Jun 2, 2007

On Life Insurance and Facing the Realities of Middle Age

There was once a point in my life in which the possibility that I would one day die seemd more than remote; while I did not quite suffer from the illusion that I was immortal, nonetheless it was difficult for me to imagine being dead.

Those were also the days when a no exam life insurance policy could be issued without anyone blinking. I first signed up for life insurance at the incredibly young age of 23, and hundreds of thousands of dollars in life insurance was an excellent gamble for a company.

As a young man, though, my death would be an incredible burden for my wife and children, so it made sense to take out a policy to protect my family against an unfortunate demise.

Alas, I am now in my forties, and insurance companies view me as a much more significant risk for anything more than a low-cost policy that would just about cover the cost of burying me. I still carry quite a bit of life insurance, but with my kids growing and moving out (plus the not inconsiderable amount of money we have invested in 401-Ks, 403-Bs, mutual funds, and other vehicles), OI begin to question whether I really need the stuff.

Sure, my survivors could have one hell of a party with the hundreds of thousands of dollars that would be paid out, but I could also be investing those pricey premiums and earn a much better return on my dollar over the next twenty years (assuming I make it until at least 65).

Thoughts, anyone?

1 comment:

Hooda Thunkit said...

Some things that I've learned about insurance and insurance companies:

Insurance companies and the Catholic Church are the two largest "businesses" worldwide, I don't remember which is which.

Insurance companies take in enough in premiums each year to pay ALL claims, operation expenses and ALL overhead, including advertising and still have money left over to invest, meaning that all of the money that they already have invested is THEIRS.

Insurance requiring no medical exams and purchased later in life is the most profitable "product" insurance companies have to offer, as the price per "unit" of declining benefit is ridiculously overpriced.

You are essentially self-insured when you have enough assets to pay off all of your debts, except for family and spousal considerations.

If you can pay off all of your debts and obligations and your spouse/family can get along without your income,you should NOT be paying for insurance, as insurance is a lousy investment, typically yielding ~ 2.5% on your investment, which is less than the rate of inflation.

The best insurance/protection is the term life product, which is the least expensive of all; that's why no insurance agent ever willingly sells it.

Decreasing term is the most practical, as it assumes that you have less debt each year; it costs less too.

That is some of what I have learned about insurance..., by making all of the wrong decisions all of the way down the line.

I currently have a disability insurance policy that I will renew in August which provides me with $350/mo, after a 30-day exclusion period. With this last payment, it will have done its job, although I've NEVER collected a dime on this, which is typical.

Oh, the average whole life insurance policy is in effect for ~7 years and most never pay a dime in benefits either.

Most "modern" insurance products are just variations on the basic term and the whole life products, i.e. gimmicks, with lots of extras/options designed to make you part with more of your money, for little/no additional benefit (for you).

If your heirs can handle your bills and debts after you're gone, then you need to invest, rather than buy insurance.

And with that, my insurance file is depleted.