Well, I think how one views life insurance is totally up to them. Some use it to get through the child rearing years and ensure their kids won’t be without funds as minors, others use it in a trust as a tax free vehicle upon death, some don’t buy it at all or buy a tiny burial policy.
We bought quite a bit when the kids were young. Took advantage of setting it up so that if something ever went wrong it would not be taxed in the estate. We no longer need it. We’ll likely cancel when the term ends. Would I cancel now? No way. The costs are so low relative to value.
I look at it as a financial tool.
When H retired, we were faced with two choices. We could take his pension or a lump sum. His company froze pension amounts when they went through bankruptcy - the monthly amount was pitiful, and the two options for survivor benefits were laughable. If we had chosen the pension, we would have gotten life insurance on him so that I would have some money if he died first. As it was, we took the lump sum (our savings were sufficient to take the risk). However , it helped me to understand that life insurance can play a role in overall financial planning. If my SS payment was higher than it will be, we might consider life insurance for both of us to protect against taking a huge hit after one dies. There are certainly scenarios where insurance is helpful.
"When are y’all dropping term life policies? " - We dropped our own coverage over time as the kids finished college. Then we lost the employer coverage at retirement, as we knew would happen.
We each have a small non-term policy but reconsider that decision at each annual enrollment. Currently the policy give us insurance (which we don’t need but seems nice) … and even after factoring in our premiums there is a few percent growth of cash value. So we “kick the can down the road”. Some year if we need some mostly-non-taxable income we might consider cash-out.
In general, we are not in favor of insurance policies bought as part of estate planning for ourselves. Admittedly we have been recipients of such a decision (with tax free inheritance), but had that family member lived a very long life perhaps there would not have been enough funds to pay nursing home and the huge annual premium.
I assume the estate planning attorney took care of this to make sure you don’t have any “incidents of ownership” of the policy.
Here is an article that explains some legal complexities of moving a life insurance policy out of one’s estate. But don’t blindly trust anything you read on the web; the laws can change, so consult your lawyer!
NOT SELLING ANYTHING HERE. Just an example of how planning with access to all the tools can work. Have seen many scenarios where taking a pension, no survivorship ( to max the benefit) and taking part of the differential and purchasing a death benefit for the survivor, which can then be invested in anything including an income stream , exceeds the traditional life with survivor benefits, both in life and at death. All guaranteed (not market based). Again, it’s about goals and math. When it works, we do it, when it doesn’t we don’t. Categorically eliminating financial instruments takes many solutions off the table. Sometimes we’re called in too late (to analyze a situation). I want to tell these folks “Too bad we didn’t speak several months ago. Had we you’d know more about X and Y…nothing I can do now” but I don’t because what’s the point? Fortunately my firm consults with many CPA, Trust Cos and Law firms to get in front of the decision making.
Enough derailing the thread. Suffice it to say, figure out what you think you need and read up on or consult with an advisor who can help you get there the way you WANT to get there. Planning isn’t just about dollars and taxes, but rather organizing your stuff to do what you want, when you want, how you want. Use the whole tool box. No reason to try to hit driver every hole! 14 other clubs in the bag. As one of my golf buddies always tells me, “No pictures on that scorecard!”
Yes, we set it up with one attorney then had it checked by another. We later updated things in the estate and have since changed attorneys. Since an estate is important I like to have two sets of eyes. Plus things change.
We have worked with lots of attorneys (&CPAs) over the years, like any career, some are competent and some less so. We are fortunate to have a family friend who is also an attorney. He usually advises us and then we work with specialty attorneys.
That sounds like that obvious purpose of life insurance: to financially protect anyone who is financially dependent on you being alive. Such financial dependency could be if someone else depends on:
Income from your labor.
Your unpaid home labor (e.g. caring for other family members who are children, elderly, or disabled) which would have to be hired out if you were not alive.
Income from pensions, annuities, etc. that are contingent on you being alive.
… and such financial resources would not be replaced for them by your estate if you die.
I have to say we were pretty reckless when we had young kids… because other than what employers offered for free, we never bought additional LI. There is definitely no need now, and it would be way too expensive.
@Colorado_mom the life insurance ‘scene’ has changed some over the years, as have pensions, investing etc.
My dad was a heavy smoker because he was so hooked and with his work stresses it was all part of his lifestyle until his lungs were shot at age 45. He started in the Army at age 21/22 when everyone went to take a smoke break. He should have quit way before he became the business owner. A friend sold life insurance, and the companies were changing the premiums for smokers – so dad (now the business owner) bought two life insurance policies at reasonable premiums. Dad died two days before his 64th birthday (and 20 years after he quit smoking) - small cell lung cancer (which his younger brother also had) - dad had emphysema so a lot of dead air in his lungs. He was physically strong and active (he was a mason and then owned the construction company; you get very strong slinging those block bricks for work). After dad died, mom bought a couple of small policies on herself - one was through her JCPenney account, and I don’t remember where the other one was from. Mom died at 77; her two small life insurance policies went to the grandchildren; my two daughters benefited greatly as the investment of those funds helped pay for a good portion of their college costs – and one daughter still has a portion of those funds still growing in the investment. The older grandchildren used directly for college, and one was able to buy a new car – since my children were younger, the investment of the funds grew quite nicely.
When I had aggressive cancer, we bought some term policies on DH because he was our family income source and I potentially would never return to work. DH had disability and insurance through work.
The picture now is different and we are guiding DDs on how to handle financial decisions for the short and long run.
Since my parents did not spend down their estate, there was a nice inheritance for all 5 siblings. I feel pretty confident with our estate, as long as we do not spend down the estate with extended health care, we will be able to leave an estate for children/grandchildren.
with all due respect rickle, it is nearly impossible for permanent insurance to produce a “greater investment” than a balance asset allocation in the aggregate. There are a few situations where life insurance can be ‘valuable’ such as paying estate taxes for extremely large estates (over the federal limits), or providing for a disabled child after you are gone. OTOH, the insurance company profits & taxes – not to mention the generous commissions on whole life — guarantee a sub-par return for nearly everyone.
I think it’s interesting some chose to drop life insurance at 18. We kept it until ds graduated college (I see that others also did that as well). We were full pay at a private college, however. I never had any, but my dh did.
When my parents died they had “mortgage insurance.” Is that still a thing?
“Planning isn’t just about dollars and taxes, but rather organizing your stuff to do what you want, when you want, how you want.” - Well said. It is important to research all the options.
Nobody knows all the variables, so you should pick a solution that makes sense to both spouses. (A lot of couples sweat the tax aspects for the heirs. Personally I focus more on optimizing OUR tax situation since inheritance for the kids will be “bonus money” for them.)
@Hoggirl -I assume that mortgage insurance (aka PMI, private mortgate insurance) is still a thing. We only had it on our first house and ditched it as soon as appreciation caused us to have 20% equity. Per our analysis, it was pricey… covering an ever decreasing principal. I can see where it was nice that your parents did not burden heirs with mortgage payment.
My mom and dad took out mortgage insurance also @Hoggirl.
It wasn’t PMI, it would have paid off the mortgage if one of them passed away. I suspect this was to protect stay at home mothers when the husband was the primary wage earner. They bought their house in the mid 1960’s
Thanks for the comment … jogging my memory more on the topic. The required PMI (til 20% equity) protected the bank, but along with it there was also an option to add on mortgage-payoff insurance. We decided we’d prefer to have flexibility of term insurance (cheap when young).
We bought term life insurance policies for when kids were young and help survivor with mortgage. The policies expire in 3 years when youngest will be a junior in college and we will not get more even though we will still have a small mortgage. Term gets so expensive as you get older but it did provide peace of mind. DH’s brother passed unexpectedly when he was mid-50s so his insurance was very helpful to his family at the time.
I kept my term insurance till the kids were done with grad school. It was a smaller policy by todays’ standards, but enough to pay off the house and their tuition, not that they got help with grad school from me, but if I died they’d have no home or parent to turn to and things would have been more difficult and expensive. Being divorced the beneficiary was my ex, and I thought I had changed the beneficiaries after the younger two turned 18. At a point I realized I hadn’t, and as he lived many states distant with dementia, it was going to be very difficult to change the beneficiaries. Via work, I still have a bit of term, but that will be gone, and being single, no need for the insurance.
But here is a sweet story. My mom had a $10,000 policy that had to be cashed in when she died. She had paid on it sporadically over the years, so actually worth less. Her dad set it up for her in 1942 or some such, when $10,000 could buy a house. It was one of the oldest policies on the books for that insurance company. Now I think of those payments and had they been invested in say Ford or Coke, what would that have been worth? Or it could have been Studebaker.
@SOSConcern, depending on your age (born before 1/1/54) you have a choice in which SS to claim; born after that date, whenever you claim, SS decides that you will get benefits at the higher option - yours or spouse’s. The only exception is you can claim deceased spouse’s benefits and let yours grow.
Do you mean “private mortgage insurance” or PMI to protect the lender in a low-margin (typically less than 20% equity) mortgage origination? Or “mortgage life insurance” that pays off the mortgage if the borrower dies?
There is definitely no need now, and it would be way too expensive.