My husband and I are both in our early 30s; we don't have children, nor do we intend to. And we both make enough that either of us could completely carry all of our bills and regular spending. One of my friends found out recently that we don't have life insurance and was appalled.

Are we missing the boat here? Without my husband's income, I would need to downsize somewhat in order to keep contributing to my retirement accounts and savings, but probably wouldn't need two cars or a large(ish) house for just me anyway. Is there a compelling reason that we *should* have life insurance?

Thanks very much.

I'm shopping for life insurance and appreciate the help in deciding on term or whole life insurance. I get a lot of offers in the mail for life insurance and got one today from Sears Life Insurance Co. I trust Sears but at the bottom it says, in part: this insurance is not insured by the Federal Insurance Corp (FDIC). Should I be looking for a company that IS insured by FDIC? Is that necessary or desirable?
Thanks!

Great comments. I wish you would have called me since I only sell term life insurance...by choice! To add to your position, so many cash value agents try and compare the rates of returns between the cash value policy, which they emphasize is tax-deferred, and the investment return of the alternate investment. Don't be fooled by this "sales" tactic. Even with this tax deferred treatment your anaylsis is dead on. Also, remember that most people in this country are in debt. If they use the savings generated from purchasing term life instead of cash value plans to pay down debt fisrt then save then the financial comparison is based on the interst rate being charged on the debt which is even more substantial that the 5-10% return you earn on an investment. Cash value agents sell their product in a vaccum pushing all the "bells and whistles" but not really looking at the client's overall picture. This way they can sell their product without really focusing on good financial advice for their client. Thanks for the opportunity to rant.

Before I am too critical of the response I must admit that this is afairly typical response...to throw out numbers that are not accountable or accurate and without must explanation of their basis. Your calculations that the two investment returns of 9.18% on the insurance and 10% on the investment are a concocted comparison because over the course of the 20-30 period of these policies none of them have paid 9.1% especially when you factor in the higher expense costs. If you visit National Underwriter.com you will see the past 20 year rates of return for whole life, universal and variable life policies of the top carriers and none of them achieve this return for the period. That is the fallacy of the presentation. Agents use current rates of return as a projection for the future. This is why so many policies fall apart in future years or require additional payments. The whole life rate of return is actually a negative in manner cases. Additionally the statement..."With Term, Inheritance Zero" is not accurate because the savings which accumulated over the 20 or 30 period from not buying the cash value plan is the inheritance, which is also available throughout the term of the insurance coverage. If you die during with the cash value policy you get only the policy death benefit, not you cash value account, unless you selected an even more expensive death benefit option. The Indexed nature of the policy you are referencing does not change the argument because somehow it has a better rate of return...only if you illustrate it that way.

Here I go again...the other thing to remember in this financial calulation submitted by Ted is that for many people once they get out of debt and use the savings from the cash value policy to make investments...many of these investment opportunities may also be tax deferred such as participating or maximizing in a company or individual retirement plan, setting up an ESA or 529 Plan or even have some tax free growth by utilizing a Roth IRA. This negates the whole comparison since we know that so many people today are barely taking advantage of their tax favored investment opportunities compared to this 9.1 vs 10% comparison. Even if the rates of returns are equal, which they are not because a cash value plan invested in a mutual fund has higher expense costs vs. the same direct investment in a mutual fund, the other drawbacks about cash value plans are still prevalent. It is just not a good investment product. Buy term life insurance to protect your family and invest your money wisely with the better products available.

I found your comments interesting but also contradictory. Insuring a probability vs. a certainty is really just another smoke screen. All insurance was intended and developed to protect against the uncertainty of an event. By turning the approach into a vehicle that protects a certainty makes it more a investment than an insurance product and should be measured and compared on that level. We all know that insurance plans measured from strictly an investment standpoint are a poor choice no matter how you want to compare it...bonds, stocks, whatever...based on their rate of return even when considering the "tax advantages and returns" you allude to. The fees and the adminstrative costs reduce their value when you compare them head to head with the same investment option outside of the policy (bond vs bond, etc.).

Also, as an investment advisor you are aware that most people are not even taking advantage of their tax deferred or tax free options availalble to them whether through their employers or elsewhere (401k's, IRA's, Roth's). Taking advantage of these plans first are clearly more beneficial and a much better investment option that the purchasing a plan that tries to co-mingle two approaches and fails on both levels.

The idea that after 20 years you are without insurance is easily dealt with and can be measured. Your startegy is to plan for disaster and assume the worst in the direction of a client's plan. Yes, there can be setbacks but over a 20 year period there is plenty of time to correct and adjust unanticipated issues. Also, you can purchase 30 year plans which provide an additional time frame for planning. In addition, the fear tactic that many agents use that after 20 years you may not be able to get coverage is simply that...a scare tactic. It is a possiblity but with advances in medical care and underwriting the number of poeple that are declined coverage today in our agency is less than 5% and we process over 25,000 applications a year. Yes, the insurance is more expensive 20 years later but still affordable and accessible for most in their 50's, 60's and even 70's.

I would agree that any financial plan has to plan for setbacks and challenges. That's why an emergency fund equal to 3-6 months income is an integral part of any plan and addesses the concerns you noted: " mistakes, market swings, job loss, disability, death, raising the grandkids, etc..." Emergency funds, maximizing retirement and savings option's, disability insurance, term life insurance and investing accomplish the same security you note in a more effective manner. Or that would at least be my opinion.

While I strongly believe that Chris' comments above are genuine and his intent to help and serve the senior market is admirable...the information provided and the reasoning is somewhat flawed. If someone has reached their senior years and has not done planning for the variables noted in his comments a little bit of life insurance is not going to help regardless of the type purchased...whether term life or cash value plans. Each of the reasons mentioned that supposedly create value for the cash value/whole life plans only raise the amount of coverage needed thereby raising the cost of the plan.

If you want a little burial policy, yes it is easier to qualify for but that will not get you too far in the other areas addressed as being benefits provided...supplement income, investment growth, estate planning, and college planning. These are all important goals or strategies to have but can not be accomplished with a "small amount of life insurance". These little burial type policies range from $2000 to 15,000 in coverage generally and on a per thousand basis of cost are expensive due to the applicants age and the whole life nature of the coverage. They just seem more affordable because they are based on small amounts. In addition, each one of the other policy features mentioned are really just an over statement since each of these goals simply add to what the policy value really needs to be which would raise the cost of the plan significantly. If you see past the imagery created it is just another method of hyping all the features of cash value plans based on the "flexibility" of the program and the premise that people need life insurance for their "whole life". I could not disagree more and in the end the comments and the numbers don't match up.

Forget all the other "great" features of life insurance noted for a moment. Just think about the concept of why you are buying the protection. It is purchased so that you can meet obligations and debts that currently you do not have the resources otherwise to take care of. As a tool in your financial plan you need life insurance for that period which corresponds to your inability to be able to provide for your family or pay bills. When you buy cash value insurance you are basically saying that I plan on being in debt and not being able to provide for my family for the rest of my life. All the other features that are pushed about cash value plans only distract from that premise.

Now many will say that cash value plans simply give you flexibility to plan for all variables; death, living, indebtedness, retirement, wealth transfer, etc. But many of the comments about term insurance mentioned earlier are incorrect and antiquated. You can purchase term insurance today for 10, 15,20,30 and new 40 and 50 plans are being offered. All of these plans have guaranteed coverage (no requalification required) during the period purchased. In addition, coverage can be purchased today on individuals up to 80 years old. Yes, the premium is expensive but you should see the cost of cash value plans...often 10 times higher. In addition, most reputable plans actually renew until age 95 though they get very expensive after the initial guaranteed premium period.

I don't profess that seniors now should be buying any type of life insurance unless they have debt or an inability to provide for their spouse at their death. There are so many other better investment options available to people and you should only buy life insurance...if you need life insurance. However, the concept of buying term and investing the difference still has financial merit since the significant savings from buying the term policy instead of the cash value plan can be invested over the remining years of life and will in essence build a savings fund that can address these same strategies more effectively. If you die prematurely then the death benefit from the policy and your separate savings are available to you instead of just the cash value death benefit. Remember when you die with a cash value plan you only get the policy amount not your savings also. If you die after the term policy expires then the savings from not buying the cash value plan and investing it over the years is the resource for burial and the other goals noted.

Is either of these approaches a perfect resolution to a senior who has not done proper planning through their life and now find themselves unable to meet financial responsibilities later in life...NO! But using a poorly designed, expensive cash value life insurance plan and over-reaching on what it can really accomplish is not an effective strategy either. The comments above are really just recycled logic to get people in their younger years to buy these plans based on the same flawed premise as evidenced by the comment..."If the policy is purchased early enough or funded heavily in the beginning...". If while you are younger, during that 30-40 year period while carrying term life insurance, you budget your resources, get out of debt, maximize retirment plan options, invest the savings from not buying cash value insurance and generally follow a plan of just basic common sense financial decision-making you will not have the long term need for any life insurance and be able to prosper from better investment options. If you don't do these things and wait to plan your financial needs when you are a senior I doubt you will be able to follow anyone's advise.

I was reading some comments above and did I understand it correctly that there is 33% tax on whole life?

Also, I asked on another forum about low cost life insurance quotes and was told that for $400 a year I can get $500k term policy for 20 years. That seems incredibly cheap. Thoughts?

As a response to the comments above there is no time when I am anything but straightforward. Your assertion that there are more people who do not make it thru our pre-screening process is accurate but not because of eligibility. They make the personal financial choice to not purchase the coverage many times at a price that is still affordable in perspective to their medical risk but either don't have the money or do not place enough value when comparing the cost and benefit provided. For example a female Age 60 with type 2 diabetes treated with insulin would run approx. $1934 per year for $300,000 on a 15 year level term plan assuming no other major health issues. A history of depression would be even less. The male rate is $2875. The prices drop to $1389 for female and $2170 for male on 10 years plans and will are approximately double for those at age 70. These are all high rated cases based on the health history examples you noted. Prices are greatly reduced when you get into the preferred and standard rates classes. However people continue to decide not to purchase coverage even when the cost for a 60 year old for $300,000 is as low as $800 a year. All of these amounts are affordable depending on the personal circumstance of the individual. In addition, I don't believe the answer to your concern is for someone to buy an inferior investment related product that will cost them 8-10 times the cost of term when they are healthy just so they can have coverage if they need it in later years. A true financial advisor tries to manage their clients total financial picture by helping clients focus on the real menaces to their financial future...DEBT. By using the savings from buying term an individual can eliminate high cost debt such as credit cards and eventually all debt and will be much better focused on growing wealth with better financial instruments than insurance...even with the tax deferred (not tax free) benefits a cash value plan offers. Remember any growth in a cash value plan over your premium payments (cost basis) is taxable at your income tax rate when you withdraw them...if there is an increase. Many cash value agents will tell you it can be tax free instead of deferred since you can borrow against the cash value instead of withdrawing it. But then you pay interest for access to your own money and when you die they reduce the death benefit by the loan amount. That doesn't sound free to me. The scare tactic that most companies use about being without insurance has been very effective for over a century. However with the advancement in the last 20 years in long term guaranteed level term style plans, inproved medical care and underwriting analysis the amount of people truly affected by this issue is very small. In addition, it assumes you will always be in debt and not capable of handling your financial responsibilites for the rest of your life. Not a strategy I follow or recommend to my clients.

Very interesting posts. It is unfortunate that there is so much buzz in the industry today about permanent insurance being a "bad thing". Again, most of you are right that term can fill temporary need but it is only "rental" of insurance coverage. Why rent when you can own? The trivial discussion regarding the cost of pure insurance offered under permanent vs. term is a shortsighted argument. The REAL issue is that permanent insurance works best as an investment for retirement. If you don't want choices for retirement then go the cheap route and buy term insurance. Invest all of your excess funds in your IRA to the maximum and then put the rest in safe accounts that offer little to no return. Here is where you will be at retirement age (say 65). You will have no insurance coverage and no way to get it if needed. Inflation will have outstripped your safe investments negating wahtever interest you may have reinvested during the period of those investments. Your IRA's will be full of cash but heres the wake up call...that money is not all yours, its just temporarily on your letterhead. The government will decide how much of your IRA you will keep by setting the tax rates. Does anyone here think our tax rates will be lower in the future? If so I have bridges for sale. In 1982 the highest personal income tax rate was 70%, so go ahead and save your money for the government....I can't think of a better investment strategy! (sarcasm of course)

Permanent insurance works best for people that have an insurable need above $250k, AND would like to save money for tax free retirement. Indexed products are great becaiuse there is no risk of loss of principal, and earnings that are capped and floored. This means in good market times, you will earn the cap, and in bad time such as now you will not lose principal and you will likely not make any investment returns. OK so, is there anyone out there that is sick about watching their retirement accounts shedding 40% of their value? Are you comfortable with that? I can't understany why if you are.

Insurance and investments are not about the numbers, it is about choices. The more choices you have the better off you are. Why? Because who knows what is going to happen in the future. A good insurance guy will monitor your insurance every year and compare it to what was sold to you, if it is not performing they need to fix it, if it is performing, you need to know that...every year!

If your need for the death benefit goes away, then drop the face on the policy to the minimum and this drive wup the cash value. A properly sold and monitored policy will ALWAYS outperform buying term and investing the difference. The problem in this industry is that many policies are not sold properly nor are they monitored like they should be. If your agent does not report back to you every year and give you a synopsis of your investment then he is not a good agent at all. Commissions are paid up front, responsible agents reserve part of their earnings to fund the ongoing monitoring costs. Very seldom does this occur so here we are, wiith permanent insurance taking on a bad image. Its not the financial vehicle you choose, its the person behind it. Buyer beware and don't hand all of your retirement cash to uncle sam, there are better ways to use your own money.