Clueless-- Please help! What kind of life insurance does my husband need to buy? He is an ironworker.?

Question

which is kind of a dangerous job. And if something were to ever happen to him he wants to make sure that the house would get paid off and I would be able to continue to stay at home with our kids for a few years. He was thinking about $500,000? Is that a good amount or too much or not enough? He makes around 80,000 a year.

Also what company should we go with?And how do we avoid getting screwed over.

Answer 1

First: Congratulations on even looking at the situation. A lot of folks don't until it's way too late.

Second: Let's discuss some various types of life insurance. Here are the basic forms of insurance.

First: term - this is for a specific period only. Most companies offer 10, 15, 20, some 30 and even 40 year term policies. There is no cash value accumulation within a term policy and it is basically renting your insurance for a specified period of time. It has its place, but the one bad feature of it is that you only win if you die. Most beneficiaries actually appreciate if the policy is in force at your death :-) and only about 1-2% of all term policies ever pay off because most folks drop it as they get older, simply because the costs become exhorbitant.

The idea for many is to buy the insurance cheaply and use what difference there would be between the term policy and what you would pay for a permanent policy and put that into a mutual fund. That may or may not be a good idea depending on your situation, and you might have to be concerned with tax consequences if it's a naked mutual fund (not covered within a ROTH IRA, for example.) Not everyone is eligible to use some of the "wraps". Unfortunately, a lot of folks also buy the term and do NOT invest the difference, but use it to buy "toys".

Second: there is permanent insurance. This is insurance that will cover you for your lifetime, no matter how long. There are various types of permanent insurance. A lot of folks only know of an older one called Whole Life. This is an insurance in which there is cash value growth within the policy. The premiums are fixed in this type of policy. The basic idea is that you make premium payments and what is above the necessary to insure you goes into the General Accounts of the insurance company and they usually guarantee you about 3-5% on this. However there is almost never any cash accumulation over the first five years and what they give you barely, if it even does, keeps up with inflation. Also as you age, the cash accumulation can be used by the company to pay for policy charges so these often lapse or the person winds up at retirement with little if anything in the policy.

There was another insurance called Universal Life which is similar in many ways to the whole life, but here the premium payments are flexible, but again any cash value accumulation is put into the General Accounts of the insurance company and guaranteed at about 2-5%.

Third:

Because both of these types of insurance didn't provide real cash value accumulation (and because back in the 1970's A L. Williams was creaming the insurance companies with "buy term - invest the difference", the insurance companies came out with a fantastic product, and it is a very very good one for a lot of folks. It's called a Variable Universal Life policy. Here, the cash value accumulates in Sub Accounts (which are owned by the insured and NOT the insurance company). These accounts are out in the market and get market rates of return. Depending on the portfolios that you are in, these can average anywhere from 8 - 12% over time.

These policies not only provide life long insurance for you, but the cash value in the account may be accessed tax free (as it may in the other cash value insurance) and if structured correctly, this can add much money to your retirement or even before so you and your partner may enjoy it even while you're alive (as well as having the death benefit if something happens to you).

About eight years or so ago, the insurance companies also created Equity Indexed Universal Life. In these policies, the cash value accumulation is a result of being compared to some index, usually the S& P 500 over the year. A lot of these policies average about 8% over time. They often usually have a cap and a floor and they are often very attractive to folks who like guarantees and who may be a bit older.

You're going to hear a lot of "sound bites" here. A lot of simply "buy term, invest the difference". "All cash value insurance is evil" etc. These are usually from folks who aren't even licensed to discuss the variable forms of insurance in front of someone.

I'm dually licensed, both with an insurance license as well as a security license (no, this is not a solicitation for business, I'm simply attempting to answer your question in as concise and correct as possible in front of a computer where I can't illustrate or draw things for you.)

I suggest that you might like to have your library request "The New Life Insurance Investment Advisor: Achieving Financial Security for You" by Ben Baldwin. It's a bit dry, but you can see for yourself that what I've said is accurate.

Please, if you speak to any agent local to you, make sure he/she is dually licensed so you can get the full story and not just the part of it that the singly licensed person wants to babble because it's the only way they can sell the only thing they have available.

Does this mean I think term is bad? Absolutely not. I often recommend it to folks who have a need for it, but usually it's a convertible policy that can be moved to a permanent one as their situation improves. However, term is NOT the be-all and end-all and it often increases in cost to a point where you can no longer afford it as you age. Also, say you're in a 20 year term, what happens if at age 45 you are suddenly diagnosed with cancer, or have a heart attack, etc. Your chances of having your policy renewed at age 46 again have dropped to about zero. If you died then at age 47 your loved ones would get nothing since no policy would be in force.

Now having said all of that, remember the basic reason for insurance IS insurance. Life insurance is to make your family "whole" again after your death and to replace your income to them. Structured correctly and with a knowledgeable agent who can correctly help you to assess your own situation, it can also help to provide you with a "living" benefit as well as its main benefit on your death.

As to amount, I often suggest a minimum of ten times current salary so that in case of death, the (in this case) $800,000 might be put someplace where it could return 9-10% and replace the lost income each year in perpetuity.

As for how now to "getting screwed over".  Check some reputable insurance company that's been around and check your agents as well.  There are many, many good companies out there.  Just off the top of my head, I can think of

PacLife, WRL, Old Mutual, AIG, Traveler's, etc., and a lot more.

Answer 2

Hello Mam,

     Yes. Your husband is facing occupational hazard. Since we can not estimate the value of life any amount of life cover is insubstantial !

      All though the minimum human life value is calculated as 25 times his annual income and it increases with increase in number of dependents. He should go for pure medical polices ( health and medical ) that gives coverage against accidents and deceases, rather than investment+medical or health polices.

      Have a close look at administrative charges, hospitalization facilities, claim process, all terms and conditions.

      

      Some good companies are Prudential, AIG, Allianz, Met Life. But it depends on which part of the world you are living, because many are active at different places.

       Thank You.

Answer 3

Type of policy: Select between a term and whole life insurance policy. Term life insurance policies provide life insurance for a specific time frame. They are cheaper, but don't have any savings component inbuilt that whole life insurance policies have. Whole life insurance policies cover you for your remaining life. They are usually more expensive, but provide savings and estate planning components.

http://www.freewebs.com/getanswer/BestLi...

Answer 4

Although I do agree with the poster above me, there are a few things that are not quite right.

1) Not all term policies jump in price after there designated period or while in force.

2) There is at least one term product out there that if you get anything that would normally make you uninsurable while covered, you can still renew into another term policy based solely on obtained age.

Whole Life does have a place for estate planning purposes, beyond that though, I would not recommend it.

And yes I do work for Primerica (Formerly A.L. Williams)

Answer 5

Depending on how old he is, and the various financial obligations you have as a family, you will want anywhere between 5 and 20 times his annual salary.

The best way to avoid being screwed over, in my experience, is to go to an independent Agent who has been in business for some time.  Not just a company that has been around forever, but also an Agent with at least 5 years of experience.  Only go to folk who are accredited members of the Better Business Bureau, and never NEVER go with a company that doesn't have the one of the top 2 financial stability ratings at AM Best, Standard & Poor, and/or Moody's.  

If you are determined to talk to a Captured Agent, go to New York Life.  They are on the (very) expensive side of things, but their agents are, almost universally, very well trained, and heavily encouraged to maintain customer relationships.

But I recommend independent agents, as they can give you prices across a series of companies.

Answer 6

Go with "Hide Some Money in the Mattress" inc.

Answer 7

First of all, dangerous jobs have much higher premiums.  Age is a factor for the premium.  I would try to get him a 30 yr term policy.  $500k is a good start.  Contact an independent agent in your area to get a quote.  Do not apply via the internet.  You have questions, have an agent in front of you to answer them.  Also look into Mortgage insurance...that is typically a decreasing term policy.  As your mortgage amount gets paid off, the death benefit decreases.  Call your mortgage company and see if you can still apply for coverage.  Also, look into Disability insurance.  For him, it's a must in case he is disabled and can't work.  There are Short Term and Long Term policies available.  Again, contact an agent.