I looked into this a couple years ago. My perspective:
My wife and I both have a group life insurance policy through my employer that is a multiple of our respective salary. In either case, it would pretty much cover any debts (e.g., house, car) we might have and then another 2-3 years of income (Our salaries are within $1k of each other). This is basically like a term life insurance. It’s a waste of money (like car, property, or umbrella insurance), until you need it.
My wife’s parents also bought a whole life insurance policy and a term life policy for her when she was a kid. My FA also was suggesting a whole life policy for myself as well.
I looked at a lot of numbers behind a whole life insurance policy and my takeaways are is that whole life generally does not make sense for the vast majority of people. It is basically a forced savings (with some life insurance benefit) that front loads a ton of fees which pretty much makes it difficult to even keep the cash balance equal to your contributions for the first 10-15 years let alone keep up with inflation.
Whole life could be a valuable tool to potentially avoid estate tax, if your net worth exceeds the limits (I believe it is around $13m). It can also benefit larger real estate investors where they might need a ton of liquid cash that they need to access that they don’t necessarily want exposed to volatility since some policies you can withdraw and redeposit money (I think this is what some insurance people sell as infinite banking, or acting as your own bank). In these cases, the front loaded fees are basically an “entry” fee to get those benefits.
I have a couple of whole life policies on my kiddos but expect they’ll draw against the cash value at some point (maybe for a partial down payment on a home some day) while also retaining the death benefit for later in life if they choose to maintain it for their families.
Good thing about employee policies is they’ll write life policies on smokers way cheaper than if they pursued their own policy. At least that’s what we saw with New York Life.
Could be a double win since smoking = dead faster.
But maybe the likelihood of a death by smoking payout while someone’s actually employed is low. so who knows if this is a smart move or not.
How do they even verify smoking history? These policies ask if you’ve used tobacco in the last five years but I imagine they’ll never know if you quit smoking say 3 years prior.
If they are any good, you will have to sign a consent to release all medical records, and my experience was that they ran with it. As long as you never told anyone that you smoke, including an out-of-state urgent care where the records are still on paper, they won’t.
My last insurance physical – specifically the disability portion – was more invasive and produced more paper than my security clearance or any of my federal background investigations. Disability is the more likely scenario than death, so while you need life insurance, you need STD/LTD more.
I used to have a business with a partner, and we had STD/LTD/GTL through the business. When we split up and I obtained my own policies, which overlapped the coverage from the old group policies, my LTD was 3x what we used to pay as a business for STD/LTD/GTL for both of us – it’s one of the few reasons I periodically reexamine changing the ownership structure. Premium-wise, it did not make sense for me to add STD, and GTL always overlapped my own personal term-life.
As others suggested, I’d start with a broker. Life insurance should not be a problem, and a broker can reuse the same physical across carriers. For disability insurance, as the coverage/terms I previously had, brokers were a dead-end, and my last stops were MetLife and NW Mutual. The premium I ended up with was insanity, but I kept it and made a commitment to “self-insure” for disability and built a war chest, eventually I dropped my personal coverage. But if I could get into a group plan with no exclusions again, at my old coverage, even at the insanely high premium, I’d pay it.
Saliva is 4 days, I haven’t seen any labs that reliably show much of a history, but I’m not in-the-loop on the testing anymore.
Yeah I agree STD and LTD make more sense for most. Imma going to check on this hah.
During COVID the tests were more honor based with a simple physical and blood draw. But lately from what I’ve heard it seems the tests are much more involved.
It’s not cut and dry. despite the emotionally charged view, it does not make sense statistically for a lot of people. Again there are calculators offered not by insurance agents that help you decide if you need it and how much. If you don’t live paycheck to paycheck, are not the sole person working in your family, and not overlevered i would definitely not just start paying out a premium for the rest of your life. Of course although I don’t get paid to sell policies like you do, I did spend a bit of time in my career earlier on investing in various insurance vehicles and companies for hedge funds and don’t imagine things have changed drastically since then.
I’m not advocating for permanent life insurance, and yes if most people with dependents did a calculator accurately they’d see a need.
Every month or two I see a gofundme page for someone who should have paid a small amount of money but didn’t and now his or her family is relying on charity.
Yes it’s rare to need to pay a premium your whole life but the gaps that can be solved by cheap term are staggering and sadly unfulfilled because of a remote (but catastrophic) risk people assume.
I think the worst part about the prevalence of gofundme after a tragedy is the funds being requested typically only cover funeral costs and modest support for remaining family members for a few months.
The point of term life insurance is not to come out ahead as a winner in a lotto, it’s just to prevent your loved ones from becoming losers after a tragedy.
And I agree that the families that would benefit most from life insurance often times are the families that cannot afford it since money is tight and investing becomes difficult. But that shouldn’t dissuade those with resources to just ignore the possibility of untimely death or LTD.
They will go through social media too. I read an article of a lady that died and had a pic of herself drinking and smoking and was denied her life insurance. Apparently she would only smoke occasionally when having a drink so didn’t consider herself a tobacco user.
It doesn’t have to make sense mathematically to be a good idea. It’s hedging tail risk. Yes it may be negative expected value but we only get one life and if something happens to you or your spouse, you prob would feel differently. That’s how appropriate insurance works, you are eliminating potential downsides for some expected negative return. It’s wasting money until it’s not.
A lot of these calculations use laughably bad assumptions that the surviving spouse wouldn’t be substantially affected , potentially disabled either physically or emotionally by a situation where their spouse dies. That would be a pretty horrible situation and I’d hate for money to be a main consideration at that moment.
Sure whole life is generally dumb but basically every parent should have some basic term life insurance unless very wealthy or other very atypical situations. Working normal parents should generally have term life
You used a term for hedging tail risk. Have you worked on a trading desk of a hedge fund or in risk? Because people don’t buy hedges out of fear; they buy them based on a strategy to maintain a specific exposure and models that tell you what you need and when.
Insurance as a business is one that runs on probabilities. Actuaries have come up with death rates for all. You should be doing your own math to see if it makes sense. And if you don’t want that’s fine; but my point still stands and I have zero bias in this because I don’t sell insurance policies like some.
Tail risk isn’t solely related to the hedge fund world. It’s simply rare events happening. So yes while dying is generally pretty rare, especially for younger people , it is a catastrophic event for people especially when others depend on their income.
Wouldn’t compare hedging a fund to your family. You can say people don’t hedge out of fear but the model is basically pricing in fear/risk.
Maybe it would be more helpful to point out an example where you think someone doesn’t need life insurance where it would traditionally be thought to be beneficial? I assume it’ll be someone who is young and wealthy with kids maybe. In that case sure they can self insure.
Life insurance by law in the US has a two year contestability provision after you acquire it. . This means if you die within this period, the company may investigate the cause of death and review your application . If you die after two years of buying the policy, the company must pay the death benefit. The same is true for suicide.
This is not true in all countries but it is in the US. Not a good idea to lie to an insurance company but this was put in place to help protect consumers against post-claims underwriting.
Outside of the investment/finance world, others use the term tail risk?
Now I have specifically spoken to where it might make sense above (the post you replied to) but it was along the lines of this: It makes sense if you have very large bills/leverage, have many dependents, have limited savings that won’t cover those bills or live paycheck to paycheck, are the sole breadwinner and don’t see your spouse being able to cover costs, and have premiums that are not too high.
I had a very large policy at some point from an employer which I didn’t have to pay for and the next company I went to had a small 6 figure policy so I looked into what it would cost to get back the same level. Once I did, it was a very easy decision for me and made no sense for my situation. I’m not even sure if my current company has a policy; it might but doesn’t make a big impact if it does. If my situation changes or if I ever start selling insurance you will probably see me changing my tune.
