6 Replies Latest reply on Oct 21, 2013 2:07 PM by redbird32303

    Life insurance

    MyR Community Manager

      Life insurance - you hope you never need it; so why buy it?  Tell others what it means to you.
        • Re: Life insurance
          JerryD
          Good peace of mind while raising the family and paying off the house. After that it can be forced savings if there is cash value. Helps pay final costs too. Never figured out all of the tax plays there might be with life insurance, but I am sure there are strategies that work.
            • Re: Life insurance
              jkom51
              Life insurance is a useful financial planning tool that is specifically used for risk mitigation purposes.
               
              Many people confuse insurance with the idea of "risk elimination" which is impossible. No one can eliminate ALL risk. The goal is to lower your financial risk in the specific areas where you, personally, have the most risk.
               
              A good insurance agent/broker, who is as hard to find as a good certified financial planner, should be willing to spend time with you to gather enough data to help you identify what areas in your life present the most risk; e.g., the most risk of failure in your financial future.
               
              Most people can only think of paying off the mortgage, or for a funeral, or for college education. In reality there are several other equally valid reasons for having insurance. This is especially true in today's culture, where often both spouses work, and employment benefits are minimal or unavailable.
               
              The old rule of "5x" or "7x" annual income is a generic measuring stick that may not be applicable to your situation. I have always found it inadequate at best.
               
              For the very wealthy who are certain to encounter estate taxes, an Irrevocable Life Insurance Trust (ILIT) is almost essential. They are time-consuming to set up and have rigid contribution rules, but the ILIT will pay most if not all the estate taxes and distribute tax-free funds in addition.
               
              For dual-income couples, both need to assess their health and employment risks to set up adequate insurance. If there are children, serious consideration needs to be given to the costs of graduate and post-graduate education for each one, in addition to any other risk factors (loss of income, mortgage, etc.).
               
              I have substantial level term insurance for a specific reason: estate planning. My DH does not need insurance because he collects an assignable pension. Should he die, I receive 100% of the same amount through my lifetime.
               
              But if I die, he gets...nothing. I have little retirement savings (we lost mine trying to stay out of bankruptcy 20 years ago). I have some modest annuities coming when I'm 65, but they are not assignable. When I'm dead, they stop.
               
              Because his pension is classified as a government pension, the WEP Act screws him so that even though he has his forty quarters in, Social Security will pay him only 40% of his normal pension - hardly enough to even pay a Medicare B premium.
               
              Thus, I have sufficient life insurance to give him 30 years of direct drawdowns in an amount equal to what I would have contributed plus estimated taxes. The policies end when I'm 70; by that time the need for such additional income for him would be much less.
               
              Why? Because of several factors: his pension has a COLA. His expenses would be much less without me. We have long-term-care insurance to handle the extra medical expenses of aging.
               
              I worked for a major insurer for 13 years and learned how to do risk assessment. We had specific risk factors of personal health, family genetics, no children to rely upon, and modest financial assets that would not support the death or disability of one spouse without negatively impacting the other.
               
              The result was that we purchased both life insurance as well as LTC insurance. One without the other would have not sufficiently mitigated our risk of achieving a comfortable retirement and providing for declining health in our old age.
            • Re: Life insurance
              GeorgeFred
              I just read a TIAA-CREF posting that addressed Life Insurance, with the heading:
               
               "Life Insurance Cash Value:  Take It Or Leave It?"
               
              In reference to cash value life insurance, in the 2nd paragraph the post asserts:
               
              "The value of this account is, technically, tax sheltered, meaning that you will be able to draw from it the interest earned on it without paying for it during tax filing season."
               
              I am interested  in a clarification of this reference.  Are dividends paid out and received in cash taxable?  If dividends are kept on deposit, is interest earned on the deposit taxable?
               
              Thanks for the insight from my colleagues.
              • Re: Life insurance
                docdeb1950
                I am single, age 63, and plan to retire in the next couple of years.  I have two life insurance policies totaling approx. $195,000 in death benefits.  I have one daughter, age 25, who is in vet school (which she is paying for)and no longer dependent on my income.  Any reason I should NOT cash in my life insurance policies and deposit the money in a high-yield fund? The total cash value at this time is $50,000 (I have a loan out against one policy which is accumulating interest).  (Note:  I have an old, smaller policy with death benefit of ~$20,000 which could be used for expenses at my death)