent coverage
Whole life - death benefit guaranteed forever, much greater cash value, much higher premiums
Posted: Thu Jul 01, 2010 05:10 am Post Subject:
Hi, I'm the original poster. The guaranteed universal life sounds interesting. What are the pros and cons of this type of insurance and how does it compare to term life level?
Also, is the GUL level always?
Thanks!
Posted: Thu Jul 01, 2010 05:25 am Post Subject:
Pros - Guaranteed forever, death benefit and premium will never change as long as you pay in full and on time and don't take any loans against whatever cash value builds up. Just think about it as term insurance guaranteed forever.
Cons - Higher price, minimal cash value if that's something you're concerned about. Sounds like you aren't though.
Term insurance is guaranteed for a specific period of time (e.g. 20 or 30 years). After the term is over, the price skyrockets to a number you wouldn't want to write the check for. Given your young age, even a 30 year term policy doesn't get you close to retirement age.
Yes, GUL premiums and death benefits are level for the entire life of the policy. If you're paying $285/month now, you'll still be paying that amount 40 years from now and will still have a $1,000,000 benefit.
Posted: Thu Jul 01, 2010 05:47 pm Post Subject:
Now let's plug whole life insurance!
For her $518/mo for $1,000,000 in coverage
40 years from now premium is still be the same but she'll have around $850,000 in cash value on the policy and around $2,100,000 in total death benefit. And there's about $23,000 in dividends paid that year.
For him $803/mo for $1,000,000 in coverage
40 years from now premium is still the same premium but he's got around 1,200,000 in cash value on the policy and $2,200,000 in total death benefit. And there's about $35,000 in dividends paid that year.
So which one is cheaper?
Sorry...couldn't help myself. :lol:
Posted: Thu Jul 01, 2010 06:59 pm Post Subject:
Now let's plug whole life insurance!
For her $518/mo for $1,000,000 in coverage
40 years from now premium is still be the same but she'll have around $850,000 in cash value on the policy and around $2,100,000 in total death benefit. And there's about $23,000 in dividends paid that year.
For him $803/mo for $1,000,000 in coverage
40 years from now premium is still the same premium but he's got around 1,200,000 in cash value on the policy and $2,200,000 in total death benefit. And there's about $35,000 in dividends paid that year.
So which one is cheaper?
Sorry...couldn't help myself.
I suppose that would depend if you want to spend $1300/month or $400/month. :shock:
Posted: Thu Jul 01, 2010 11:42 pm Post Subject:
What's the IRR on death benefit on the SGUL in year 30? :wink:
Posted: Fri Jul 02, 2010 01:39 am Post Subject:
$1300 vs $400/month isn't a fair comparison. If you are comparing on a constant death benefit basis, the WL will only be $1300 if you take a company that has paid dividends for every year for well over 100 years and have them never pay a dividend again. Otherwise, the $1300 will decrease every year.
The most fair way to compare is to use the GUL premium and compare it to a combination of WL and term at the same premium for the same face amount. The WL/term will be better for every single year. Why? The death benefit will be the same for a long time, but the cash surrender value will be higher every year.
This higher cash surrender value means that the person will have more money if they surrender the policy. It will also give them the ability to change the WL portion to extended term insurance or a reduced paid up policy.
GUL typically only makes more sense than a WL/Term mixture at older ages.
Posted: Fri Jul 02, 2010 01:55 am Post Subject:
Careful you are preparing the GUL guys for their favorite part of the debate, guaranteed death benefit. No matter how sound and well funded, a WL/term blend will never have the the entire guaranteed death benefit of a GUL at the same price, that's a fight you can't win, don't even try.
Now, we can talk about the amount of risk one is taking on to have that combo opposed to the GUL, which isn't a ton.
If we went back to the original example we'd get
$290/mo for her
$429/mo for him.
And though we have good reason to believe no additional premium will be required to maintain that death benefit, we cannot guarantee it. However, we can talk about the fact that there is cash value and dividends that the GUL will never have, so there is a benefit to doing this sort of thing.
GUL is a very rigid product, but it has it's place.
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