Life insurance

Ian J said:
Very very generally you can expect to pay $20-$30 a month on a $400,000 ish policy for a 20 year term. . If you die your family gets the money.
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That's why I like basic term life insurance, because it's simply "insurance". Not insurance/retirement plan, those get way too complicated for me to understand.


The debate has gotten somewhat off my intended point,

For the cost of two pizzas and a 6 pack of beer, you can make sure your wife and kids will be taken care of if something happens to you. You CAN afford that even as a CFI.

This is NOT AN OPTION for us parents.

drunkenbeagle said:
Just keep in mind most life insurance policies will exclude any flying that isn't for an airline.
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You can still get plenty of insurance as a GA pilot. You'll pay a little more, but we're still talking about pocket change.
 
minitour said:
I always elected to receive the commission on the premium (monthly) rather than on the face value (one time) and face a charge-back. So to answer your question, I have no idea. It would depend entire on the premium.
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Let me ask it another way, then. If you're getting commission on premiums only and a term costs $25/month and the same value whole policy costs $160/ month - on which would you make the most commission?

On which kind of policy do insurance companies make the most money?

My point is you're lucky to get a 4% ROI most of the time (depending on the investment).
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Highly disagree. Source?

Plus 60% (maybe even more...I haven't seen the charts for a few years) of the people that "buy term" to invest the rest simply don't. They either use the money on Chinese food or something else they don't need. Then when their term runs out, they're hosed.
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This, I believe. And I have little sympathy for those who do this. Don't Rely on a whole life policy as an investment tool - take responsibility for your own financial future.



Talk to an agent licensed in your state. Seriously.

-mini
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Actually, don't listen to me or Mini. Instead, talk to a fee-based financial adviser, first
 
I have resisted this thread but feel somewhat of an obligation to chime in. I apologize in advance for the length of this document - but it may be helpful in your thoughts about life insurance.

I am in the insurance business and a large portion of my income is derived from life insurance. I do very little work with individuals, and the majority of our work is with financial institutions, non-bank corporations, and large trusts. This is a somewhat limited niche, and there are specialty products that "people" cannot but. That said, the process that institutions go through needs to be adopted by individuals - who mostly don't have a process, or if they do it is flawed.

It is premature to discuss what kind of life insurance is best to purchase - term, universal life, variable universal life, or whole life. These products all exist for a reason and if any of them were "bad" or didn't serve a specific purpose - they would not be for sale. What this thread is doing is similar to almost any discussion of life insurance that takes place amongst individuals - it devolves into an discussion about which kind of insurance is "better" or what type of purchasing method is "better" (fee based planner, agent, etc). What nobody is talking about is the method they go through to make this purchase, the proper assessment of amounts, how to pay, etc. Universal life is great - but if you can only afford $100k of UL death benefit vs. $750k of term...and you need $750k of term...then the UL is obviously not "better" in this case as it would leave you under-insured by $650k.

Couple things - the available commission on most life insurance products is somewhere between 90%-120% of the first years premium. This is true of term and universal life - whole life pays less, but pays higher renewal commission for longer, so you end up at about the same place. Now - agents that say they make "40-50%" are not necessarily lying to you, they just work in an agency structure where the selling agent receives 40%-50% of the compensation, the agency and other hierarchy receiving the rest. Now...if you are WacoFan...you get 90%-120% directly. Woo-hoo! Fee-based planners, agents or other distribution methods are not necessarily more "ethical" than others - there are a great many unethical bozo's in each - so it is incumbent upon you, the consumer, to take care with who you work with. Saying "he was fee-based" is not a defense when someone takes you for a ride. Meet people, assess whether or not they are trustworthy, and go from there. Commissions on life insurance products are inextricable - the products are filed with the states as to rates, guarantees and commissions and they can not be waived.

Now...what most people lack is a "method" or a way to analyze a life insurance purchase - not just a product - but the overall buying decision. Because a huge amount of my business is done with banks, thrifts and credit unions (highly regulated financial institutions), there are rules in place that must be complied with for ever sale. What is irritating is that individuals do not also have a system and compliance system for their personal purchases. The current regulations (jointly created by the OCC, FDIC, OTS, and Federal Reserve) state that prior to entering into a life insurance contract, a bank must complete a detailed analysis of the following "Focus Points" and "Risk Areas". Below I will go into the "Focus Points" that are worded exactly as you would find on the FDIC website. By each point, I will give a basic definition on how you, the individual buyer, could translate that to your purchase:

OCC 2004-56 - Interagency Statement on the Purchase and Risk Management of Life Insurance

Focus Points​
  1. Determine the Need and Economic Benefits of the Insurance - This is a "macro" assessment - you should identify the risks you are facing and specific obligations associated with those risks. Also analyze how the insurance will address those risk areas and obligations.
  2. Quantification of Amount of Insurance Needed - Once the above step is completed, analyze the amount of insurance needed to cover those obligations given reasonable economic conditions.
  3. Vendor Selection - self explanatory - who do you want to work with. Are they honest? Is the situation complex and what kind of expertise is needed?
  4. Review the Characteristics of the Available Insurance Products - this is where you start to delve into the "what kind". Analyze the long-term characteristics of each product. Is there value? looking at term - is the risk temporary or permanent. Price.
  5. Carrier Selection - once a "Type" of insurance is determined, look at what company you want. Financial strength, past performance, price, value, contract terms and features.
  6. Determine the Reasonableness of Compensation Provided to the Insured Employee if the Insurance Results in Additional Compensation - This really has no relevance to a personal insurance buy.
  7. Analyze the Associated Risks of the Transaction and the Banks Ability to Monitor and Respond to those Risks - This is an analysis where you need to determine how difficult the transaction is, your ability to understand and monitor the plan (independent of your agent) and the process you will undertake to manage this transaction (service - what is expected and when).
  8. Evaluate Alternatives - as it says - what other alternatives, if any, could also accomplish your goals.
  9. Document the Decision - These are compliance manuals we put together for banks. Generally they are between 200-300 pages of numbers, legal opinions, and accounting opinions. An individual doesn't need that level of detail - but you do need to get the answer's to the above 8 questions in written form so that you can measure and manage on a go forward basis.
Don't focus on the "which kind" - focus on the "Why" the "How much" and the other areas first.
 
Additionally Ian, per the other thread, I want to work on your insurance personally. I have a fine idea about "focus point number one" above. An amount that will pay all your debts, all of SC's debts, and would allow her and I to have a really exciting life together after you croak. Once she has conservative she'll never go back.
 
WacoFan said:
It is premature to discuss what kind of life insurance is best to purchase - term, universal life, variable universal life, or whole life. These products all exist for a reason and if any of them were "bad" or didn't serve a specific purpose - they would not be for sale.
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I can't wholly agree with this - there are "bad" products out there but they do serve a purpose. An example is payday or title loans. They are "bad," but serve the purpose of making the payday loan company money.

What this thread is doing is similar to almost any discussion of life insurance that takes place amongst individuals - it devolves into an discussion about which kind of insurance is "better" or what type of purchasing method is "better" (fee based planner, agent, etc). What nobody is talking about is the method they go through to make this purchase, the proper assessment of amounts, how to pay, etc.
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Agreed, but then again I think the method an average family should use to determine the right life insurance is fairly simple.

Fee-based planners, agents or other distribution methods are not necessarily more "ethical" than others - there are a great many unethical bozo's in each - so it is incumbent upon you, the consumer, to take care with who you work with.
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My suggestion to speak with a fee-based financial planner was meant to mean a financial planner who does not sell insurance. Sure, while they could take you for a ride, especially if you don't research them, the likelihood is less. The more likely "bad" scenario with them is that they just aren't that good.

OCC 2004-56 - Interagency Statement on the Purchase and Risk Management of Life Insurance
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Good stuff!
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Don't focus on the "which kind" - focus on the "Why" the "How much" and the other areas first.
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Could you give a reasonable example why a regular middle-class would do better with whole/UV vs. term?
 
WacoFan said:
Additionally Ian, per the other thread, I want to work on your insurance personally. I have a fine idea about "focus point number one" above. An amount that will pay all your debts, all of SC's debts, and would allow her and I to have a really exciting life together after you croak. Once she has conservative she'll never go back.
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Poor Jim... so delusional.

1. I have no debts.

2. After I croak SC will most likely limit her relationships to one night stands.

3. I am a conservative.

:D
 
Ian J said:
I can't wholly agree with this - there are "bad" products out there but they do serve a purpose. An example is payday or title loans. They are "bad," but serve the purpose of making the payday loan company money.

Arcane, but whole life CAN work, if purchased from one of the big three mutual companies (New York Life, MassMutual, Northwestern Mutual). It generally is best on the very, very young - but those companies have extremely strong dividend payment histories. Also, when a mutual company decides to de-mutualize I have seen people clean up financially because they can get a significant amount of stock in the new entity. Like I said, arcane - but, the longer I have dealt with this the more I stay away from blanket statements.

Agreed, but then again I think the method an average family should use to determine the right life insurance is fairly simple.

Generally simple and significantly easier than the stuff I do. BUT - what method do people use? It generally varies and they back into the amount they need after deciding what kind of product they are getting (UL vs. Term) and then buy as much as they can afford. Many people don't objectively look at the true cost of their death and its impact. They also focus on the amount needed the day they die - not five or ten years after death. If they do project their families needs they will often use unreasonable multipliers for investment growth, etc. None of this stuff is hard - but it is often not done. People will say "Wow...half a million bucks...that's a lot of money" when it actually isn't over the course of a family's life.

My suggestion to speak with a fee-based financial planner was meant to mean a financial planner who does not sell insurance. Sure, while they could take you for a ride, especially if you don't research them, the likelihood is less. The more likely "bad" scenario with them is that they just aren't that good.

After talking with the fee-based planner you are still going to have to speak to a commisioned agent generally. The planners (generally) do not touch on life insurance in depth many times because it is actually a more complicated area than it first appears. Also, there are some significant tax ramifications to insurance ownership and death benefits that many don't touch. It cuts both ways - a person on commission is always suspect because he only gets paid if you DO something. A fee-based planner gets paid whether they are good or not. Pick your poison - I have seen too many instances of people getting jobbed by "fee-based planners" to have any faith that they are more or less ehtical than anyone else. As I said - same percentage of people are a-holes no matter what - always beware.



Good stuff!​






Could you give a reasonable example why a regular middle-class would do better with whole/UV vs. term?
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Couple of examples - people that have permanent insurance needs need a permanent product. Generally "middle-class" people have needs that are significant until retirement so 20 or 30 year term works best in those cases.

I am actually creating a deal here that will deal specifically with Estate Planning for people with special needs. This is an area close to my heart and there is little true service available for these people. Many "commissioned" people only sell high-commission products to them while many fee-based or asset-based planners don't mess with them because they are not a lucrative market segment. These people have permanent needs - a child who is physically or mentally handicapped that will need care their entire life. Permanent as well as term is probably the answer here because no matter what the date of death of the parents, there is going to be a need to create an estate.

Other examples of permanent vs. Term would be if someone wants to name a charity as a beneficiary of all or a portion of the death benefit. This would represent a permanent need (actually a permanent "want") that permanent insurance could fulfill.

A last item is to protect your insurability. This can be done either owning a permanent product, or more reasonably (for most people) by owning a convertible term policy. Convertible term allows an insured to convert from term to permanent without having to prove they are insurable. So...you are rocking along with term and enjoying the low premiums, then are stricken with a dread disease that will render you unable to pass an insurance examination in the future. With convertible term you can simply convert the term insurance into permanent (and pay the correspondingly high premium) and have the protection for life.

Generally (and I hate blanket statements):

1) Middle-class people are better with term.
2) Life insurance is life insurance. Do not buy it as in investment or savings account. Life insurance has special tax features which CAN make it attractive...but those are really best exploited by banks and large companies for various tax-dodges or deferred compensation plans (Yay WacoFan! Yay huge premiums and commissions!).
3) Put as much thought into this as a corporation is expected to - it isn't difficult to accomplish the steps I laid out. Many of them can be answered in a sentence or two - but go through the process and document WHY you chose to do what you are doing - makes it much easier when you review next year because there is no reliance on memory or ambiguous statements by a life insurance guy.
4) If it sounds too good to be true it generally is (unless you are a large corporation dealing with WacoFan...YAY huge commissions!).
 
Ian J said:
Poor Jim... so delusional.

1. I have no debts.

2. After I croak SC will most likely limit her relationships to one night stands.

3. I am a conservative.

:D
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Excellent news about the debt situation.

Excellent news about SC limiting herself to one night stands!

Not sure about number three...I mean...you haven't been to a seal clubbing with us. I mean...you are certainly more conservative than SC...but how would you stack up against me or even a lessor conservative like Glen Beck? :D
 
WacoFan said:
Excellent news about the debt situation.

Excellent news about SC limiting herself to one night stands!

Not sure about number three...I mean...you haven't been to a seal clubbing with us. I mean...you are certainly more conservative than SC...but how would you stack up against me or even a lessor conservative like Glen Beck? :D
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Pretty much the same except more intelligent and better looking. :D
 
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