Questions About Life Insurance

[QM]

DH came to me the other day, told me that he was talking to co-workers about life insurance and now thinks that we don't have enough for life insurance. Is there some sort of calculation that Dave Ramsay uses to figure out how much you should be spending on life insurance and how much your life insurance should actually be.

I phoned our life insurance company this morning and told them that we're thinking about increasing our life insurance. The woman said that people should spend about 1% of their yearly salary on life insurance. Meaning if you make $40,000 then you should spend $400 per year on your life insurance. That seems like a lot to me, but who am I to say?

I told her that if either DH or us dies, we also have it set up that the bank will pay off our mortgage. #1) She then goes into explaining why it's better to go with a company like hers (of course!) than going with a bank. She said that as the mortgage goes down, the less the bank would have to give. Whereas a company like theirs will pay a full amount. #2) Then she went onto explain how the bank also tries to find every possible way after the person dies (by going through medical files, etc.) to not have to pay and this process takes months. Whereas a company like theirs does the research before the client signs onto policy so that a cheque is cut shortly after the person dies.

Anyways, all I'm trying to ask is 'What does Dave Ramsay say about all this?' I've quickly skimmed through the book, but it was from the library and I don't have it on me. If you don't follow Dave Ramsay's ways, then tell me what you do instead in this area.

Thank you in advance for all the information you can give.

[Greebo]

20 year term life insurance to replace 10 years of income on each income earner.

If one spouse does not earn an income, then 20 year term life insurance to replace 10 years of what she SAVES the household - child care, meal prep, etc.

DR IIRC, keeps 250k on Sharon and has a million on himself and he doesn't need it - Sharon just likes it that way.

We have a 10 yr replacement on my income and it does cost 1.5% (I'm overweight so a higher premium).

NO WHOLE LIFE. TERM! Whole Life is a rip off.

[QM]

DR IIRC, keeps 250k on Sharon and has a million on himself and he doesn't need it - Sharon just likes it that way.

Sorry, Greebo, but what is DR IIRC? I don't know what this paragraph is all about.

NO WHOLE LIFE. TERM! Whole Life is a rip off.

Can you please briefly explain whole life?

Also, one more question...is it alright to have all your insurances (home, life and auto) through the same broker? The broker we use has our home and auto insurances through different companies. I just hate putting all of my eggs in one basket, if you know what I mean. Is there any harm in doing this? Probably not, but I'm just double checking.

[Greebo]

Sorry, Greebo, but what is DR IIRC? I don't know what this paragraph is all about.

Dave Ramsey, if I recall correctly, keeps 250k on Sharon (his wife) and has a million on himself and he doesn't need it - Sharon just likes it that way.

Can you please briefly explain whole life?

You pay about 10x more premium and after a few years the early fees are paid off and they start "investing" your money in a cash value savings account tied to the insurance which you can tap into if you need it. It's designed as an "investment product" - but the reality is the investment is the brokers -t hey get high commissions on whole life cause the ins. company makes a killing while you get crap for returns.

Also, one more question...is it alright to have all your insurances (home, life and auto) through the same broker?

I'd shop around but if your broker gets you the best deal, go for it.

[QM]

Greebo...I thought this would interest you.

The insurance company that we use now got back to me with too low of coverage for DH and myself so I e-mailed her this, "I just wanted to know how much life insurance would be if DH (I used his real name in the e-mail) and I got 20 year term life insurance to replace 10 years of income on each of us. I rounded up a little (in reality it's more than a little...lol!) and thought $1,000,000 for DH and $500,000 for me."

This was her response, "I totally understand your question and here is the answer: $500,000 on you and $1,000,000 on your husband (we only have 25 year term not 20) and the monthly premiums would be $116.55. Please consider this. You will pay $116.55 per month x 12 months per year = $1,398.60 annually x 25 years of payments = $34,965.00 and if you live longer than 25 years which would be expected....that money is gone and you may have no life coverage. Also in year 26 to keep this policy you will have to pay$2,399.40 per month and in year 46 you would have to pay $8,118.45 per month to keep it....I suspect that that would be very expensive for someonewho will be retired by then to afford. My suggestion gives you coverage beyond the term so in other words at some point in time you will be getting $50,000 ($25,000 each) back plus what ever growth there may be."

Needless to say, I don't think we'll use this company for much longer. I've already phoned the broker to see what they can come up with.

[Greebo]

What did they want you to pay for whole life?

[Greebo]

Couple place for you to call:

Zander Insurance (google em)
Met Life
Nationwide

116.15 for the pair of you is not bad, however. How old are you guys?

[QM]

My existing policy expires in 2013 (we got it about 7 years ago); it's a 10 year term. We're both covered for $250,000. We pay $27.68 every month.

What did they want you to pay for whole life?

I'm not sure. This was what she sent me before I asked about 20 year term question.

"This is just a suggestion and we can change anything we need to. My idea is as follows:

DH
Year 1 - Year 25 $ 500,000 coverage ($25,000 Universal and $475,000 25 year term)
Year 26 - death $ 25,000 (plus whatever growth there is)

Me
Year 1 - Year 25 $ 250,000 coverage ($25,000 Universal and $225,000 25 year term)
Year 26 - death $25,000 (plus whatever growth there is)
New monthly price = $ 98.85/month

Your existing policy is for $250,000 each and I have called the life department and here are your future premium increases: 2013 = approx. $68/month; 2023 = approx. $152/month and remember that this coverage will not be available forever even if you could afford to keep it. The above suggestion will have some cash value and other features and a portion will be there no matter when the end is."

116.15 for the pair of you is not bad, however. How old are you guys?

Thanks for the places to call. I'll look into them.

DH is 33 and I'm 31. I think $116.55 per month is bad! $34,965 is A LOT of money to blow over 25 years.

I'm so confuzzled right now! Off I go to phone those other companies.

[Greebo]

So she started with 500 on him and 250 on you at 98.85 for Universal (which is a variation whole life). Extrapolating from that, whole life at 1M and 500 would have been 2x that - $197.7 - kinda cheap for whole life really.

The term life would have been $116.15 (FYI we pay $150/month for my $1M started at 38) so the diff there is $81.55 a month plus the term will be the same price the whole 25 years.

$81.55 invested into mutual funds with a lifetime return of 12% will turn into $153,219.94.

Ask your broker - if you got the universal life instead, at $1m and $500k, what would the premiums be, and after 25 years, what would the cash value be? Bet you a dollar it wont be anywhere near 153k.

See that "cash value" is the "investment" portion - note the DEATH benefit even GOES AWAY - it stops being a million and becomes 25k plus the value...

[Greebo]

As for that being a lot of money to "blow".

Insurance is something you pay for now to avoid paying later.

With life insurance, you pay literally PENNIES on the dollar ($0.023 per $1.00 to be specific in your case) to PREVENT either you or DH being financially destitute in the event of one of your deaths.

It's not money you use as an investment, its money you use as a safety net. The point is to replace income for 10 years WHILE working a solid plan to ensure that in 20-25 years when you no longer are insured, you don't NEED the insurance. 25 years from now you should have so much money set aside in retirement that you are SELF insured, that neither of you would ever need to work again no matter if one of you dies.

[Greebo]

And, one more thing...

If you need ANY reminder why this is so important:
[ame="http://www.frugalvillage.com/forums/showthread.php?t=123088"]The best money I spend each year - Frugal Village Forums[/ame]

[QM]

...Zander Insurance (google em)...

I just checked and Zander Insurance doesn't cover Canada. Oh well.

[MTS04]

We use SBLI for our Term Life. I don't know if they cover canada.

http://www.sbli.com/default.aspx We've been with them for 5 years. Their service has been good.

[mateosbaby]

Be careful with insurance companies. They do like to sell you whole life insurance.... For example, we are with Thrivent Financial, and before we heard of DR, we got whole. Kicking myself for that now... But when I asked them about moving it to term, the monthly total was MORE than we are paying for whole! I said that was crazy, because term IS cheaper than whole, but they "explained" something that totally didn't make sense to me. We have it the same for now until I figure out what to do about it. I may have to switch companies, which really wouldn't be the worst thing in the world, in all honesty...