Infant kids/ life insurance proceeds

[jIM]

My wife and I are taking out new insurance policies because we have a
need for more insurance as parents of twins.

A few questions:

1) insurance agent said that is easier to get a new 500k policy than
to increase our existing 300k policies. Can someone comment if this
is a sales gimmick or really true?

2) We have the 500k need for life insurance for only 5-10 years (long
enough for kids to reach school age). If we have a 500k policy and
want to reduce it, how cost effective is that? We project a 500k need
for 5 years and a 400k need for 18 years (long enough to make it thru
high school graduation). The 300k need probably exists until we pay
off the mortgage (18-25 more years). I asked for a quote on a 100k
policy for 5 years and another 100k policy for 18 years. Did I ask
for something out of line with normal offerings?

3) Wife and I are the beneficiaries of each other's policy. In the
event we both pass, wife and I are leaving 50% to each child. Our
kids are 9 months old. What options exist (trusts, custodians, other)
for the money to be administered on behalf of the kids?

I assume if we use trusts, the trusts need to be already set up, and
we need to appoint someone (guardian of kids) to manage the trust?
Lawyers are the ones which set up trusts (correct?). What cost does
this have? State of Ohio if that matters.

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[kastnna]

My wife and I are taking out new insurance policies because we have a
need for more insurance as parents of twins.

A few questions:

1) insurance agent said that is easier to get a new 500k policy than
to increase our existing 300k policies.  Can someone comment if this
is a sales gimmick or really true?

Tough to say. Could be a total fabrication. He likely makes more
commission on a new policy than he does upgrading an old one. Usually,
you're only paid for the increase amount ($200k in this case). But it
could be that your old insurer has drastically tightened its
underwriting criteria and he's suggesting a whole new company for good
reasons. This happens more than you would think. Or it is even likely
that your old policy was priced using outdated mortality tables. We're
living longer, so the cost of insurance per thousand is dropping.

2) We have the 500k need for life insurance for only 5-10 years (long
enough for kids to reach school age).  If we have a 500k policy and
want to reduce it, how cost effective is that?  We project a 500k need
for 5 years and a 400k need for 18 years (long enough to make it thru
high school graduation).  The 300k need probably exists until we pay
off the mortgage (18-25 more years). I asked for a quote on a 100k
policy for 5 years and another 100k policy for 18 years.  Did I ask
for something out of line with normal offerings?

I don't think this is unreasonable. You know you can convert or delete
PORTIONS of your coverage. Because there are fixed charges, it is more
cost effective to get one big policy today and "chop off" coverage as
it becomes un-needed in the future. This also gives you the option to
NOT reduce the coverage if it turns out that reality doesn't align
with your planning.

3) Wife and I are the beneficiaries of each other's policy.  In the
event we both pass, wife and I are leaving 50% to each child.  Our
kids are 9 months old.  What options exist (trusts, custodians, other)
for the money to be administered on behalf of the kids?

A trust would be best as it will describe exactly what the trustee can
and can't do. It can also require bonding trustees and even ethically
separated co-trustees to minimize abuses. An incentive trust can also
be a method of "setting rules" for your kids after your passing. Of
course, trusts don't draft themselves and it isn't free. The common
and easiest method is to simply leave the money to the kids who will
in turn be left with an appointed guardian. The guaradian will control
the money for the benefit of the children. The guardian has a lot of
leeway and abuse/embezzlement would be easy, but hopefully you have a
guardian that you trust.

I assume if we use trusts, the trusts need to be already set up, and
we need to appoint someone (guardian of kids) to manage the trust?
Lawyers are the ones which set up trusts (correct?).  What cost does
this have?  State of Ohio if that matters.

A simple trust like the one you may need shouldn't be more than $500.
I can't say whether a lawyer HAS to draft a trust in Ohio, but
regardless, one SHOULD.

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[Cal]

My wife and I are taking out new insurance policies because we have a
need for more insurance as parents of twins.

A few questions:

1) insurance agent said that is easier to get a new 500k policy than
to increase our existing 300k policies. Can someone comment if this
is a sales gimmick or really true?

Could actually be true, but not neccessarily the best thing
for you to do. There are discounts that are available at the
500k level that could make it economicaly better than to
INCREASE the existing contract a mere 200K.

2) We have the 500k need for life insurance for only 5-10 years (long
enough for kids to reach school age). If we have a 500k policy and
want to reduce it, how cost effective is that? We project a 500k need
for 5 years and a 400k need for 18 years (long enough to make it thru
high school graduation). The 300k need probably exists until we pay
off the mortgage (18-25 more years). I asked for a quote on a 100k
policy for 5 years and another 100k policy for 18 years. Did I ask
for something out of line with normal offerings?

IF (and I emphasize the IF) the 300K is of a PERMANENT nature'
then the NEED for additional Insurance appears to be of a
TEMPERARY nature. Meaning that it could be less expensive to
cover those NEEDS with a form of TERM Insurance. I would suggest
that you look at 200K for the 18year period, and if you feel that
the
NEED will be reduced in five years, REDUCE that contract at that
time.

3) Wife and I are the beneficiaries of each other's policy. In the
event we both pass, wife and I are leaving 50% to each child. Our
kids are 9 months old. What options exist (trusts, custodians, other)
for the money to be administered on behalf of the kids?

Obviously since I am not an ATTORNEY, I can not offer any LEGAL
advice, but I would assume that you might want to leave the ENTIRE
amount to a TRUST, with instructions.
(REPEAT, THIS IS NOT LEGAL ADVICE)


Cal Lester CLU

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[jIM]

        Could actually be true, but not neccessarily the best thing
        for you to do. There are discounts that are available at the
        500k level that could make it economicaly better than to
        INCREASE the existing contract a mere 200K.




        IF (and I emphasize the IF) the 300K is of a PERMANENT nature'
        then the NEED for additional Insurance appears to be of a
        TEMPERARY nature. Meaning that it could be less expensive to
        cover those NEEDS with a form of TERM Insurance. I would suggest
        that you look at 200K for the 18year period, and if you feel that
the
        NEED will be reduced in five years, REDUCE that contract at that
time.

Cal- the 300k is a term policy and the 500k is a term policy. At some
points of your response it appeared you worded things like this might
be a permanent policy.

We have a permanent policy for 25k which we are going to cash out
(around 1500 in cash value) because the term is all we need.

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[Cal]

Cal- the 300k is a term policy and the 500k is a term policy. At some
points of your response it appeared you worded things like this might
be a permanent policy.

We have a permanent policy for 25k which we are going to cash out
(around 1500 in cash value) because the term is all we need.

Of course, that would be your decision to make. You do NOT
mention the type of the ORIGINAL 300k Term policy. When does
IT run out?????
Quite possibly a year or two BEFORE you die.

You mention the fact that you have a 25k Permanent Policy, and
that you intend to surrender it for it's cash value. That action
would
leave you with NO PERMANENT LIFE at all.

I gather that you have assumed that your investment portfolio will
be more than sufficient to carry you through death (which might
not be for MANY YEARS.) I do believe that there are a few people
who had their life savings invested in the various banks that have
been in trouble lately. I wonder how much money will be available
to their heirs at their deaths???????????????


ps: do not walk too close to multi story buildings, it could be hazardous to
your health ! ! ! !

Cal Lester CLU

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[jIM]

 >



        Of course, that would be your decision to make. You do NOT
        mention the type of the ORIGINAL 300k Term policy. When does
        IT run out?????
        Quite possibly a year or two BEFORE you die.

        You mention the fact that you have a 25k Permanent Policy, and
        that you intend to surrender it for it's cash value. That action
would
        leave you with NO PERMANENT LIFE at all.

        I gather that you have assumed that your investment portfolio will
        be more than sufficient to carry you through death (which might
        not be for MANY YEARS.) I do believe that there are a few people
        who had their life savings invested in the various banks that have
        been in trouble lately. I wonder how much money will be available
        to their heirs at their deaths???????????????

The logic behind getting the 25k permanent policy was to cover funeral
expenses (which is a fixed lifetime event/cost).

We now have enough in cash as an emergency fund to cover those
expenses. That money will be invested in other taxable accounts. We
were in year 5 or 6 or 7 of the original 20 yr term for 300k. I am
age 35, wife is age 34. The policy was taken around the time we got
married to cover bills (house, cars) in event other passes.

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[kastnna]

The logic behind getting the 25k permanent policy was to cover funeral
expenses (which is a fixed lifetime event/cost).

We now have enough in cash as an emergency fund to cover those
expenses.  That money will be invested in other taxable accounts.  We
were in year 5 or 6 or 7 of the original 20 yr term for 300k.  I am
age 35, wife is age 34.  The policy was taken around the time we got
married to cover bills (house, cars) in event other passes.

In general, if you don't anticipate having perpetual dependents and/or
perpetual liabilities, you can probably do without permanent
insurance.

Yes, some consider funeral expenses a perpetual liability, but it
sounds like you have enough cash to "self-insure". So barring estate
taxes or an expense that is likely to exceed your lifespan (like a 30
year refi at age 60), you can probably do without the permanent
coverage.

Just my $0.02

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[Cal]

We now have enough in cash as an emergency fund to cover those
expenses. That money will be invested in other taxable accounts. We
were in year 5 or 6 or 7 of the original 20 yr term for 300k. I am
age 35, wife is age 34. The policy was taken around the time we got
married to cover bills (house, cars) in event other passes.

As I mentioned in my last post, the decision IS yours, but I
must make note of your response above, in which the contract
will "run out" in about 13 years, when you are about 47 or 48
years of age.

That would leave a potential multitude of years to continue living
with no life insurance in force. You must realize that the proceeds
of a life insurance policy (that is a guaranteed benefit) is almost
ALWAYS less than the surrender of 100 % dollars when they
are needed.

Simply a comment to be considered...
Cal Lester CLU

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