Life insurance questions

[Russ Smith]

A family member has a policy that she's trying to decide whether to stay with or not, I'm not that familiar at all with Life insurance.

She's apparently been paying $55 a month since 2005, the policy is set to expire in 2048 which apparently is at the age of 100 and is standard for this sort of policy.

It says the current cash value is just over $2300 but if she were to cash out now and stop paying, the actual payout is just over $1700 so I guess there's fees and early termination. apparently she bought the policy from a family friend without really understanding it, it seems to be worth only 25K.

1) isn't $660 a year awfully high for a 25K policy? Is that because of her age at the time she took out the policy, I think she was 57 at the time.

2) is there any real reason to keep such a policy, she's already paid almost 8K and the payout is only 25K. She has 3 kids that will be able to help financially should she pass away and her husband is still alive so with the payoff being that small seems kind of pointless to me? If it was 500K yeah, keep paying but 25K at this much a year I just think makes no sense?

Just trying to see if there's something not obvious that I'm missing that would make it advisable to keep paying on such a policy.

 

[82CardsGrad]

Seems pointless to me RUSS.. given that her husband and kids appear to be financially sound. And yes, $660 a year for a $25k death benefit is EXTREMELY out of sync. But as you say, her age at the time she took out the policy (did she have any underlying health issues? Smoker? Excess alcohol?) was likely a big factor.

 

[Russ Smith]

Seems pointless to me RUSS.. given that her husband and kids appear to be financially sound. And yes, $660 a year for a $25k death benefit is EXTREMELY out of sync. But as you say, her age at the time she took out the policy (did she have any underlying health issues? Smoker? Excess alcohol?) was likely a big factor.

Thanks, that's my guess too it seems pointless. Healthwise at the time she signed up for this I suspect the only possible health risk was taking a statin for cholesterol but I'm not even sure she was on that when she took this out.

I think she was being nice to a friend who was selling insurance and didn't really have any idea what she was doing. You can get 3 times that insurance for less through AARP for example.

 

[puckhead]

Thanks, that's my guess too it seems pointless. Healthwise at the time she signed up for this I suspect the only possible health risk was taking a statin for cholesterol but I'm not even sure she was on that when she took this out.

I think she was being nice to a friend who was selling insurance and didn't really have any idea what she was doing. You can get 3 times that insurance for less through AARP for example.

Some friend.

 

[Superbone]

Yes, she should get out of that policy immediately. That policy benefited her "friend" more than her. Does she even need life insurance? If she were to die, would anybody suffer financially as a result?

 

[crisper57]

A family member has a policy that she's trying to decide whether to stay with or not, I'm not that familiar at all with Life insurance.

She's apparently been paying $55 a month since 2005, the policy is set to expire in 2048 which apparently is at the age of 100 and is standard for this sort of policy.

It says the current cash value is just over $2300 but if she were to cash out now and stop paying, the actual payout is just over $1700 so I guess there's fees and early termination. apparently she bought the policy from a family friend without really understanding it, it seems to be worth only 25K.

1) isn't $660 a year awfully high for a 25K policy? Is that because of her age at the time she took out the policy, I think she was 57 at the time.

2) is there any real reason to keep such a policy, she's already paid almost 8K and the payout is only 25K. She has 3 kids that will be able to help financially should she pass away and her husband is still alive so with the payoff being that small seems kind of pointless to me? If it was 500K yeah, keep paying but 25K at this much a year I just think makes no sense?

Just trying to see if there's something not obvious that I'm missing that would make it advisable to keep paying on such a policy.

Lots of variables that are probably different but I just signed up for a life insurance policy (or multiple policies, technically) that:

1. Covers me for $500,000
2. Covers my wife for $250,000
3. Covers all children (current and future) for $10,000

That came out to $104 per month. Based on my coverage vs what you describe, it seems she is paying a lot.

 

[Russ Smith]

Turns out the policy pays out 50K not 25 and despite our recommendations she give it up, she's decided to keep it so I guess not my decision.

thanks for the feedback.

 

[az240zz]

Based on the premium it sounds like a no physical required policy or automatic issue. These cost more since no health exam or health history is taken..

 

[BigRedRage]

It's probably not smart but I have no life insurance, just assets.

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[az240zz]

It isn't smart as your assets may have to be liquidated to pay for final expenses and estate costs. Cheap term life insurance takes care of that.

 

[Linderbee]

It's probably not smart but I have no life insurance, just assets.

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You'd be surprised. My ex husband's dad made close to 6 figures when he passed in 1988, so they were pretty well off. No life insurance, and they lost everything. The emotional damage created from losing their home, horses, vehicles, etc was long-lasting.

 

[Russ Smith]

It's probably not smart but I have no life insurance, just assets.

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I don't have it yet either it's on my list to do.

The thing is if you take care of your will and beneficiaries on things correctly, and have enough cash and funds, the paying for funeral costs part of it can be handled. But if you have debts and mortgages and other things that's where the life insurance makes a big difference.

My mom had life insurance explicitly to pay for the costs of cremation and spreading her ashes at sea. There was enough there to cover all those costs and a bit more which we used on a memorial bench for her.

I've always been really good at naming beneficiaries and when my mom died I found out she had been just as good at it and it makes a big difference as that stuff doesn't get delayed in probate. Her probate took nearly 2 years for other reasons,if she hadn't done a good job of declaring beneficiaries and hadn't had that small life insurance policy, we would have had to wait 2 years to get any money to pay for those things.

From the research I've been doing if you have a mortgage and or kids you're putting through college(I have neither) then it can make a ton of sense to have life insurance that will help pay for those things in case something happens to you before they're paid off.

 

[Superbone]

It's probably not smart but I have no life insurance, just assets.

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It totally depends on one's circumstances. Things like who would be impacted if you died? And how much your assets are worth.

I no longer have a need for life insurance. I'm divorced and have two sons. One of them just graduated from college and the other one is already half way through. If I were to die, they are more than taken care of due to the worth of my assets.

 

[Jersey Girl]

It's probably not smart but I have no life insurance, just assets.

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Same here. And we just looked into getting some outside of work. Talked to a lot of people and decided that it wasn't worth it.

Like Superbone said, it depends on your circumstances. Neither one of us is looking for some big fancy funeral. And, if you are able to make it on one income if you have to and you don't have a ton of bills, then, yeah, life insurance isn't really necessary.

 

[BigRedRage]

My work has 300k insurance for $30 a month so I added that

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[Jersey Girl]

My work has 300k insurance for $30 a month so I added that

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Is that a term policy?

 

[BigRedRage]

Is that a term policy?

I have no idea and now that you quoted me, I think I got some letter of an extra step I needed to take and I have no idea where it is.

 

[CardLogic]

The best way to think of "life insurance" is as income replacement.

That is as a replacement of the income lost by the remaining "family" when an individual from that family has died. It the insured where to die, do the remaining "beneficiaries" have a NEED for the lost income? If the surviving family can adequately provided for themselves without a depreciation of their standard of living, then they have no need for insurance.

Insurance should be a TEMPORARY BRIDGE to protect against that lost income, UNTIL one has accumulated adequate assets, i.e. - savings, investments, property, etc. to be self-insured. The assets are protection against lost income and insurance is no longer required.

Buy life insurance when you are young and need to protect your family in event of your untimely death, once you have acquired adequate assets, cancel the insurance.

As an investment, i.e. - wealth accumulation, insurance provides among the lowest returns of any possible investment vehicle!

There is a reason insurance companies are the most profitable and richest organizations in the world!!

 

[Jersey Girl]

We've changed our tune on life insurance. Both of us are getting enough to pay off the house should one of us pass away.

 

[Linderbee]

We've changed our tune on life insurance. Both of us are getting enough to pay off the house should one of us pass away.

I'm happy to hear that. That's pretty much what Nick and I have. Enough to make it so that a single income won't make life hard. No house or car payment is a good thing.

 

[LVG]

We've changed our tune on life insurance. Both of us are getting enough to pay off the house should one of us pass away.

I'm happy to hear that. That's pretty much what Nick and I have. Enough to make it so that a single income won't make life hard. No house or car payment is a good thing.

My boss yelled at me a few weeks ago for not having at least 10x annual income benefits for life insurance.

Then 5 minutes later another partner came in and yelled at me for not having an updated will and trust for the kids.

Then a third partner came in an yelled at me because he felt left out.

Bottom line - 10x your annual salary and updated probate docs people. Things can go south in a hurry.

 

[Linderbee]

My boss yelled at me a few weeks ago for not having at least 10x annual income benefits for life insurance.

Then 5 minutes later another partner came in and yelled at me for not having an updated will and trust for the kids.

Then a third partner came in an yelled at me because he felt left out.

Bottom line - 10x your annual salary and updated probate docs people. Things can go south in a hurry.

We've been discussing for awhile now the need to set up a trust. We need to figure it out soon. I have no idea how stuff would go if one of us died and with each of us having kids, etc. Would the spouse just get everything? Then when the surviving spouse passes, the kids of that spouse get it all and the first one's kids get nothing? Neither of us want that. So, yeah. Need to get that taken care of.

I think we both have like, 5x our salary. I'd have to get medical exams & such to get more than that and I doubt they'd insure me with all the stuff I have going on.

 

[Dback Jon]

Without a will, etc in arizona everything goes to the spouse. Then if no will, would go to probate, and then the lawyers get rich

When my Grandpa remarried later in life to a woman that had grown children of her own, they drew up the wills so HIS property went only to his kids, and her property (each owned farms) went to only her kids.

 

[LVG]

Without a will, etc in arizona everything goes to the spouse. Then if no will, would go to probate, and then the lawyers get rich

When my Grandpa remarried later in life to a woman that had grown children of her own, they drew up the wills so HIS property went only to his kids, and her property (each owned farms) went to only her kids.

No, no, no. This made my head hurt.

 

[Dback Jon]

No, no, no. This made my head hurt.

How so? Arizona is a community property state.

So what happens with no will?

And you are saying lawyers don't get rich?