Term Life Ins. Spend alot?

Term Life Ins. Spend alot?
0

#1

Trying to find a term insurance for my mother who’s 68yrs old.

Searched for term4sale and here are rates

20yrs
$3489/yr for $300k
$5529/yr for $500k
$6616 for $600k
$8248 for $750k

If I do calculation, assuming she passes away at yr 20. I spend
$69780 for $300k return
$110580 for $500k
$132320 for $600k
$164960 for $700k

If she does not pass away, I will be happy but I’ll be losing the premiums… So I need to figure out a middle point on best investment. Which one would you pick?

Me and wife earn $250k/yr and the payment will not be a big problem.

*Side note, got a quote for Variable index fund ins. $150k coverage for $320/month… Yay or Nay?


#2

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#3

I don’t know how to do math on life insurance, but it’s not really a $70K spend for a $300K return. Is the $300K inflation-adjusted? Probably not. $300K today is not the same as $300K 20 years from now. And $70K spread over 20 years isn’t really $70K.

If this was a good deal for you, the insurance company wouldn’t offer it. If they offer it, it’s probably a better deal for them than for you. I’d just take the money and stick it into an index fund.


#4

Why does she need insurance? What bills need to paid if she dies sooner than expected? As a good starting point, don’t think about buying insurance products as an investment.


#5

I’m doing it as an investment. I don’t see it as wrong if conditions are right.


#6

I wouldn’t pick any insurance as an investment, either. There are nontrivial risks it will result in $0 value at the end, and that puts it in the same category as casinos and lotteries for me.


#7

What conditions are those? You know your mom has a terminal disease and the insurance isn’t going to know about it in time? You can pay under 0.1% to buy a stock or bond market index and you’ll pay 10-20x in fees to buy something similar from an insurance company. Tax efficiency is probably better with the index fund too, no risk of getting your policy loans blown up if the premium accelerate too much down the road, etc.

Ask yourself - is this insurance really the best possible investment I could make at this time? If it’s not, which is almost certainly isn’t, why not spend some time looking for something better.


#8

I’m getting a term so no index fund fees…

Let’s say if I go other route and put same amount to index funds. What would the return be after 20yrs on avg?

*just calculated annuals saving of $8000 at 6.7% rate, in 20yrs value is $338,685… after tax I’m earning only about $120k…


#9

6.7% is inflation-adjusted. You have to scale down your 750k payment to adjust for inflation too, if you want to compare.

Also make sure you’re looking at the right rate categories for the insurance. You don’t know if she’s going to qualify for the best rates, depending on her overall health and family history.

In general, the insurance company is doing these same calculations… and then adding on an additional fee to make sure that they expect to make money after they take all the statistics into account. Unless you have some reason for needing the money, life insurance isn’t a good investment.

Edit: Though, I guess the tax feature is a net advantage to the insurance policy, since they generally aren’t taxable. I guess that could make the expected value positive for both you and the insurance company. Possible it works.


#10

Thanks for the points. Yes I did put in mid-tier level for her health condition. And Tax benefit is the deal-sweetner for me going life ins.

I know this is finance forum, but I’m surprised to see all negative reaction to insurance fees. I mean, they’re a company which pays employees and they have their bills to pay too. They exists to make money… I know going with brokers can tac on additional fees, but this is term life insurance thru term4sale.com … Where can you get better rates if you want to have life insurance??? Sounds like here advises are never to get life insurance as investment…


#11

Pretty much. Get insurance for risk control (i.e. primary earner with dependents), but realize you’re paying a premium to the insurance company for the privilege. Since you’re looking at term rather than an investment annuity, etc, you’re basically just making a bet against the insurance actuaries on her life outcome. I would want to be very sure I knew something important they didn’t to make a bet like that given you’re coming in with a negative expectation given their profit / costs are factored into your quote.

My experience was that, while the insurance lobby bought themselves some nice tax breaks for variable annuities and such, their fees take most of it on their investment products. That’s less relevant to your term policy however.


#12

[quote=“larciel, post:10, topic:2368”]
Yes I did put in mid-tier level for her health condition.[/quote]Sorry, but this discussion is absolutely pointless at this point. There is simply no way for you to know what rate your mom will and will not qualify for. Until and unless she applies and actually receives an offer, you have absolutely no idea what the premiums might be.

Having said that, if you try to use term life insurance as an investment, it is highly unlikely to produce the returns you are looking for. If you look at the premium structure that you’ve posted, you will see that the insurance company, which has a ton of mortality data, is estimating that over the term of this policy on average there is roughly a 1%-2% risk of death in any given year. Over the length of the entire policy, the risk of death is roughly 23%-25%.

In other words, assuming that she does qualify for the above premiums, there is a roughly 75% chance that your premiums will result in absolutely no return over a 20 year period. This is the exact reason that term life insurance should NEVER be used for investment purposes. Instead, it is intended to be used for situations where the person’s death would cause a devastating financial blow to the survivors, which term life insurance would address. These are the types of circumstances under which it makes sense to accept the extremely poor odds of payout, as you are trying to protect against a financial calamity.


#13

I like numbers… :smiley: So what I’m planning is like going to casinos and playing a roulette with 400% winning return. I will think twice about this now… thx


#14

The only possible way I can see this working and see if you have access to some kind of guarantee issue program without regard to health, and you know something about your mom’s health that they don’t.

And did it ever occur to you that it’s a little creepy to bet on your mom‘s death without much of an insurable interest? I’m assuming you’re an adult and not financially dependent on her.


#15

How do you go from $338,685 to $120,000? Who pays 64+% tax on investment gains?
ETA: never mind :slight_smile:


#16

And to add insult to injury, the premiums likely aren’t deductible if he loses.


#17

If you think about how I’m getting to $338,685, then you might find the answer.


#18

Why not show us your work so we can help you?


#19

larciel,

Please come back and post your result after your Mom passes (condolences).