Life Insurance

[Khyron]

Pretty young crowd, but it's wise to buy it while your healthy, young and it's cheap. That said, it's pretty complicated with all the options.

I'm looking at an investement plan that is a life policy but also acts like a market fund account. Also is a tax shelter later on, but just checking if any of the local finance gurus have an opinion on the matter.

Khyron

[phreezee]

I never heard of a tax sheltering LIP? Do they exist?

I know proceeds aren't taxable.

If you are young and healthy, and don't really have any possesions to insure like a house... it's actually unwise to get insurance as you could invest the money and build equity for your future. A big mistake a lot of people make is being overinsured.

[/////AMG]

^^ It isn't unwise. Anyway the earlier you get it (at a younger age) the cheaper it is.

[Xtrema]

Originally posted by phreezee
I never heard of a tax sheltering LIP? Do they exist?

I know proceeds aren't taxable.

I havn't follow it closely but what you build is collateral to borrow against down the road.

So if you need money, the insurance will lend a percentage of the cash value to you at low rate.

[max_boost]

Originally posted by /////AMG
^^ It isn't unwise. Anyway the earlier you get it (at a younger age) the cheaper it is. :werd:

It's not expensive and unless you are really on a tight budget, shouldn't prevent you from making your regular investment payments.

[phreezee]

Originally posted by /////AMG
^^ It isn't unwise. Anyway the earlier you get it (at a younger age) the cheaper it is.

It IS unwise if you go to school, have a bus pass and live at home. That's what I was trying to say. There's a reason that it's cheaper when you are young, because there's less risk of the insurance company ever paying out and they take your money and invest it themselves. Even if you invest it in something that gives you 3%, it would be better. Or try an index stock which is stable and might net you a better return.

The time to get an LIP is when you buy a house/mortgage and actually have some liability to insure. And make sure you don't get mortgage insurance from the bank as it's a declining policy.

[Khyron]

That's what I was told - loans are not taxable. So you can borrow 450K against your 500K policy and put it in another account, and it's paid off when you die. Also can use the tax writeoff to get at your RSPs without paying tax.

The one reason I'm not waiting longer is that if you get a disease and beat it, you can still be uninsurable for life. I don't have kids yet, but will probably start soon.

For instance, a guy in on of our kali classes got cancer in his 20s, went into remission and was fine. Later on he had his wife, kids, house etc - but was uninsurable because of his previous history. Killed in a car crash, family left with nothing, house, car all gone.

This is why some people put policies on their kids - if you get juvenile diabetes you're uninsurable, unless you already have a policy.

Anyways - the deal is you put away, say 200 a month. About half of that is fees/premiums for the 500K insurance. The other half gets invested. After 30 years @ 6%, there's 150+K in there, not including the 500K policy, which is a bit better than if you'd just put the 200 bucks into a normal mutual fund at same percentage.

I just polling to make sure no one comes back with some bad experiences or that it's some elaborate scam. :P

Khyron

[phreezee]

6% isn't all that aggressive at all. Any good Financial planner can get you 6%. The key is diversity in your asset allocation. $200/month sounds like a lot, as does a $500k policy unless you live in a 500K house with no equity in it.

For that 6% that you would get, the Insurance company is getting 9, 10, 11, or even 12% return on YOUR MONEY. I say do some research and put MORE money in your own pocket.

My wife had cancer at age 18, and her premiums are only $100 more every year. Insurance companies use fear to sell their product and get rich. If your insurance company is a fear monger, I'd look else where. Remember that although the sales rep sounds sympathethic and caring, they are working on commisions too. There's a place for them, but you have to use their services wisely.

What you've told me sounds like a mistake...

[HRD2PLZ]

I have 3 Life Insurance policies so at this point in my life I know I am over-insured. One policy is through work, but the others I have taken out on myself. I won't live an average life span but I thought it best to get the coverage now in case anything happened. At the very least, it would cover any debt I might have and give my little sister a great start in life :thumbsup:

[phreezee]

That's another thing, too many people have a false idea that an insurance policy is like a lottery that if you kick it, your loved ones shouldn't have to work another day in their life. Instead they should only be used to cover liabilities and prevent undue burden.

[HRD2PLZ]

Originally posted by phreezee
That's another thing, too many people have a false idea that an insurance policy is like a lottery that if you kick it, your loved ones shouldn't have to work another day in their life. Instead they should only be used to cover liabilities and prevent undue burden.

Whatever, its my money. At least she won't have to worry about my mortgage(s) or anything like that. I don't see anything wrong with giving her a little extra money when I go. I didn't say she will never have to work another day in her life, she's not the beneficiary of a multi-million dollar policy...

[phreezee]

Originally posted by HRD2PLZ


Whatever, its my money. At least she won't have to worry about my mortgage(s) or anything like that. I don't see anything wrong with giving her a little extra money when I go. I didn't say she will never have to work another day in her life, she's not the beneficiary of a multi-million dollar policy...

Sorry, that wasn't really directed at you, just a general observation. I was just trying to say that some people go overboard.:)

[Khyron]

Originally posted by phreezee
[B]6% isn't all that aggressive at all. Any good Financial planner can get you 6%.

Well if they'd planned it around 15% I would have laughed. He used 6% because at 7+ there's rate/performance bonuses that skew the numbers too much. So yes, if it does better there's way more potential. But as with any market it can do worse as well.

The planner is my brother in law so there is a degree of trust that he's not totally out to hose me, but that doesn't prevent sincere bad decisions.


The key is diversity in your asset allocation. $200/month sounds like a lot, as does a $500k policy unless you live in a 500K house with no equity in it.

Agreed - I have RSPs, Real estate, some normal mutual/stocks and the last pillar is insurance investments.


For that 6% that you would get, the Insurance company is getting 9, 10, 11, or even 12% return on YOUR MONEY. I say do some research and put MORE money in your own pocket.

Oh for sure as a pure 1 to 1 investement comparison, it's not as good, but the whole point of this is I want a policy for my wife and future kids. Buying term life insurance for say 20/year is something like 100/month and that money is pure premium. The other catch with terms is that when it expires, premiums double.


My wife had cancer at age 18, and her premiums are only $100 more every year. Insurance companies use fear to sell their product and get rich.

Can I ask which company? I really thought that if you have had a terminal disease like HIV or cancer insurance is pretty much impossible. I mean it makes sense - would you give car insurance to someone who is definately going to crash?

I'm not really trying to defend it as I haven't signed anything, but it does sound pretty reasonable. That said I think you've at least convinced me to call a few other life companies though and get some quotes.

I'm also in the same boat about the money - really, you have to figure that after a few years, wives move on etc - it's not like they need to be set for life. However, my father in law died at an early age (54) and if he hadn't had insurance I don't know what my older mother in law would have done. The idea is not to go out and spend 500K, it's to keep it and live off the 40K/year interest.

The other huge thing people forget is that 500K or 1 mil is a lot today, but 30 years from now? Not so much.

Khyron

[GoChris]

interested to know what you find out, I have been thinking for a few months now that I should get some life insurance. Mainly just to handle bills, loans payments etc if I kick it early for my new wife, kids are on the horizon too so time to start doing something.

[phreezee]

Originally posted by Khyron

Can I ask which company? I really thought that if you have had a terminal disease like HIV or cancer insurance is pretty much impossible. I mean it makes sense - would you give car insurance to someone who is definately going to crash?


This was through AIG insurance. They also have a Critical Illness policy where you have the option of getting the FULL amount of your premiums back at year 10 or year 20. But that was awhile ago, so they may not have it anymore.


Originally posted by Khyron

The other huge thing people forget is that 500K or 1 mil is a lot today, but 30 years from now? Not so much.


This is true, but a $350k mortage is still going to be <$350k in the future. Inflation in terms of buying power will be offset by wages in the future hopefully. But that also proves my point that LIP's should mainly pay for current liabilities (and reasonable prospective liabilities), because anything above and beyond that are not adjusted for inflation.

[max_boost]

Pretty interesting concept Khryon. My close friend runs the Statefarm by Mt.Royal, I'm going to bring this up for convo and see what he says.

Imagine the type of money that can grow out of that $500k. :eek:

Just a quick question, don't you have to own the policy in order to borrow from it?

From what I know the only life insurance policy you can own is the whole life. Mine is projected to be paid off in 16 years or I can make a lump sum payment right now of about $50K and I actually own the policy, never having to make another payment on it. My gf and I both are carrying a $500k whole life policy through Statefarm.

You might say it's overkill but in 15-20 years if we decide to cancel, we get our full invested money back. Yah that $$$ could of gained interest elsewhere but it provided the peace of mind to get through that certain stage of our life.

[/////AMG]

Originally posted by phreezee


This was through AIG insurance. They also have a Critical Illness policy where you have the option of getting the FULL amount of your premiums back at year 10 or year 20. But that was awhile ago, so they may not have it anymore.

AIG is supposed to be good. I think my dad just started working for them now. One plus is if you tak eout a policy formt hem, after 15 years you get all your money back, no catch, and you can continue with the policy.