Life Insurance and 529

[DrDebt]

Two separate questions if someone can help answer:

1) Has or does anyone recommend buying additional term life insurance in addition to the coverage I get through employment? They offer coverage equal to my annual salary, with a maximum of $125,000. If so, who do you recommend I go through?

2) If living in a state without 529 plan and no state income taxes, which state is recommended best to join their 529 plan?

 

Thanks

[The White Coat Investor]

1) Yes. Most employers don't offer enough. $125K is almost surely not enough. It's probably off by an order of magnitude or more. So go buy some term life.

2) UT is my usual recommendation, but there are some other good ones out there. NV and NY are usually in everyone's top 5 as well.

[DrDebt]

Thank you for such a quick response!

I have been offered 2 mill coverage until age 90, and guaranteed for $2275 annually for 20 years, then "increase annually thereafter based on the insured's attained age." The offer states that after the 20 years there is an increase in both the Total Annual Premium from $2275 to $36,915 and in the Cumulative Total Annual Premium from $82,415 to $123,470. Can you help explain this and does this sound reasonable?

 

Thanks again!

[veritablpenguin]

If you're carrying life insurance at age 90, you've done something horribly wrong.  By that point you should be able to self-insure, especially because if you're still paying the premiums at that age, you are already ridiculously wealthy.

 

I'm no life insurance expert by any stretch of the imagination, but that sounds fairly typical for a 20year term life insurance plan, including the crazy spike in premium if you want to keep it going.  I know I found it amusing to see that I could keep extending mine annually (gave me projections out to age 93 for like $150K/yr or something hilarious).

 

You could probably get it a little cheaper, depending on how healthy you are, but $20/mo doesn't seem too outrageous.

[The White Coat Investor]

What do you need it until age 90 for? When will you be financially independent? 20 years? 30 years? Then buy a 20 or 30 year term policy. If you need more than 20 years, a 20 year policy isn't enough. But I doubt you'll need it to age 90.

I think you need to read this post:

 

https://www.whitecoatinvestor.com/how-to-buy-life-insurance/

 

and then call one of these guys:

 

https://www.whitecoatinvestor.com/websites-2/insurance/

 

Seriously, I can't make this any easier for you.

[DrDebt]

Is there any reason to obtain life insurance through a third party agent or can I do it directly through the company I am interested in?

 

Thanks

[OrthoInAL]

DrDebt wrote:

Is there any reason to obtain life insurance through a third party agent or can I do it directly through the company I am interested in?

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I believe you're required to purchase life insurance through an agent.

[Donnie]

Dr. Debt, based on your OP asking if $125k is enough insurance, and a subsequent post asking whether you should buy a $2M policy through 90, I have a feeling you have limited understanding of insurance or basic financial concepts.  I'm not trying to be a jerk, but I encourage you to read up on insurance and learn a lot more before buying anything.  I think you have a high likelihood of being pushed into a policy you don't need and don't understand.

Figure out what you want insurance for.  Take the time to calculate exactly what your need is.  Price out many different options.  And once you figure out what you need, do not listen to any hard sells from the agent.  Lots of matieral out there to help, including the material on this site.

[Jason Veirs]

DrDebt wrote:

Thank you for such a quick response!

I have been offered 2 mill coverage until age 90, and guaranteed for $2275 annually for 20 years, then “increase annually thereafter based on the insured’s attained age.” The offer states that after the 20 years there is an increase in both the Total Annual Premium from $2275 to $36,915 and in the Cumulative Total Annual Premium from $82,415 to $123,470. Can you help explain this and does this sound reasonable?

 

Thanks again!

Click to expand...

Based on the verbiage you provided, this sounds to me like a Northwestern Mutual 20 Year Level Term policy, which like every other 20 Year Level Term policy will have level premiums for 20 years, and then increase in cost at the 21st year. The reality is that no one really ever pays on the policy past the initial level term period, as the policy then adjusts to an extremely costly Annual/Yearly Renewable Term policy, in which, the premiums continue to increase every year as you continue to age. It could also be a UL illustrated with 20 years of level premiums, but it's hard to say without knowing more details?

By definition, most all Term policies have level premiums for a specific period of time (ie: 10-35 Year Level Term), and then adjust to Annual/Yearly Renewable Term as I previously mentioned. Although carriers will continue to allow you to pay on a policy past the initial level term period (all the way until age 95), the cost is so prohibitive that people just let their policies lapse. You are much better off buying a 20-35 Year Level Term policy, and then layering on an additional policy, or reducing the face amount as your needs change over time.

Hope this helps.

[FIREshrink]

right, if you need coverage beyond 20 years then buy a 25 or 30 year policy now.

 

The only reason to keep a 20 year level term policy followed by an annual renewable and annually increasing premiums past the 20 years is if you have a health condition that will lead to your demise in the near future. IE, if you have stage 4 cancer in your 20th year, yes, you will pay $25,000 for year 21 if it gives your heirs a $2,000,000 benefit.

[Donnie]

FIREshrink wrote:

right, if you need coverage beyond 20 years then buy a 25 or 30 year policy now.

 

The only reason to keep a 20 year level term policy followed by an annual renewable and annually increasing premiums past the 20 years is if you have a health condition that will lead to your demise in the near future. IE, if you have stage 4 cancer in your 20th year, yes, you will pay $25,000 for year 21 if it gives your heirs a $2,000,000 benefit.

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Does that work?  You can actually annually renew your policy year by year in that instance where you know you will die within ~1 year and the insurance company doesn't have the right to deny it?

[Hatton]

Of course DRDebt you only need extra insurance if you are married and/or have kids.  If you have no one depending on you then you do not need it at all.

[Jason Veirs]

Donnie wrote:

FIREshrink wrote:

right, if you need coverage beyond 20 years then buy a 25 or 30 year policy now.

 

The only reason to keep a 20 year level term policy followed by an annual renewable and annually increasing premiums past the 20 years is if you have a health condition that will lead to your demise in the near future. IE, if you have stage 4 cancer in your 20th year, yes, you will pay $25,000 for year 21 if it gives your heirs a $2,000,000 benefit.

Click to expand…

Does that work?  You can actually annually renew your policy year by year in that instance where you know you will die within ~1 year and the insurance company doesn’t have the right to deny it?

Click to expand...

Yes - Most all term life insurance contracts allow you to pay the ART/YRT (Annual/Yearly Renewable Term rates) once the level term period has expired, without having to provide evidence of insurability. To be honest, the only time we ever see or recommend this is when someone is completely uninsurable or has a terminal illness, with a decreased life expectancy of usually 60 months or less, as it is EXTREMELY cost prohibitive, which is why it's definitely more of a short-term play.

Most term policies also have a Conversion Option (usually allowable to the age 65-75, or the end of the term period, depending on the specific insurance carrier) where you can covert all or a portion of the existing term policy to a permanent policy (Universal Life or Whole Life), which would extend out beyond the initial term period. Although a UL/WL policy is not typically recommended (and rightfully so), the Conversion Option can be extremely beneficial and MAY end up costing less than the ART/YRT premium, depending on the situation. You would just have to request an updated/current ART/YRT ledger from the carrier and then compare the Conversion Option and the ART/YRT option with how long you think you're going to want/need the coverage - Just basic math.

Unfortunately, I have a client who is terminally ill and is currently having to use this ART/YRT strategy, due to his Conversion Option expiring many years ago. His existing $1MM 20yr level term policy, which originally cost $1,270/annually, has since termed out and adjusted to the new ART/YRT rate of $4,350/annually. Here are the actual updated increases for the 3 subsequent years, following the initial level term period increase to $4,350/annually.

ART/YRT (Year 2) - $7,430/annually

ART/YRT (Year 3) - $10,510/annually

ART/YRT (Year 4) - $13,590/annually

Lastly, Protective Life is actually one of the only carriers on the market today, who offers a "decreasing term" policy once the initial 10-30 year level term period expires/ends. It works the same way as a traditional level term policy, but at the end of the level term period, the premium stays the same, but the face amount/death benefit gradually decreases over time. It's a really nice feature, as Protective Life is usually in the top 5 lowest carriers on the market today, and it's already built into the policy. It's also very beneficial, as you can still pay the same premium that you were paying all of these years, while still having some amount of death benefit past your initial level term period, should you still want coverage beyond your initial level term period. You also do not need to re-qualify or provide evidence of insurability, just like with an ART/YRT policy.

 

[DrDebt]

Thanks everyone.

 

Does anyone recommend a specific company to go through? I have no health problems and am mid-30s.

[Jason Veirs]

DrDebt - As others have mentioned, first check out rates on www.Term4Sale.com, and then contact a broker to obtain the insurance. You will want to work with an independent broker, who is unbiased and represents all of the main carriers.

If I can help with anything, please let me know.