Life insurance or credit insurance ?


T

Tman

Hi, 30 yrs. old, married, both professionals, no kids (yet), just bought a
house. DINK's.

If one of us croaked, the other could _barely_ support the mortgage, taxes,
buy food, clothing, and have money left over for fun. Certainly there would
be no savings after the bills are paid each month. (P+I+T+A is ~30% of my
gross, and ~30% of wife's gross, so ~15% of combined gross).

We're wondering about life insurance. Seems to be a good thing to get to
protect against the situation above, but we don't want too much of it. What
are some of the factors to consider when making this choice.

The mortgage is $250K. What if we bought $100K or $200K of term insurance.
That would be enough to pay down the mortgage sufficiently that it could be
refinanced at a lower monthly payment, or help amortize some of the monthly
payment.

Then again, we are getting offers for mortgage credit insurance. Seems like
that could be a good deal, if it is cheaper than the term insurance.

Another factor: we are planning on having children within the next 2-3
years. (Yes, both parents intend to return to work). I expect our LI needs
will go up quite a bit after children are born. Could we just buy term
insurance when we need it, at the coverage that we need?

What is the pro to the various investment-type of life insurance
possiblities? (We already save pretty well for retirement, taking full
advantage of 401k and Roth tax breaks).

What are some of the questions to ask myself when making this decision?
Thanks for any thoughts..
Tman
 
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B

BMS

Go with the term insurance, forget the credit insurance. For one thing ,
most term insurance has features to allow you to buy additional insurance or
convert it to permanent insurance down the road.
 
C

cal-lester

Tman said:
Hi, 30 yrs. old, married, both professionals, no kids (yet), just
bought a house. DINK's.

If one of us croaked, the other could _barely_ support the mortgage,
taxes, buy food, clothing, and have money left over for fun.
Certainly there would be no savings after the bills are paid each
month. (P+I+T+A is ~30% of my gross, and ~30% of wife's gross, so
~15% of combined gross).

We're wondering about life insurance. Seems to be a good thing to
get to protect against the situation above, but we don't want too
much of it. What are some of the factors to consider when making
this choice.

The mortgage is $250K. What if we bought $100K or $200K of term
insurance. That would be enough to pay down the mortgage sufficiently
that it could be refinanced at a lower monthly payment, or help
amortize some of the monthly payment.

I would go with the $200K, preferably a JOINT, First To Die
contract.as the "cost of living" would in all probability change
before either of you "croak". The J/F/T/D policy will pay the
ENTIRE amount on the first Death.
Then again, we are getting offers for mortgage credit insurance.
Seems like that could be a good deal, if it is cheaper than the term
insurance.

No, No, NO, a thousand times. Credit Mortgage Insurance is
normally for the ENTIRE legnth of the mortgage, and it is
payable to the LENDER.................

Many more advantages with Term Life. I would suggest that you
look at both Ten Year & Fifteen year Term. You also want to
check the conversion & decrease of Face features. Important ! ! ! !

Another factor: we are planning on having children within the next
2-3 years. (Yes, both parents intend to return to work). I expect
our LI needs will go up quite a bit after children are born. Could
we just buy term insurance when we need it, at the coverage that we
need?

Yes IF you BOTH still qualify to BUY Term Life. That was
why I suggested the $200K.
What is the pro to the various investment-type of life insurance
possiblities? (We already save pretty well for retirement, taking
full advantage of 401k and Roth tax breaks).

What are some of the questions to ask myself when making this
decision? Thanks for any thoughts..

Can NOT really make any comment on the above, as I
do NOT have sufficient info. Suggest that you locate
a PROFESSIONAL Life Agent, CLU, ChFC, CFC are
some of the designations to look for.

Cal Lester CLU

Birthdays are good for you - the more you have the longer you live

This signature file is generated by Pick-a-Tag !
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T

TTRoberts

"Tman" (e-mail address removed) , you asked:

<< <I>Hi, 30 yrs. old, married, both professionals, no kids (yet), just bought
a
house. DINK's.

If one of us croaked, the other could _barely_ support the mortgage, taxes,
buy food, clothing, and have money left over for fun. Certainly there would
be no savings after the bills are paid each month. (P+I+T+A is ~30% of my
gross, and ~30% of wife's gross, so ~15% of combined gross).

We're wondering about life insurance. Seems to be a good thing to get to
protect against the situation above, but we don't want too much of it. What
are some of the factors to consider when making this choice.</I> >>

Some of those "factors" are exactly those issues you're talking about above.
There can be all kinds of "factors" DEPENDING on the details of your financial
situation, your short term and long term goals, your personal philosophies on
how you and your spouse like and plan to live, etc. To sum it up, it DEPENDS
on YOUR set of issues.

All insurance is about transferring risk and at what cost. Though life
insurance is "insurance", it's very different from all other insurance because
it insures for an event that is absolutely certain to take place . . . . death
(that's why many people feel it would be better to call it Death Insurance).
Other insurances insure against events that may never happen to you. And so,
for life insurance the question isn't "if", the question "when."

Therefore, the "factors" have to do with answering questions that have to do
with . . .what do you really WANT (not just "need") to have happen after your
death? Do you only WANT to only provide minimum cash for the surviving spouse
to survive on and if so, for how long? Will the surviving spouse re-marry and
if the spouse DOES re-marry and you have children, how do you propose to keep
your children's inheritance equitable if the surviving spouse should have
children with the new mate? Other than providing cash for living expenses
(food, clothing, mortgage, insurance, taxes, etc.), are there interests in
providing for retirement, college education fund, charitable interests, or
other personal goals that the surviving spouse might have? Cash tends to be
particularly important for a surviving spouse as it reduces stress of dealing
with other financial assets at a time when that's often the last thing anyone
really wants to things about. Would that be an important factor to you? And
there can be many other "factors" one may want to consider. A good experience
life insurance agent/broker are educated to help people with these kinds of
things . . . to help you think about things you may not have ever thought about
on your own.

What it comes down to is that life insurance provides instant cash at the time
of the insured's death. That immediate cash can be there for ANY reason or set
of reasons you WANT. It's not JUST for what a surviving spouse or surviving
business partner may "need." And when you decide what you "want" in these
terms, you then have to decide whether the cost is worth it. But you can be
certain that the life insurance WILL pay if the policy is still in force at the
time of death.

<< <I>The mortgage is $250K. What if we bought $100K or $200K of term
insurance.
That would be enough to pay down the mortgage sufficiently that it could be
refinanced at a lower monthly payment, or help amortize some of the monthly
payment.</I> >>

Term insurance is VERY affordable when you're young. You might just consider
covering the full $250k and let the surviving spouse decide just how or what to
do about mortgage and/or where to live . . ???

<< <I>Then again, we are getting offers for mortgage credit insurance. Seems
like
that could be a good deal, if it is cheaper than the term insurance.</I> >>

Typically, buying term policies tend to be cheaper AND the policies are
portable. One of the reason's they can be "cheaper" is that mortgage credit
insurance tends to have conditions in which it will pay. In other words,
separate term contracts you buy are more flexible give much greater value.

<< <I>Another factor: we are planning on having children within the next 2-3
years. (Yes, both parents intend to return to work). I expect our LI needs
will go up quite a bit after children are born. </I> >>

Perhaps that's another good reason to just go for an amount at least equal to
the mortgage of $250k?

<< <I>Could we just buy term insurance when we need it, at the coverage that we
need?<.I> >>

More than likely, yes . . . . . . .IF you're health stays good. But keep in
mind there's never any guarantee that you can get the insurance you want
(unless you buy that guarantee from the insurance company).

<< <I>What is the pro to the various investment-type of life insurance
possiblities? (We already save pretty well for retirement, taking full
advantage of 401k and Roth tax breaks).</I> >>

I assume when you say "investment-type of life insurance" your talking about
all those that are non-term types (e.g. whole life, universal life, variable
life, variable universal life, etc.)? If there's one thing I feel one should
understand about these types of life insurance, it's what the reserves of these
polices are designed for. Then one can better understand how it works and then
better understand how to use or not use the cash value of such non-term life
insurance.

Essentially, all insurance (including life insurance) has "reserves" that are
collected from premiums to pay future losses. This is true for life insurance.
AND for any life insurance that has a guaranteed level premium payment period,
amounts in the reserves are also for paying the higher costs of insurance (COI)
in the future when premiums are not changing. Generally, the reserves are held
in the insurance company's general account and invested within the state's
guidelines. Variable contracts on the other hand have what's call Separate
Accounts that is NOT part of the insurance company's general account and the
policy owner can choose investments for themselves among a set of investments.
Regardless how the reserves of the policy are invested, one needs to keep in
mind what it's really designed for.

In non-term life insurance, the policy owner is afforded some rights to these
reserves and the amount is referred to as Cash Value. And Cash Value is the
amount the policy owner can receive back out of the reserves should the policy
be cancelled or surrendered. Just how one might be able to use any Cash Value
of a policy and whether such use can be a "good" investment can depends on how
you really plan to use the life insurance coverage over the LONG period of
time.
From strictly and investment point of view, life insurance can be a poor
investment due to the costs of that coverage and any other coverage's that may
be included as a rider. But if one has plans to keep some portion of life
insurance coverage's for their entire lifetime, then the policy(s) an be used
effectively for that dual purpose depending on your overall planning.

<< <I>What are some of the questions to ask myself when making this
decision?</I> >>

What financial issues do I want to have taken care of when I die? What
guarantees do I want in place? What are my priorities? What are my spouse's
priorities? What can I afford? What is my risk tolerance . . . really? What
is my spouses risk tolerance . . . really? More specific questions would come
with knowing the details of your financial situation, employment situation,
your short term and long term goals, family health history, etc.

Well Tman, hope you find these thoughts and info helpful.
 
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C

cal-lester

SNIPPED
<< <I>Then again, we are getting offers for mortgage credit
insurance. Seems like
that could be a good deal, if it is cheaper than the term
insurance.</I> >>

Typically, buying term policies tend to be cheaper AND the policies
are portable. One of the reason's they can be "cheaper" is that
mortgage credit insurance tends to have conditions in which it will
pay. In other words, separate term contracts you buy are more
flexible give much greater value.

All well written, I just snipped out a small portion about the Credit
Life question. One of the most important factors on the NEGATIVE
side of Credit Life, is the fact that "generally speaking" the PROCEEDS
are payable to the Mortgage Holder, NOT the Spouse. Any balance
left over after "paying off the mortgage" would normaly be payable
to the surviving spouse.

This gives the spouse a Mortgage Free House, with little or NO
Options as to how to use those proceeds.
Whereas some form of "First to Die" policy pays the Proceeds
DIRECTLY to the surviving Spouse to be used "as needed"

Cal Lester CLU


That light at the end of the tunnel is the light of an oncoming train

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