Do I need life insurance?

I'm 39, in good health, and broke. I got to wondering if I actually need the life insurance policy that my grandfather opened for me when I was 12. If I close it and take the cash value, it would pay a ton of bills (each of which is being charged interest). After having a friend recently commit suicide (and was even more broke than me), they had him cremated and then sold his old truck to cover the bills. The $1200 burden it placed on the next-of-kin was crappy, but minimal. I have no children, and as far as I'm concerned, once my body is dead, I won't care what happens to it. Let it become a ward of the state.

When I die, my Will requests I be cremated. Why do I have $8000 of life insurance? Do I really need it? My thought is - I could be saddled with paying off debts for years and end up paying tons of interest, or I could wipe stuff out and worry about life insurance later if I deem it necessary (of course at much higher rates than I pay now since my policy was originated in 1985.)

Your thoughts?

Cash that policy, pay dem bills. Being relatively young and healthy the insurance companies will roll out the red carpet for you if you want to get a policy later. Letting debt build up on the other hand, just gets worse over time.

With no kids, and assuming your wife has an income of her own, you "need" as much life insurance as it will take to cover all your debts at the time of death, and all the funeral/burial/creamation costs.

So, if you were able to cash it in and pay off all of your debts AND your wife has a steady income AND she'd be able to foot the bill for taking care of your corpse, then no, you don't need it. Sounds like you're pretty close to that.

Sounds like you are describing a 'whole life' policy which is basically a savings account with just enough interest to pay the premiums on a term life policy.

Dump the whole life policy as quick as you can, pay off the bills then buy a term life policy that's as big as you think you need. At your age, term is dirt cheap.

I'm no expert. I lost my 38 year old cousin 2 1/2 weeks ago, right before Christmas. He had a heart attack and did not expect it. The cost to the funeral service I heard was $9,000. Then of course the buried plot and tombstone, etc. With your plan, maybe it would be better to pay off the bills and then look later. If your married, and something would happen soon, that would be a burden off her.

IIRC there are tax implications with a whole life policy if you liquidate it and if you've had it for that long it might be a better idea to keep it. Can't remember all the details, Clark Howard had this exact discussion with someone on his show in early December.

IIRC there is a way to "borrow" from your whole life insurance rather than liquidate it. That might be a better option.

I lost my spouse in march of last year from sudden renal failure. The life insurance coverage we had on her was.......insufficient. The costs of the medical care from the attempt to save her life were in the $18,000 area. I received $5000 from insurance.

That math is pretty easy to do.

There are other costs after a loved ones death besides medical and funeral. Time off to recover from the trauma and grief. The need to change things in your life like replacing that furniture you shared and can no longer look at. Those kind of things.

If you were hit by a bus and alive long enough to be ambulanced to the hospital there would be an easy 5-10K in bills from that. Intubation alone costs $1600 (I have the bill around if you don't believe it)

After my experience I suggest the minimal amount of life insurance for a childfree couple should be twenty thousand dollars.

My thoughts and experiences, feel free to disagree.

Depending on the terms of the policy, you may be able to get a policy loan or even take the cash value without closing out the policy. If the loan/cash value is not paid back, that amount would merely be deducted from the proceeds of the policy. Check the fine print and talk to an insurance professional familiar with the terms of your policy. YMMV

Commercials aside, life insurance is not about paying for your funeral. Life insurance is about taking care of those who are depending on you after you're gone.

If no one depending on you, then no, you don't need life insurance.

I'm certain that there is someone on this board in the funeral biz and if I hurt your feelings I do not care. After seeing how the railroading induced my stepmother to quickly agree to $14,000 of funeral expenses, I had my will altered to specify cremation in the least expensive manner possible. Right down to saying I don't want that damn $800 cardboard box.

Duke wrote: Commercials aside, life insurance is not about paying for your funeral. Life insurance is about taking care of those who are depending on you after you're gone. If no one depending on you, then no, you don't need life insurance.

^^^ this

Health insurance is for the medical bills up to the point of expiring. On the funeral side - donate your body to a teaching university. No costs at all and will probably help a new doc get better at his job. Cash in the policy, pay off some debt.

oldtin wrote:

^^^ this

donate your body to a teaching university. No costs at all and will probably help a new doc get better at his job.

x2

My wife and I went and saw a www.bodyworlds.com exhibit over the weekend I have been contemplating doing it.

Be careful.

There may be a tax consequence to cashing out a whole life type policy of some kind.

I don't think its a whole-life policy. Its just described as individual life insurance.

Re: the loan thing... its a good idea, but its already a loan thing. I just basically discovered it a few years ago when grandpa died and its been paying itself from its own loan. Its sort of a margin thing from what I understand. The loan pays for the policy, but the benefits are about half the total value of the policy if I died today.

I spoke to the broker who initiated the policy and he said that if I sold the policy, I would get that $4500 (basically half of the total accrued value of the policy.) The way I see it, its $4500 that I didn't pay for, and if I don't need a life insurance policy right now I can get those bills paid.

On the flip side, if I wanted to start paying on the policy (and chip away at the loan) my premiums would be $300/yr. I'm not sure how long it would take at that rate to catch up to the total, but probably quite a while, at which point I'll be scratching my head wondering why I just paid $300/yr for a decade and only have a $9000 benefit. I think I'd rather put $300 a year in a brokerage account and make that money for myself. My logic goes like this: I can pay nothing and get $4500 right now - OR - I can pay $3000 over the next decade and get $9000. I get more money and pay less tax (if any) if I sell it now.

No kids, wife has a job. We also stand to get considerable physical assets from our parents when they die; mostly vehicles, real estate. I like the "donate body to science" idea too.

Curmudgeon is right, both times. If it has cash value, it's whole life. The purpose of life insurance is to replace all or part of your income for survivors who are dependent on you. If you have no one dependent on your income, cash it in. and, if you ever need life insurance, buy term and find a better way to "save' than whole life.

At your age, you can get a term life policy for around $20 a month for $100k or $240 a month. That has no savings value but so what?

Any time you pay ahead and are paying into some kind of 'fund' dedicated to you or one beneficiary is usually some variation of a 'whole' policy.

Some of those are drawn tax-deferred. You must find out if it is first, otherwise when you draw it out, you'll owe upwards %30 income tax on it for the fiscal year you withdrew it.

http://money.cnn.com/magazines/moneymag/money101/lesson20/index2.htm

And to answer your question, while you're under 40, i think its a good idea to get 'term' life insurance. its still relatively cheap, and pays out a benefit that is substantially more useful.

if you're over 40 with no kids, i might think of long-term disability insurance, or assisted living insurance instead, but under 40 with a spouse, i'd still cover myself for her.

I've got a wife, two kids, and $250,000 in life insurance. When the kids are done university, I will likely either kill it, or let it drop in value to whatever its cash value will pay for. It was bought back in the olden days, when companies actually paid interest on money you gave them, and if I drop it, I will lose quite a bit of equity, and couldn't replace the coverage at age 52 for a reasonable price.

$8k coverage is a drop in the bucket- basically useless. Who is going to benefit from it? Do you feel like giving them a gift after you step in front of that bus?

Cash it even if you have to pay tax on it, there's not much use keeping it open as others have pointed out, from what you're describing this thing is the sorriest financial instrument I've heard of since my TD college fund savings account (good thing I didn't really need it).

Read and learn: The Truth About Life Insurance Traded my craptastic whole life policy for a term. Doubled my coverage and pay maybe 35% of what I did before. What a lot of people don't understand is that money they are 'investing' for you is theirs to keep when you die if you don't pull it out while you're alive.

When you look at term insurance, look at the time spans. Yes, it's dirt cheap when you're in your 20's, not cheap in your 40's, and bloody expensive in your 60's. Think it out and aim with that in mind. You can easily get 20-30 year term policies, especially when you're young, and they are cheap then.

Something else to consider is your health and such and the impact that will have on life insurance costs. And that includes term insurance. Not simply today, but when you're older and in worse health.

Hang on...

I used to agree with everything in this thread. Recently realized another angle.

You DO NOT want to cancel the policy. Having had a policy since you were 12 gives you certain privileges. The biggest of these is that you ARE INSURABLE.

Depending on the details of the policy, it is likely that the fact that you have had a policy since you were a child means that you can keep it forever, even if you become old, feeble, or unisurable for any reason.

There is a better hybrid approach.

The best insurance plan would use whole life for one purpose- to get you in the ground. A second (lower cost) term policy can then be used to provide for your family. If you have no need for the provision component, then you have no need for the term policy.

Reduce the value of the whole life policy to get you in the ground (but don't cancel it), then consider term for provision if needed (or not).

But life will likely change (it always does), and there may come a time when you wish you had a small amount of insurance, and find you are uninsurable.

My $.02.

I'm 37 and got a term policy for I believe around $20 or so a month. If I go the mortgage is paid off and the wife gets a couple of bucks. Now I have to look for one for her. She just used a coupon at Harbor Freight to get batteries for her insulin pump.

Does your wife need it? My company provides mine and I spend 10c a month to double it. I will leave my wife with no debt and I will be cremated. My remains will be disposed of as cheaply as possible and my wife will have money to spare.