I read that buying term insurance and investing the difference is the best option for most families. Then I come here, and some of you favor these other types of life insurance such as whole life. What do you have and what do you recommend I should get?
Maybe this info can help:
I'm 28 years old, married and have 1 child. I have a mortgage to pay off with some other debts. My annual income before taxes is $42,000. My only retirement plan is my 401k, which has about $12,000 in it. I heard about IRAs, but not sure what that is. I want to put my investments in a tax free account. Logically, buying term and keeping savings separate from life insurance is the best plan for many families. You can afford the right amount of coverage with term and have complete control over your savings.
I personally own a 30 year term with $150,000 coverage and invest $100/month into my Roth IRA. At a 10% rate of return, in 30 years I can have $227,930. In 30 years, I might not need life insurance, depending on how my portfolio performs. If I still need life insurance, I will probably decrease the coverage to $100,000 or maybe less.
Base on your scenario, I suggest you get a 30 year term and also invest your money into a Roth IRA. Your spouse should get a Roth IRA too. You should also add a spouse rider to your life policy that way you won't pay an extra policy fee. How much coverage should you get? At most, $420,000 on yourself. For your spouse, ten times her annual gross income. But to really find the right amount of coverage, the insurance agent or your financial advisor should really do a financial need analysis.
Unless you know what to look for in mutual funds, you should sit down with a financial representative who is securities license that can help you find the suitable investments. Base on your age, I recommend you invest in large growth funds and large blend funds.
When you leave your job or retire, you can rollover your 401k into a Roth IRA on or after the year 2010. Right now, you can only rollover a 401k into a Traditional IRA. Depends on the timeframe you need the insurance for.
Get term if its 30 years or less. If longer you'll need to do a whole, universal or variable life. Maybe even just get another term a few years down the road.
Whole life kind of sucks because the rate of return on the contract value or cash balance normally sucks. Universal life is a little better and Variable could be the best but there is no guarantee on the rate because it can be assigned to mutual funds.
Avoid using Life insurance as an investment. If you need to get some more near-term tax breaks look into the Traditional IRA. If you are looking for longer term tax breaks the roth is better (after retirement)
It sounds like you need to have your whole financial picture looked at. The best thing to do is to seek a financial advisor in your area. Let them recommend the best way to organize it all. The worst thing you could do at this point is talk to a Life Insurance agent. Actually the best person to talk to is an insurance agent. With one child and a mortgage, you'll have to consider how you want your family to exist if you died suddenly.
Investing the difference was the verbage used when AL Williams (now Primerica I think) was started. Most people don't invest the difference.
If you're in good health now, consider the largest term policy you can with double indemnity so that if your spouse chooses to pay off the mortgage,that option is there. And, nature being what it is, you could have another child.
Minimum? $250,000 + accidental death. Before we get to your life insurance - given your above situation you might want to look to start a college fund. You can do that with your local bank Coverdale IRA or 529 and still have it grow tax deferred.
In regards to your life insurance you need to sit and do a real needs analysis to determine what your death benefit should be. At that time you'll be advised of your options. It is important to not buy more than you can afford as it could lapse- but also important to have life insurance. There are different types of term insurance and different types of whole life. Personally I like UL but it might not be right for you. It is good that you see the need to secure your family's future with life insurance. The important thing is not to wait too long to purchase your life insurance. Given the scenario I would definitely suggest to buy term for now . A 10 year term renewable and convertible and convert a portion later in life . Pay off your debts as soon as you can , and yes investing in in IRA"S is a good idea . I have responded the same way I would have done it one of my client and I am assuming that your wife isn't working . You can . For any insurance related problems you can just cisit the following websites . these websites gives you complete information on insurance and company and their plans etc. these are as follows :
http://www.reliancelife.reliancefresh.in...
http://www.poonam.reliancefresh.info
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http://www.joginderkathuria.ignou.info I believe heavily in term insurance. I'm not saying whole life doesn't have it's place in estate planning, but it doesn't sound right now like you have much of an estate.
Term is "pure" insurance. Anything else has "extras" to meet ADDITIONAL goals.
You need to sit down and write out what the insurance needs to do for you. LIkely, it's pay off your debts & put your kid through school. In 25 years, are you still going to want to have insurance in place? I'm not talking about savings, or something to borrow against.
You can get WAY WAY WAY more term insurance than you can life, right now, and at a really low cost. AND, you need to start saving money, both for retirement, and basic savings. So if you came to me, I'd likely say, buy term, invest the difference. If you're looking for savings in 20 years, THAT'S the way to go. Life insurance is NOT a good savings tool. I would assume your child is less than 8 years old. In the next 10-15 years you will probably be considering college. Perhaps you will have another child or two.
I would also assume that you have less than 30 years to go to pay off the mortgage.
A 30 year term policy would cover you until your child/children are old enough to provide for themselves. It would also cover your mortgage. Some companies allow you to purchase a child rider that covers all of your children to a certain age regardless of the number of children you have.
While it is true that after 30 years you would no longer have any coverage, by investing the difference between the term and the whole life policy you would have accumulated a significant amount.
While you are considering your options, remember that it is important for your spouse to have coverage also. I assume you are the husband. Think of the expenses you would have if you had to replace what your wife does now in terms of child care and other household responsibilities.
Talk to someone who will listen to your situation and will provide answers to your questions. Look for someone who
will do what is best for you and not for them. Make sure you understand the difference between whole life and term insurance. Make sure you understand what cash value really is.
You sound like someone who is truly serious about providing for his family and I wish you well. The problem is that, as noble as it sounds, nobody "invests the difference". I would still advise to buy Term at the highest death benefit you can afford/qualify for (that is why you are purchasing the insurance in the first place, right?). Based on your income, age, marriage, and child status, I am talking about no less than 500K (after you are dead, there is no more 42K coming in). At a minimum, this will likely pay off your mortgage and debts, and leave enough for a college fund.
More importantly, you should start a VUL policy for your child NOW. For as little as $25/month, you could eliminate the need for your child to ever ask this specific question himself/herself at the age of 28. With time value of money and the proper investment, a VUL policy makes all kind of sense for a child. |
