Hi everyone,
I am looking into getting some life insurance now that I have settled down. I am not sure what it out there but does anyone have any recommendations of what company I should be looking at? Is premium return life insurance something I should consider? The fact that I might outlive the policy and I can get my premiums back at that time seems very tempting to me.
Any help would be great, thank you very much in advance !
premium return life insurance
Re: premium return life insurance
You pay more for premium return life insurance than for regular term insurance and would generally have done better investing those extra payments on your own. The following link gives an example of how to calculate the actual return you are getting and the exceptional cases where it might make sense:I am looking into getting some life insurance now that I have settled down. I am not sure what it out there but does anyone have any recommendations of what company I should be looking at? Is premium return life insurance something I should consider? The fact that I might outlive the policy and I can get my premiums back at that time seems very tempting to me.
https://www.investopedia.com/articles/p ... remium.asp
I think the general guidelines on life insurance are to get Term Insurance if someone is depending on your income, only get as much as you need (don't over insure to try to create a windfall for your heirs), don't select life insurance thinking it is an "investment" because products which combine insurance with investments have poor returns, and stop buying insurance as soon as you no longer need it (e.g. are retired or are financially independent). If you treat life insurance as a cost which should be minimized rather than an opportunity to augment your investment portfolio you will be choosing wisely.
Re: premium return life insurance
I agree and disagree on the above. Allow me to explain my own situation.
I have a life insurance policy which covers me till I am 99.
My term is 10 years (I pay for 10 years into the insurance)
My annual payment is approximately $3,000
My coverage amount is $250,000 (minimum)
Part of the fees I pay, I get to allocate them into mutual funds such as vanguard. If at the time of claim the value is higher than 250,000 then the higher value is paid to the beneficiary.
If I were to pass away before my term ends, the beneficiary still gets all my benefits without having to contribute any payments for the balance of the 10 years.
Now as you stated, If i were to allocate the 3,000 on my own into an index fund, chances are it would do far greater than through the insurance policy in the long term. However, till the point where the two investment profits intersect, which is quite far out in the future, it provides me with a peace of mind that should anything happen to me, my partner is taken care with a decent chunk of funds which will not compromise her daily life.
Let's assume I pay $30,000 today instead of paying it over the 10 years. It would take 42 years to cross the $250,000 mark @ a growth rate of 5% annually.
While I am paying 3,000 annually, 42 years later the actual value of the investment through the insurance may be far lower than the $250,000 but in perspective it provides much more during these 42 years. (who knows what may happen in 42 years).
Anyway, feel free to comment on the above. I just wanted to share a different perspective on the insurance policy and why I chose to buy one in the first place.
Cheers!
Re: premium return life insurance
I should add, I purchased my insurance policy before moving to Japan as the premiums here are crazy high for very low coverage.
Re: premium return life insurance
OkiBum,
. If you're happy, that's what's most important. Here is what I see in that policy:
1. Paying $3000 a year contrasts with maybe $200/year for a 20 year term policy of $250K if you are 40 and reasonably healthy. Understand that a 10 year term policy is much cheaper (because you don't die as frequently from 40-50) and in turn I understand you are just paying for 10 years and then get coverage until you're 99, but the first point I would make is that you're paying $2800 "extra" for the peace of mind during that first 10 years.
2. The part of the fees you get to allocate into Vanguard (which is not a bad feature) is likely not very large because you're paying a commission on the first few years (in most cases; I don't know the terms for your policy) and within this insurnace policy it is likely the charge for the $250K coverage is higher than even the "high" $200 term cost for 20 years. It might be interesting for you to post how much you actually get to allocate to those funds each year.
3. The policy has an investment (cash value) amount from those mutual funds and their growth, and the $250K face value of the insurance. If you die your heirs only get the larger of the two (probably that $250K face value?). If you had invested the difference on your own and die your heirs would get the $250K face value and the invested funds.
4. I think we can agree that if you were to die in the next 10 years a term policy would have been better because <$200/year is cheaper than $3000/year.
5. If you were to die in years 10-20, comparing to that 20 year term policy at $200/year, you are comparing a cost of $30,000 in this whole life policy to $4000 for the term policy. Over that time I am assuming both policies pay an equivalent $250K. In fact, it's unusual for a policy like yours that has been funded for 10 years to have cash value ever exceed its face value because the premiums required by the insurance are generally paid from within the investment created by your account for all subsequent years and those premiums go up each year.
6. Let's say you started when you were 40 and we agree my math in #4 and #5 above says that a term policy was better until age 60. You would want to compare the benefit of putting (($2800/year)x (10 years) in index mutuals funds) and then run the gain out beyond age 50 when you stopped adding to the account. If the average stock market return is 8% at the end of the first 10 years (age 50) that's around $40K, at 70 it's $186K, at 80 over $400K, etc. Your policy looks better if index returns are much lower (over the long term historically they are around 10% for the US) and worse if they are better so I encourage you to play around with an online calculator such as:
https://www.calculator.net/investment-calculator.html
There's a lot we agree on: it's important to look at the actual returns you are getting and any cross points, Japanese policies generally have worse terms than you can get at least from the US, and it's important to provide for our heirs either through insurance or other funds we leave behind. Thanks for the discussion.
Take what I write as a critique of the policy not of youI have a life insurance policy which covers me till I am 99.
My term is 10 years (I pay for 10 years into the insurance)
My annual payment is approximately $3,000
My coverage amount is $250,000 (minimum)
Part of the fees I pay, I get to allocate them into mutual funds such as vanguard. If at the time of claim the value is higher than 250,000 then the higher value is paid to the beneficiary.
If I were to pass away before my term ends, the beneficiary still gets all my benefits without having to contribute any payments for the balance of the 10 years.
. If you're happy, that's what's most important. Here is what I see in that policy:1. Paying $3000 a year contrasts with maybe $200/year for a 20 year term policy of $250K if you are 40 and reasonably healthy. Understand that a 10 year term policy is much cheaper (because you don't die as frequently from 40-50) and in turn I understand you are just paying for 10 years and then get coverage until you're 99, but the first point I would make is that you're paying $2800 "extra" for the peace of mind during that first 10 years.
2. The part of the fees you get to allocate into Vanguard (which is not a bad feature) is likely not very large because you're paying a commission on the first few years (in most cases; I don't know the terms for your policy) and within this insurnace policy it is likely the charge for the $250K coverage is higher than even the "high" $200 term cost for 20 years. It might be interesting for you to post how much you actually get to allocate to those funds each year.
3. The policy has an investment (cash value) amount from those mutual funds and their growth, and the $250K face value of the insurance. If you die your heirs only get the larger of the two (probably that $250K face value?). If you had invested the difference on your own and die your heirs would get the $250K face value and the invested funds.
4. I think we can agree that if you were to die in the next 10 years a term policy would have been better because <$200/year is cheaper than $3000/year.
5. If you were to die in years 10-20, comparing to that 20 year term policy at $200/year, you are comparing a cost of $30,000 in this whole life policy to $4000 for the term policy. Over that time I am assuming both policies pay an equivalent $250K. In fact, it's unusual for a policy like yours that has been funded for 10 years to have cash value ever exceed its face value because the premiums required by the insurance are generally paid from within the investment created by your account for all subsequent years and those premiums go up each year.
6. Let's say you started when you were 40 and we agree my math in #4 and #5 above says that a term policy was better until age 60. You would want to compare the benefit of putting (($2800/year)x (10 years) in index mutuals funds) and then run the gain out beyond age 50 when you stopped adding to the account. If the average stock market return is 8% at the end of the first 10 years (age 50) that's around $40K, at 70 it's $186K, at 80 over $400K, etc. Your policy looks better if index returns are much lower (over the long term historically they are around 10% for the US) and worse if they are better so I encourage you to play around with an online calculator such as:
https://www.calculator.net/investment-calculator.html
There's a lot we agree on: it's important to look at the actual returns you are getting and any cross points, Japanese policies generally have worse terms than you can get at least from the US, and it's important to provide for our heirs either through insurance or other funds we leave behind. Thanks for the discussion.
-
captainspoke
- Sensei
- Posts: 1571
- Joined: Tue Aug 15, 2017 9:44 am
Re: premium return life insurance
Just another data point:
I only carried life insurance till I was about 63. (now 67) IIRC, there would have been a price bump (up) at 65 or 66.
There was no reason to keep paying for it--I had a couple working years left at the time (wife a few more), no debt, adequate savings, second/last kid wrapping up college.
It was an unnecessary expense.
-
RetireJapan
- Site Admin
- Posts: 4728
- Joined: Wed Aug 02, 2017 6:57 am
- Location: Sendai
- Contact:
Re: premium return life insurance
I cancelled my life insurance a couple of years ago. Same reasoning: kids were independent, we had enough savings/investments to be fine, and it was an unnecessary cost.
English teacher and writer. RetireJapan founder. Avid reader.
eMaxis Slim Shady
eMaxis Slim Shady
Re: premium return life insurance
I always welcome criticism, it helps me learn and I must say this gave me a different perspective to look at the insurance policy. The numbers which you mentioned make a lot of sense.
So I opened up my policy and looked into it once again and ran some numbers to see whether it would make sense to cancel my policy and take a new policy like you suggested of approx $200 for 20 years.
After running through the numbers, here is where it stands and once again please criticize it or correct any details which might not be correct.
I have already paid 2 years worth of premium during which the surrender value is 0. From year 3 - 10 these are the following surrender values.
Y 3 - 3,058
Y 4 - 5,900
Y 5 - 8,884
Y 6 - 12,021
Y 7 - 15,337
Y 8 - 18,740
Y 9 - 22,312
Y 10 - 26,059
If I average it out, approximately 3,257 is being invested every year into any of the funds I choose. (8 years)
If i run these numbers at a 7% growth, at the end of 10 years the funds should be at 33,416 (Year 2027)
Year 2038 or 19 years from now it would be around 75,259.
Now looking at your scenario, I have lost these 2 years, if I surrender now I get 0. Therefore, If i take a new policy for 200, and invest the remaining 2,800 it would be worth 38,686 in 2029 (BUT this would be 2 years later than the 33,416 in year 2027)
Year 2038, it would be at 76,101. This is still higher than the 75,259 but only just.
So while what you said earlier makes absolute sense while choosing between the 2 plans. However, in my case I feel since the 2 years have been lost and the coming years a pretty decent chunk of the premium is going to the funds it makes sense to just continue it rather than cancel and take a new plan.
Does that sound about right? Or am i missing something here.
Thanks in advance.
Re: premium return life insurance
How does your policy fund the 250K face value from Y11 until you turn 99?
Re: premium return life insurance
OkiBum wrote:
1, What you gotta love about the policy is the thought that you can die at 98 and your heirs get $250 K even though you stop paying in after just 8 more years. However, that is what also keeps this surrender value from you. If you surrendered at the start of Y 11 you get $26,059 so you can tell yourself you paid just 30,000 - 26,059 = 3,941 for 10 years of insurance, but because that money was paid in $3000 increments each year it's like you've given a large loan and the actual cost counting opportunity cost is much more than and much more than my hypothetical $200/year term policy (I mean don't just compare 2000 to 3941, the opportunity cost is much greater).
2. You are focusing on the surrender value of the policy and how it grows over time. Let's say if keeps growing because you chose great funds and by Y 20 you have the $250 K face value and a $100 K surrender value. If you die, your heirs get $250 K and the insurance company gets $100 K. Your benefit tops out at $250 K (depending on how the policy is written, your benefit may top out at the greater of surrender value or face value, but it's very hard to get that surrender value that high).
3. You could borrow from your policy, tax-free, based on the surrender value. Let's say you borrow $50 K when the surrender value reaches $100 K. The insurance company will charge you interest on that and if you then die the policy would pay $250 K - $50 K = $200 K. My point is that any way that you access that cash value jeopardizes the insurance function of the policy. (This does depend on how the policy was written, but this would be the arrangement I have seen most often.)
4. Some of these limited payment policies will actually have the face value increase over time. Are you sure yours is capped at that $250K?
5. Any decision you make now is based on different circumstances than when you first bought this policy. You just finished the very worst two years ($6000 in payments, no surrender value, and you now know you didn't die ). In your position, if I felt I needed $250 K of life insurance I would find out what a new policy (especially one you can get now that you're here in Japan) would cost before I left my current policy, even this one which I am not a big fan of. The key is the cost for coverage of the catastrophic event (your untimely death) that would jeopardize your family's finances. The second concern is how you maximize retirement savings.
6. I didn't write this before but what's been bugging me since we started this conversation is that I think the discussion on different investment returns kind of falls into the trap the life insurance company has set to make us think of this as an investment. A $250 K policy would leave most people under-insured. When I started working, I looked for a $1 million term policy and was surprized at how cheap they are (I was much younger then); about what one would pay for a nice restaurant meal once a month. It would have been very hard to come up with the $12 K that would be required to duplicate that with this kind of whole life policy. I don't have life insurance now in part because I had the extra cash available to invest during those early years so I could become more-or-less financially independent.
Anyway just some thoughts and I welcome any counterpoints.
From this and your earlier post my understanding is you have a limited pay life insurance policy. After paying for the total of 10 years (8 years more at this point) you do not need to make any more payments. As long as you die before age 99, it will pay the face value of $250 K. I don't have your policy details so I am making some assumptions that this functions the way whole life insurance typically is structured:I have already paid 2 years worth of premium during which the surrender value is 0. From year 3 - 10 these are the following surrender values.
Y 3 - 3,058
Y 4 - 5,900
Y 5 - 8,884
Y 6 - 12,021
Y 7 - 15,337
Y 8 - 18,740
Y 9 - 22,312
Y 10 - 26,059
If I average it out, approximately 3,257 is being invested every year into any of the funds I choose. (8 years)
If i run these numbers at a 7% growth, at the end of 10 years the funds should be at 33,416 (Year 2027)
Year 2038 or 19 years from now it would be around 75,259.
1, What you gotta love about the policy is the thought that you can die at 98 and your heirs get $250 K even though you stop paying in after just 8 more years. However, that is what also keeps this surrender value from you. If you surrendered at the start of Y 11 you get $26,059 so you can tell yourself you paid just 30,000 - 26,059 = 3,941 for 10 years of insurance, but because that money was paid in $3000 increments each year it's like you've given a large loan and the actual cost counting opportunity cost is much more than and much more than my hypothetical $200/year term policy (I mean don't just compare 2000 to 3941, the opportunity cost is much greater).
2. You are focusing on the surrender value of the policy and how it grows over time. Let's say if keeps growing because you chose great funds and by Y 20 you have the $250 K face value and a $100 K surrender value. If you die, your heirs get $250 K and the insurance company gets $100 K. Your benefit tops out at $250 K (depending on how the policy is written, your benefit may top out at the greater of surrender value or face value, but it's very hard to get that surrender value that high).
3. You could borrow from your policy, tax-free, based on the surrender value. Let's say you borrow $50 K when the surrender value reaches $100 K. The insurance company will charge you interest on that and if you then die the policy would pay $250 K - $50 K = $200 K. My point is that any way that you access that cash value jeopardizes the insurance function of the policy. (This does depend on how the policy was written, but this would be the arrangement I have seen most often.)
4. Some of these limited payment policies will actually have the face value increase over time. Are you sure yours is capped at that $250K?
5. Any decision you make now is based on different circumstances than when you first bought this policy. You just finished the very worst two years ($6000 in payments, no surrender value, and you now know you didn't die
). In your position, if I felt I needed $250 K of life insurance I would find out what a new policy (especially one you can get now that you're here in Japan) would cost before I left my current policy, even this one which I am not a big fan of. The key is the cost for coverage of the catastrophic event (your untimely death) that would jeopardize your family's finances. The second concern is how you maximize retirement savings.6. I didn't write this before but what's been bugging me since we started this conversation is that I think the discussion on different investment returns kind of falls into the trap the life insurance company has set to make us think of this as an investment. A $250 K policy would leave most people under-insured. When I started working, I looked for a $1 million term policy and was surprized at how cheap they are (I was much younger then); about what one would pay for a nice restaurant meal once a month. It would have been very hard to come up with the $12 K that would be required to duplicate that with this kind of whole life policy. I don't have life insurance now in part because I had the extra cash available to invest during those early years so I could become more-or-less financially independent.
Anyway just some thoughts and I welcome any counterpoints.