Anyone know stuff about life insurance?

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Johnnie
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Anyone know stuff about life insurance?

Post by Johnnie »

10 years ago I started paying into an overfunded policy through New York Life. My buddy's dad was an insurance guy for them and broke down the benefits of having it, so I trusted him. But after googling "whole life insurance" and, yea, I'm not feeling too hot. Anyone here know enough about it ? My hope is to somehow convert what I have to what's actually good for me.
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DC47
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Re: Anyone know stuff about life insurance?

Post by DC47 »

Unless someone has dependents, the odds are very low that any form of life insurance is a good move. Certainly not compared to maximally funding every possible retirement account and the several surrogates (e.g., HSA account not used for medical purposes until after retirement).

Life insurance can be a good thing to have if others seriously depend on your income. If you die, the death benefit can be essential in getting them by. No other financial product can really substitute for this, because if you are relatively young and healthy, the leverage of the investment (premiums) is huge. That is, the death benefit is many times the premiums that have been paid. Term life serves this purpose best. When dependents are no longer dependents, drop it. Yes, the premiums have been "lost". But this is insurance. It served purpose you paid for.

Using forms of life insurance that allow investing (e.g., using mutual fund equivalents) within them and offer some tax sheltering requires a very sophisticated investor and some luck to overcome the weight of the substantial costs embedded in the insurance. It's almost never a good idea. But it's completely legal for insurance salesmen to present spread sheets illustrating a (surprise!) very favorable outcome. The hidden assumptions drive the favorable conclusion.

Obviously this is just my personal opinion.
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Re: Anyone know stuff about life insurance?

Post by Johnnie »

I think your opinion is spot on and jives directly with my further googling.

I trusted my buddy's dad and the projections of his spreadsheets. He made it seem like a good retirement investment that could supplement things in the older years where I'm not working. I started this thing at 24 and recently I was thinking "Do I need to keep paying for this? What's it even doing right now?"

I'm sure a decent supplement to retirement is the case, but I can do the math of what I pay per month to what it actually makes and them calculate what I could do with this money if it's actually invested. Sure, the death benefit has a large payout compared to the initial amount, but the cash value is not really gaining.

At the very least, the minor panic attack of "oh shit, if I cancel this do I walk away with nothing and I've lost it all?" was quelled because there is that cash value that, from what I'm reading, I'll get back. I just have to see if there's a surrender fee of some kind. Or more likely a tax of some sort because it's possibly income.
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Re: Anyone know stuff about life insurance?

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It's betting on yourself to lose!
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Re: Anyone know stuff about life insurance?

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That sounds like a joke from Seinfeld. Is it? Never watched.
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Re: Anyone know stuff about life insurance?

Post by A_B »

Yeah I carry a fair enough amount of life insurance but that's because I have three people that would be in a real jam if I died suddenly. If you have no one that needs your immediate support it's probably not worth it, though it is also pretty cheap when you are young and in good health. I guess an advantage of it would be if you were racking up hospital bills and it could pay those off.
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Re: Anyone know stuff about life insurance?

Post by mister d »

Only reason I could see keeping it is if its still fixed for a long period of time and you think your family situation might change any time in the relatively near future. Like I'm locked in through the early 2040s at a pretty low rate because I started the policy on the early-ish side.
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Re: Anyone know stuff about life insurance?

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A_B wrote:Yeah I carry a fair enough amount of life insurance but that's because I have three people that would be in a real jam if I died suddenly. If you have no one that needs your immediate support it's probably not worth it, though it is also pretty cheap when you are young and in good health. I guess an advantage of it would be if you were racking up hospital bills and it could pay those off.

Luckily for me I have Tricare through the military. My medical is 100% paid for. But that is a good point. I'm realizing that if I'm the major provider within a household and I'm suddenly gone, bills need to be paid. I have no dependents now and I certainly didn't at 24. This seems to be money I put into an account as a death present for my sister and godkids. It's nice in theory, but it's unnecessary.
mister d wrote:Only reason I could see keeping it is if its still fixed for a long period of time and you think your family situation might change any time in the relatively near future. Like I'm locked in through the early 2040s at a pretty low rate because I started the policy on the early-ish side.

That does make sense. And I don't see it changing all that much. Plus SGLI is term life insurance through the military that can be flipped to VGLI once I'm retired. And I believe the monthly rates for each are inherently better due to my service.

Looks like I'll be making a phone call this morning.

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Re: Anyone know stuff about life insurance?

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Johnnie wrote:10 years ago I started paying into an overfunded policy through New York Life. My buddy's dad was an insurance guy for them and broke down the benefits of having it, so I trusted him. But after googling "whole life insurance" and, yea, I'm not feeling too hot. Anyone here know enough about it ? My hope is to somehow convert what I have to what's actually good for me.



Is it tied to mutual/index funds or "dividends" or whatever they call them? The index fund ones are almost always a terrible idea.
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Re: Anyone know stuff about life insurance?

Post by Gunpowder »

It's probably a better idea to invest your money yourself and buy term life insurance when and if you truly need it then to fund a policy based on investing in the market.

The dividend approach I like because it's a true diversification. Having a bunch of different stocks is not actually diversification - they all pretty much go down when things get bad.
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Re: Anyone know stuff about life insurance?

Post by Gunpowder »

And if the dude told you to expect a 7% return because that's the market average, he should be arrested and beaten. Actual average is closer to 5%.
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Re: Anyone know stuff about life insurance?

Post by mister d »

Yeah, but he beat the market by 2% over the last 18 months, man.
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Re: Anyone know stuff about life insurance?

Post by Johnnie »

Gunpowder wrote:Is it tied to mutual/index funds or "dividends" or whatever they call them? The index fund ones are almost always a terrible idea.


Gunpowder wrote:It's probably a better idea to invest your money yourself and buy term life insurance when and if you truly need it then to fund a policy based on investing in the market.

The dividend approach I like because it's a true diversification. Having a bunch of different stocks is not actually diversification - they all pretty much go down when things get bad.

To the former question, I believe it was something like that, but I don't remember the conversation word for word. Logging in and reviewing everything, it seems to be that way. As long as I get the cash value that I'm reading, it's basically dollar for dollar of what I've given the last ten years. It's been a glorified "savings" account that has done nothing.

To the latter, exactly. My friend works for Schwab and I can say "Hey, so what should I do here..." I've already hit her up for things relating too my deployment. The Savings Deposit Program is free money. And I'm sure I can invest elsewhere.
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Re: Anyone know stuff about life insurance?

Post by Johnnie »

Gunpowder wrote:And if the dude told you to expect a 7% return because that's the market average, he should be arrested and beaten. Actual average is closer to 5%.

Side tangent to this, and what got me looking at retirement things in the first place, the military retirement plan, known as the "High 3" or "High 36" in it's current form, is changing to what's called the "Blended Retirement System."

In short, when I retire I'll get a paycheck that is 50% of the average of the last 36 months of my base pay. (It goes up 2.5% for every year after 20, but I'm not staying past 20.)

The new one is you'll get 40% of the average of the last 36 months of your base pay. The other 10% is made up 5% of base pay over the course of your career being enrolled into a Thrift Savings Plan account that is matched by the government. You can do more, but the government matches only up to 5%.

Luckily I'm not even eligible to enroll in this new system, but many people who are early in their careers are. And if you are in the current system, you can still invest in TSP anyway. So you can see that this new system is shit with simple math.

The only question that needs to be answered is "Can you guarantee that when I'm 59 1/2 years old (when I can take money out of TSP with no penalty) the new retirement can at least break even compared to the old one given the circumstances?" The answer is "I don't know." Since it isn't a "yes," its bullshit.

I say that to say this...the lieutenant I work with makes as much as me in his base pay. He's been in over 2 years. I've been in over 16. For him it's possibly advantageous. If he has to separate, he separates with something. BUT...he can be investing in TSP anyway. (The cap next year it's $18,500.) For an enlisted person that's been in 2 years, which is who this new retirement system really targets due to how many more enlisted there are compared to officers, it's shitty. He used that "historical analysis shows that returns are 7%.." line with me yesterday and I was like "Yea, and then you go to retire during a timeframe like in 2008 and suddenly you are making 10% less in guaranteed cash a month, and over the course of 20+ years you've given 5% of your pay to a system that's market dependent. And to top it off, you can't touch that money until you're 60 anyway, so who's to say your gunna live that long or live long after you're able to draw from it?"

Instead of an "Oh, good point." It was a marathon circular discussion/argument of "the government can't sustain it's current system" and "it's not better or worse, it's different" and "look at historical trends and see the market always goes up" and "this new system is for people who aren't necessarily staying 20." It hurt my brain. You can just be force enrolled upon enlistment into TSP right now if you "want people to have something when they get out." Don't hurt those planning to do 20+. They're getting fucked. All it tells me is that the military wants you to stay just long enough (8-12 years) to train a replacement and you bounce at 24-28 years old. They've kept 5% of pay in that time and you'll see it again with interest (fingers crossed!) in 32+ years.

Apologies for the rant, but that line resonated just now.
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Re: Anyone know stuff about life insurance?

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Any concerns about the country's ability (or willingness?) to pay this out 30 years?
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Re: Anyone know stuff about life insurance?

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mister d wrote:Any concerns about the country's ability (or willingness?) to pay this out 30 years?


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Re: Anyone know stuff about life insurance?

Post by DC47 »

My estimate for inflation-adjusted annual returns for average individual investors over the next 15 years:

-2%

That's average. Which means I expect 50% to do worse. And of course most of them currently believe they are not in the bottom 50% in investing acumen. Very few will get even +5% annual real returns.

Just my opinion, of course. No one can remotely know for sure.
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Re: Anyone know stuff about life insurance?

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mister d wrote:Any concerns about the country's ability (or willingness?) to pay this out 30 years?

My retirement check? Not really.
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