tag:blogger.com,1999:blog-5465015914589377788.post8772155918714339372..comments2024-03-20T09:32:16.592-04:00Comments on Michael James on Money: Life Insurance: Permanent vs. TermMichael Jameshttp://www.blogger.com/profile/10362529610470788243noreply@blogger.comBlogger27125tag:blogger.com,1999:blog-5465015914589377788.post-4833434063074350402020-08-29T15:58:36.695-04:002020-08-29T15:58:36.695-04:00Hi Adam,
I've always respected Gail's abi...Hi Adam,<br /><br />I've always respected Gail's ability to help people who don't handle their money well. In recent years I've seen her handle herself very well, and I've seen some bizarre things. I don't think she's lost her mind, but her state may be intermittent.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-28567406596535907842020-08-29T15:47:57.073-04:002020-08-29T15:47:57.073-04:00I know this is old, but I recently raised same iss...I know this is old, but I recently raised same issues with Gail who was pushing perm insurance on Twitter. I did so respectfully as I have always found her very smart about finances. She told me to f* off and blocked me. I think she's lost her mind. Adamhttps://www.blogger.com/profile/14418714358430573459noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-45293024017680987572014-12-12T17:49:19.169-05:002014-12-12T17:49:19.169-05:00Insurance is used to protect against unexpected fi...Insurance is used to protect against unexpected financial loss (car, home, life). As heartbreaking as the loss of a child would be, it is not a long-term financial hit. No need to insure someone who is not making a financial contribution to the family unit. (paid or unpaid)Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-71996025709686522992014-12-12T09:29:45.983-05:002014-12-12T09:29:45.983-05:00@Chris: I never did. Some try to justify life ins...@Chris: I never did. Some try to justify life insurance on children based on burial costs and needing to take time off work to deal with the pain. But that seems like weak reasoning to me. I could take time off work without receiving $25k. I don't have enough detail to judge whether the savings component of your policy is any good, but I'm not optimistic.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-25847931202835555332014-12-11T23:00:29.841-05:002014-12-11T23:00:29.841-05:00Has anyone here bought life insurance for their ki...Has anyone here bought life insurance for their kids? i set up a whole life 20 pay policy for each of my daughters just after they were born. The premium is only about $300/year, so the total outlay is $6k for an initial policy value of $25k. the policies are set up to use the dividends to purchase paid-up additions, so the policy values will continue to grow over time and they will have them forever once the main policy is fully paid-up (after 20 years). Did I go a little overboard here?.Chrisnoreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-42455062524542334642014-12-11T14:14:10.559-05:002014-12-11T14:14:10.559-05:00@Anonymous: I've seen that with some older me...@Anonymous: I've seen that with some older members of my extended family. It's kind of sad to collect on life insurance policies of $10,000 or $15,000.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-23359754330913193172014-12-11T14:11:25.358-05:002014-12-11T14:11:25.358-05:00Another problem with permanent life insurance is t...Another problem with permanent life insurance is that because it's so expensive, people end up buying too little coverage (especially when inflation is taken into account). My insurance agent recommended $500-750K of coverage given the size of our mortgage and income replacement needs, and that is huge for a whole life policy. For term (20 years) it was a reasonable amount. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-30933048367571900562014-12-11T08:25:42.864-05:002014-12-11T08:25:42.864-05:00@Gene: I assume insurance companies do this sort o...@Gene: I assume insurance companies do this sort of analysis. Maybe not the subtle incentives, but rather the broad statistics. No doubt they have data related to additional factors such as education, etc. as well.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-53047482695196899592014-12-11T08:23:20.541-05:002014-12-11T08:23:20.541-05:00@Mark: I guess if someone intends to keep renewin...@Mark: I guess if someone intends to keep renewing term insurance until they die no matter how long they live, permanent might make more sense. But if you intend to stop at some age when you expect to have built adequate savings, term has looked better in the examples I've looked at.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-91361343281243144682014-12-11T06:15:38.870-05:002014-12-11T06:15:38.870-05:00I guess I was thinking some folks are likely to re...I guess I was thinking some folks are likely to renew terms, and if so, they could have had a permanent policy in the first place, potentially with the same premiums AND cash value because some whole life plans have the investment component.<br /><br />I'm not saying people should do that, I didn't and don't intend to.<br /><br /><br /><br /><br />My Own Advisorhttp://www.myownadvisor.canoreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-32123129545438890302014-12-10T23:19:26.149-05:002014-12-10T23:19:26.149-05:00A tangent: I wonder what the mortality rate is for...A tangent: I wonder what the mortality rate is for people with life insurance vs the uninsured. Seems like life insurance gives people a subtle incentive to die. Probably not enough to tip the scales too drastically, since the desire to remain alive counteracts the incentive to die and hit the jackpot.<br /><br />Of course, it would be hard to adjust the death rate data for all externalities (education level, job safety, wealth, health, etc)genehttps://www.blogger.com/profile/05608927986297939720noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-60672506285110966692014-12-10T23:01:00.996-05:002014-12-10T23:01:00.996-05:00@Grant: Whenever I crunch numbers on a permanent l...@Grant: Whenever I crunch numbers on a permanent life insurance policy, the returns look very poor -- consistent with what you're saying.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-85322273699939666052014-12-10T22:54:57.705-05:002014-12-10T22:54:57.705-05:00At whitecoatinvestor.com there is several very goo...At whitecoatinvestor.com there is several very good articles looking at this issue. He concludes that one should not mix insurance with investing, as although there are tax advantages with permanent insurance, the very high commissions received by insurance agents, the fees charged by the insurance companies, and the poor investment returns due to the fact that the funds are actively managed, results in these tax advantages being hugely overwhelmed. I think that articles promoting permanent life insurance are generally written by those benefiting from selling these products.Grantnoreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-2360569169107036072014-12-10T17:51:00.496-05:002014-12-10T17:51:00.496-05:00@Mark: I don't follow your logic for why some ...@Mark: I don't follow your logic for why some should get permanent policies. Long-term need isn't a good reason; you can get a 40-year term policy and investing the difference would build substantial savings over 40 years. So, a permanent policy would have to have a competitive savings component to make sense.<br /><br />I don't need life insurance at all, so it's not a question of term or permanent.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-61020577891351397282014-12-10T17:30:07.602-05:002014-12-10T17:30:07.602-05:00I'm of the opinion that insurance is needed un...I'm of the opinion that insurance is needed until you can self-insure. For some people, based on their business activities or for self-employment reasons, permanent is the way to go; especially if they create their policies young.<br /><br />On the other hand, I believe term is best for most folks that will not have long-term (20+ year) financial obligations.<br /><br />You're a perfect test case I think Michael, because you can self-insure now and have likely be able to do so for many years. Term wouldn't make sense for you now but it likely did in your 30s.<br /><br />MarkMy Own Advisorhttp://www.myownadvisor.canoreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-64334877603823851272014-12-10T16:11:16.939-05:002014-12-10T16:11:16.939-05:00@Anonymous: Excellent points. In effect, the insu...@Anonymous: Excellent points. In effect, the insurance coverage decreases as the savings component increases. This is actually a reasonable feature, but it has to be factored in to any thorough analysis of the relative values of different policies.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-29940358963372415142014-12-10T16:07:15.990-05:002014-12-10T16:07:15.990-05:00Gail fails to explain how one would access that ca...Gail fails to explain how one would access that cash value if needed (borrow or surrender the policy) and what happens to the cash value upon death (stays with insurance company). I agree Michael..... have yet to see an example where permanent insurance is a better deal than term lifeAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-19246063462743210542014-12-10T12:06:00.107-05:002014-12-10T12:06:00.107-05:00@James: Taking a long term with the plan to cancel...@James: Taking a long term with the plan to cancel if you don't need it is safer but more costly. Every 5 years you add to the term hikes the premiums significantly because the risk of death is much higher when you're older. It's all a trade-off between cost and risk.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-8014175083522621632014-12-10T12:03:06.562-05:002014-12-10T12:03:06.562-05:00@Anonymous: Yes, when choosing a term length you&#...@Anonymous: Yes, when choosing a term length you're trying to guess your future financial circumstances. Renewal clauses help somewhat, but the guaranteed renewal rates are often not great; people count on being able to re-qualify to get a better rate on the next 10-year term than the guaranteed rate.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-72906233962076815012014-12-10T12:01:46.253-05:002014-12-10T12:01:46.253-05:00Both good replies. I view it as buying options or...Both good replies. I view it as buying options or flexibility. You can reduce or cancel the insured amount of a life policy at any time, however you can not increase it without evidence of insurability.<br /><br />Of course I don't know your specific policy but recently it seems that consumers are more concerned with just debt elimination and not with income replacement regarding their insurance.<br /><br />I don't want this to sound like a sales pitch, but many people are not insurable and do not even realize it. So, you might not need all of it when you are young but at least you can get it. Your new product idea is good, but it would be hard to know what a safe future date would be.Jamesnoreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-60741095496049987962014-12-10T11:32:10.673-05:002014-12-10T11:32:10.673-05:00Agree in general, but the problem with a longer te...Agree in general, but the problem with a longer term can be changing life circumstances. My wife and I, when we had our first child (at 29) bought a 10yr policy. At that time, our net worth was small, we had a large mortgage, etc. Fast forward to near the end of that policy and our net worth is substantially higher, almost zero debt remaining, so when this policy expires, I will likely find my needs for the next policy to be dramatically different. A 10-yr renewal allows you flexibility to revisit - but as you correctly point out, also exposes you to higher costs due to illness, etc.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-56261934154581224412014-12-10T11:28:27.670-05:002014-12-10T11:28:27.670-05:00@James: I'm somewhat skeptical about buying l...@James: I'm somewhat skeptical about buying life insurance when you don't need it just in case you don't qualify when you do need it, but I can see the logic for some people. Maybe there should be a product better targeted to these people. Offer a long term product that only pays out if you die after some future date. So, initially all you're paying for is future insurability.<br /><br />Longer terms can make sense, but you need to predict how long you'll need insurance. In my case, I stopped needing life insurance fairly young. It would have been a waste to get a longer term. The costs of longer terms rises quite quickly starting right from the first payment.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-63381841735085467592014-12-10T11:18:11.987-05:002014-12-10T11:18:11.987-05:00I sell life insurance. Nice post!
The argument f...I sell life insurance. Nice post!<br /><br />The argument for buying young with no dependants is that you may not be insurable later in life. Or insurable at rated rates.<br /><br />Instead of thinking the decision is just between 10 - 20 year terms or permanent insurance with savings, there are other options. Term insurance can go as long as 40 years or some companies have a term to age 70 product. You can also purchase a permanent policy and not fund the savings, which basically makes it a term 100. Longer term, term insurance makes the most sense for most of my clients.Jamesnoreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-31189574120296049732014-12-10T11:14:46.346-05:002014-12-10T11:14:46.346-05:00@aB: I'd be more inclined to agree with you if...@aB: I'd be more inclined to agree with you if it weren't for the fact that so many people who begin with permanent life insurance end up stopping making payments and essentially abandoning it. There are many other ways to try to force yourself to save where the numbers look better than permanent insurance. <br /><br />Trying to find ways to get people to save money and not tap into these savings or borrow against their savings is a difficult area. I'm not convinced that permanent life insurance is a good answer.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-67669629423591467472014-12-10T11:05:24.790-05:002014-12-10T11:05:24.790-05:00I agree with your analysis numerically.
But, I th...I agree with your analysis numerically. <br />But, I think Gail's target audience (from her shows, apparently very few look at numbers) who needs life insurance might be better served with the forced savings of Permanent life insurance.<br />Some return is better than no return, and they might not be at a financial literacy level for a better return.aBnoreply@blogger.com